[Senate Hearing 108-934]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 108-934
 
                            MEDIA OWNERSHIP

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 13, 2003

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 13, 2003.....................................     1
Statement of Senator Allen.......................................     7
Statement of Senator Burns.......................................     4
    Prepared statement...........................................     4
Statement of Senator Cantwell....................................    14
    Prepared statement...........................................    14
Statement of Senator Dorgan......................................     2
Statement of Senator Lautenberg..................................     8
    Prepared statement...........................................     8
    Article, dated March 25, 2003, by Paul Krugaman, entitled, 
      ``Channels of Influence''..................................     9
Statement of Senator Lott........................................    15
    Prepared statement...........................................    15
Statement of Senator McCain......................................     1
Statement of Senator Nelson......................................    16
Statement of Senator Snowe.......................................    11
Statement of Senator Stevens.....................................     2
Statement of Senator Sununu......................................    13
Statement of Senator Wyden.......................................     5

                               Witnesses

Blethen, Frank A., Publisher, Seattle Times......................    25
    Prepared statement...........................................    27
Goodmon, James F., President and Chief Executive Officer, Capitol 
  Broadcasting Company, Inc......................................    20
    Prepared statement...........................................    23
Karmazin, Mel, President and Chief Operating Officer, Viacom, 
  Inc............................................................    16
    Prepared statement...........................................    18
Singleton, William Dean, Vice Chairman and Chief Executive 
  Officer, Medianews Group, Inc.; Immediate Past Chairman of the 
  Board of Directors, Newspaper Association of America...........    28
    Prepared statement...........................................    30

                                Appendix

Bryan III, J. Stewart, Chairman and Chief Executive Officer, 
  Media General, Inc., prepared statement........................    64
Hollings, Hon. Ernest F., U.S. Senator from South Carolina, 
  prepared statement.............................................    63
Riskin, Victoria, President, Writers Guild of America, west, 
  prepared statement.............................................    70


                            MEDIA OWNERSHIP

                              ----------                              


                         TUESDAY, MAY 13, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:33 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. I have been on this committee for 17 years. 
This is the first time that the sound system has been disabled 
before we have a hearing on the media. I am sure there is some 
plot there.
    Today, the Committee continues its series of hearings 
examining media ownership. This hearing will focus on the rules 
currently being reviewed by the Federal Communications 
Commission, particularly those affecting television 
broadcasters and newspaper publishers.
    In the early 1940s and 1950s, the FCC adopted rules placing 
limits on the number of broadcast stations one company could 
own or control in each market, as well as the number of 
stations one company could own throughout the country. In 1975, 
the Commission adopted a rule prohibiting one company from 
owning a broadcast station and a newspaper in the same market. 
Several of these rules were relaxed by the 1996 
Telecommunications Act, where Congress set in motion a process 
intended to deregulate the structure of the broadcast 
television industry. To further this deregulatory trend, 
Congress mandated the Commission review its media ownership 
rules every 2 years to determine whether they remain necessary 
in the public interest. Several recent court cases have 
chastised the FCC for failing to justify retention of its 
ownership restrictions. I have spoken frequently in the past 
about the merits of deregulation in media markets.
    Today's media landscape is wholly different from the 1940s 
or, for that matter, the 1970s. The average American consumer 
can get news and entertainment from one of the 200 cable 
television networks or innumerable Internet sites in addition 
to a broadcast television station or daily newspaper. So it is 
important for the FCC to review its rules to ensure that they 
reflect competitive and technological changes, and repeal or 
modify them as appropriate.
    I recognize, however, that media can have a tremendous 
impact in the day-to-day lives of Americans. As a result, we 
must approach these issues thoughtfully. Earlier this year, 
this committee held a hearing on media ownership in the radio 
industry, where serious concerns were raised about vertical 
integration. Likewise, the Committee heard testimony last week 
about the negative attacks of vertical integration in the cable 
industry.
    In light of these experiences, the FCC must not approach 
these important issues lightly. More than half the members of 
this committee have written FCC Chairman Michael Powell to 
weigh in on the proceeding. Many have expressed the belief that 
the Commission should allow more time for public comment. Yet 
some of these issues have been tied up at the FCC for years, 
and the Commission has received thousands of comments in this 
review.
    I have confidence that Chairman Powell will ensure that the 
permission fulfills the court's dictates and statutory mandate 
in a manner that is thoughtful and consistent with all 
applicable laws and the best interest of the American public.
    Given the amount of attention these issues have received, I 
believe it is important for the Committee to hear from leaders 
in the media industry most directly affected by potential 
changes to these rules. I look forward to hearing the panelists 
explain their views on why the rules should be retained, 
relaxed, or eliminated.
    I thank the witnesses for being here today. I would also 
like to tell members of the Committee that following the ruling 
of the FCC, we will have all five members of the FCC before the 
Committee so that we can review the process they went through 
in that decision.
    Senator Stevens?

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Mr. Chairman, thank you. I will be very 
short, because I have to leave.
    I strongly believe that broadcast/newspaper cross-ownership 
bans should be eased. If the FCC arrives upon a compromise when 
reviewing the cross-ownership ban, I urge the Commission to 
make sure that any compromise will reach down to the smaller 
communities, such as Anchorage and Fairbanks in my State, 
communities that now need the economies of scale that the ban 
now prohibits. However, I really do not think the 35 percent 
cap should be lifted at this time.
    Thank you, Mr. Chairman.
    The Chairman. Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you for holding----
    The Chairman. We are losing the sound again.
    Senator Dorgan. Mr. Chairman, I think mine is on, so 
perhaps I can continue.
    Mr. Chairman, I think it is unbelievable we are here at 
this moment with the FCC poised to move once again to relax 
ownership limits, deal with cross-ownership. I have a chart I 
want to put up that shows some concentration. As you know, 
since we passed the 1996 Act, there has been galloping 
concentration in virtually every area of the media in this 
country. I spoke recently about some of the consequences of 
that, but it seems to me that it is really hard to make the 
case that what we need is more concentration, more opportunity 
for concentration, given what has happened in recent years. And 
yet here we are, with an FCC poised to march to the rear on 
this issue, and I just do not understand it.
    Let me also say that I think it will be too late to call 
the Federal Communication commissioners to this committee after 
they have made their judgment. I would much prefer we do so 
beforehand.
    And I do want to raise an issue that was raised in an 
article this weekend, ``Give and Take, FCC Aims to Redraw Media 
Map,'' by Stephen Labaton in the New York Times. And I do not 
know what the facts are, but I think the portion of this 
article begs for us to ask the question about the facts. And 
let me quote from it. ``In one disputed episode,'' I am 
quoting, ``on April 7, a group of broadcast executives met with 
Mr. Powell at a Las Vegas hotel near the NAB convention. The 
executives have tried successfully for more than a year to meet 
with him to discuss a petition they had filed against the 
networks. According to participants in that meeting, Mr. Powell 
listened to the group's opposition to changing national 
ownership cap and then posed what he called a hypothetical 
question, Would the group support an increase in the ownership 
cap to 45 percent if the FCC ruled favorably on some aspects of 
their petition?''
    Now, there follows from that disputes of who was in the 
meeting and what was said in the meeting. One of the witnesses 
today is quoted--Mr. James Goodmon, who is before us today, is 
quoted as saying or deriding what he calls a climate of, 
``Let's Make a Deal.'' The story says there is evidence of Mr. 
Powell's hypothetical and other comments from his aides to 
executives were read differently by at least one company that 
had an impact on the debate.
    My point is this. First of all, we should not be--in my 
judgment, the FCC should not be relaxing ownership rules at 
this point, or ownership caps. And, second, I do not know what 
the facts are with respect to this kind of an issue, but I 
really think it will be too late to call the Commissioners down 
after they have made a decision. I would hope that we might, 
based on this, call them down beforehand.
    But you, Mr. Chairman, have had a previous hearing and a 
hearing today for which I am very appreciative. I think you are 
focusing this committee on a significant issue. I mentioned, 
the last time we had this discussion, the issue of Minot, North 
Dakota, a town of about 50,000 people, has six commercial radio 
stations in the City of Minot. They are all owned by the same 
owner, all purchased by the same owner. Every commercial radio 
station in that town is owned by the same owner. Does anybody 
here think that that represents competition, progress, forward 
movement in the sake of open markets? I do not think so. Well, 
that is just one example, and there are many more.
    But, Mr. Chairman, I really hope that we can find a way to 
derail what is clearly an effort by the FCC to relax ownership 
limits. They talk about there is more variety and more voices. 
I made the point a while back that those voices all come from 
the same ventriloquist in most cases, and I really hope that we 
can convince the FCC to back away, and I hope that we can have 
the Commissioners down to talk about it.
    The Chairman. Thank you.
    Senator Burns?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Thank you, Mr. Chairman.
    And I just want to say that the last two hearings on media 
and what is going on in the media is most enlightening. I 
congratulate the Chairman, because we are doing more oversight 
now than I can remember this committee doing for a long, long 
time, Mr. Chairman, and I think that is a step in the right 
direction.
    This hearing will be particularly interesting, I think, in 
its impact on the media. I am deeply concerned about the 
impending relaxation of the 35 percent national cap on 
ownership. I have been a strong supporter of the broadcast 
industry, but I am also a supporter of the current restrictions 
that were developed in the 1996 Telecommunications Act. And I 
do not think, at this time, it serves the best of public 
interest to raise those caps. I think the Chairman had it 
right; the majority of this committee has written to the FCC 
saying to be very cautious as they approach this, and I am also 
a cosponsor of Senator Stevens' bill that would reinforce that 
feeling.
    We tend to look at the big media markets, but then, you 
know, we find that we have still got problems in rural areas 
with a host of local broadcasters that has really put a lot of 
pressure on the local industry. So we witnessed a remarkable 
evolution in the media landscape. We know that, and are also 
going to consider cross-ownership one of these days and the 
creation of some duopolies and this type of thing, and I think 
it gives all of us in Congress a little pause now to think and 
rethink of some of the things that are happening in the 
industry.
    So, Mr. Chairman, I would just put my statement in the 
record, and I look forward to hearing from the witnesses and 
also their answers to some of the questions that will be posed 
to them by this committee. But, again, thank you for having 
these oversight hearings. I think they have been very timely, 
and this is what this committee should be doing, is bringing to 
light some areas in our industry for public awareness.
    So thank you very much.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana

    I thank the Chairman for convening this important hearing. The 
changing landscape in the media industry requires that we re-examine 
the regulatory framework from time to time, and the subject of media 
ownership, particularly with respect to the broadcast television 
industry, deserves our full and complete attention.
    This hearing is particularly timely given the impact that potential 
action at the Commission could have on the future of local 
broadcasting. I am deeply concerned about reports of an impending 
relaxation of the 35 percent national cap on television broadcast 
ownership. As a strong supporter of current restrictions that were 
developed in the 1996 Telecommunications Act, I do not believe that a 
relaxation of the cap is in the public interest. Many of my colleagues 
on the Committee share my concern. For this reason, I am cosponsoring 
Sen. Stevens' bill which would maintain the national caps at the 
current, reasonable 35 percent standard. I believe that any further 
movement from this level of ownership would tip the balance and risk 
giving excessive leverage to the networks, turning local broadcast 
affiliates into mere passive distribution outlets for national 
programming.
    In recent years we have witnessed a remarkable evolution in the 
media landscape--technological advances have changed the way in which 
we access information and services. This transformation has also 
brought about an undeniable increase in video programming choices 
available to the consumer--direct satellite, cable services, on-demand 
video programs over the cable or Internet, are all options that have 
contributed to this tremendous growth.
    It is important to remember, however, that the vast majority of 
these services are produced and marketed at a national level. There is 
little room, if any, to cater to programming of local interest. Local 
broadcast television has filled this important niche, and we must 
ensure that any change in policy not jeopardize this valuable 
programming content for our citizens. The situation is even more 
critical in rural communities, where the absence of local broadcast 
television would mean only a choice between different national 
distribution networks.
    Those in favor of relaxing the national broadcast ownership caps 
yet again argue that nearly all consumers have access to local 
programming over cable or DBS. The situation in rural America could not 
be more different, however. While consumers in Manhattan have a wide 
variety of local programming alternatives, my state of Montana has a 
cable penetration rate of barely over 50 percent, which is among the 
lowest in the Nation. Furthermore, unfortunately the average income in 
Montana is among the lowest in the Nation and a lot of Montanans simply 
can't afford cable even if they have access to it. As for other 
alternatives, the majority of Americans in rural areas still don't have 
access to their local stations over direct broadcast satellite 
services. Large numbers of citizens across rural America rely on free, 
overthe-air broadcast television to receive important local, weather, 
and community information.
    Networks strive to increase their share of the national viewing 
audience. They must recognize, however, both the need for local 
programming as well as the sensitivities of viewing audiences in 
different parts of the country. Some degree of local ownership is the 
key that strikes the balance between such competing demands.
    Whatever changes are contemplated, we must ensure that affiliates 
continue to have flexibility in providing local programming without 
fear of retribution from the networks. Some have argued in favor of 
fewer regulations on ownership coupled to a greater oversight of 
network behavior. However, the task of developing benchmarks that 
measure network behavior is not easy and would prove even more 
difficult to regulate.
    Thank you, Mr. Chairman. I look forward to the testimony of today's 
witnesses.

    The Chairman. I thank you, Senator Burns.
    Senator Wyden?

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden.Thank you, Mr. Chairman. And I want to 
commend you for holding these hearings and also commend Senator 
Stevens for really leading this committee on these 
concentration questions with respect to the 35 percent 
ownership rule.
    I believe, Mr. Chairman and colleagues, that if what has 
been reported today is correct and it goes forward unchanged, I 
believe that this policy is going to serve as a glide path for 
the big media conglomerates to gobble up scores of small, 
independent stations, and our country is going to be the worse 
for it. And I think I want to talk just for a moment about some 
of the implications of this.
    The cover story of this week's Time magazine is about the 
new Matrix movie that is coming out. Now, some may just say 
this is a coincidence that the movie and the magazine are owned 
by the same company. And suffice it to say we are talking here 
just about a movie review and, I would be willing to 
acknowledge, not the most serious question. But supposing we 
are talking about breaking a story about accounting 
irregularities, which obviously is a big deal for our country 
and our economy, but somebody in the news side is reluctant to 
blow the whistle with respect to accounting irregularities 
because they know it may have some implications for the big 
media conglomerate they are a part of. So I am very troubled 
about the idea that a local newspaper and a local TV station 
are going to speak with one voice, sort of two branches of the 
same company and speaking together.
    And I want to associate myself with the last comment made 
by Senator Dorgan. I think it is critical that we have Michael 
Powell up here before this decision is made, because I want to 
hear somebody make the case, Mr. Chairman, that the Federal 
Communications Commission has been holding the reins too 
tightly. Concentration is already on the rise in TV and radio, 
cable, and newspapers. And, sure, some of the big interests in 
this country are going to chafe from time to time, but it seems 
to me that we ought to be having Government, from time to time, 
tighten these reins, and we ought to make sure that there is 
more to this than just the efficiency argument that is made by 
these media conglomerates, and I hope we will have Michael 
Powell up here before the decision is made.
    The Chairman. Could I say to my friend from Oregon, I 
understand his desires and his frustration, along with that of 
the Senator from North Dakota, and the importance of this 
issue, and that is why we continue to have these hearings.
    I would remind my friend from Oregon that the FCC is an 
independent agency. They are an independent agency and were set 
up to be so, and I always want to be very careful in our 
relations with the Federal Communications Commission as to how 
we treat them, under what circumstances, and the appearance of 
trying to interfere unwarrantedly and our oversight 
responsibilities is a very careful balance. And I hope that the 
Senator from Oregon understands that, because I think that 
there are quasi-judicial agents, and my friend points out----
    Senator Wyden. Would the Chairman just yield very briefly 
on that point?
    The Chairman. Yes, I appreciate the patience of the 
witnesses. I do not want to get too much----
    Senator Wyden. I will be very brief.
    The Chairman. Go ahead.
    Senator Wyden. I share the Chairman's concerns. But suffice 
it to say when the Chairman of the Commission is talking at 
length today in the newspaper about the policy issues, I think 
we ought to try to find a way, in a generalized kind of fashion 
so as to be sensitive to the point that you are making, and 
correctly so, that we do have a discussion about these issues. 
And I would just like to work with the Chairman so as to be 
sensitive to the point the Chairman is making, but at the same 
time continue the dialogue that the Chairman of the Commission 
is plenty willing to do on the front pages of our papers.
    The Chairman. I think your point is well made, Senator 
Wyden.
    We have Senator Allen, Senator Lautenberg, and Senator 
Snowe.
    Senator Allen?

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. I also want to 
thank all our witnesses for appearing today and offering 
testimony on the important media-ownership issues. The current 
analysis of media-ownership regulations, I think, is one of the 
more important proceedings in recent memory for the FCC.
    The key goals of all of this is public interest, but the 
specific proposals or guiding principles are localism, 
competition, and diversity. Those have been the core principles 
since the 1930s, and today, with cable and satellite and 
Internet, there are more consumer-driven options, there is more 
diversity, and there is more competition, in my view, than ever 
before.
    I would just incorporate, by reference, Chairman McCain's 
facts, insofar as the number of stations and opportunities 
currently available. This committee has, I would say to my 
friends, Senator Wyden and Senator Dorgan, certainly 
communicated with the FCC and Chairman Powell on their need to 
follow the law in their 2-year review, and they are going 
forward with that 2-year review.
    The witnesses here, some are going to focus on the 35 
percent limit, two others are going to be talking about the 
cross-ownership issue, and I think that is an important matter 
for consideration for deregulation. The markets that are 
smaller or mid-sized markets, their costs are increasing, but 
their resources are scarce, and they have less than the--for 
mid-sized markets or the larger markets.
    Now, these rules, as far as cross-ownership, were put in 
1970s, and I think they are largely unnecessary and they are 
outdated, given the increasing number of media outlets, as we 
talked about, in satellite, TV, newspapers, cable, the 
Internet, and so forth. In my opinion, newspaper cross-
ownership can actually benefit consumers in certain markets 
where broadcasters and newspaper owners face financially 
challenging conditions. In Virginia, there are some examples of 
where this has occurred, where some stations have received 
waivers or were grandfathered under the previous rules. And in 
those areas, the Roanoke, Lynchburg area, the Tri-Cities, which 
is Southwest Virginia and Upper East Tennessee and the Danville 
area, have expanded local news coverage and increased program 
offerings and better ratings due to this capability. Now, I 
think that these are successful examples, and I would like to 
see that available not only in all communities in Virginia, but 
I think it would help the principles of localism, diversity, 
and competition across the country.
    The final issue that none of our witnesses, unfortunately, 
Mr. Chairman, are going to be really testifying about has to do 
with duopoly rules. And I think it is alluded to somewhat by 
Senator Burns and Senator Stevens, and I think that the duopoly 
rules that we currently have are unfair, that the larger 
markets can have combined efficiencies of facilities and 
marketing and so forth, whereas the smaller markets that 
generally have the same costs, whether it is for the digital 
broadcasting and all these costs but have a smaller market, 
they are not allowed to combine in that effort. And I am one 
who thinks that these duopoly rules should not, should not, 
discriminate against smaller markets. And for those where they 
do have small markets, I think they ought to be abolished. And 
I think it will help keep some of the struggling television 
stations afloat in small markets and would actually improve the 
quality and diversity of programming currently available to 
viewers within those smaller markets.
    So I look forward to listening to our witnesses and hearing 
about their opinions on the duopoly idea, as well as cross-
ownership, and I think that this hearing is very appropriate, 
but it is more appropriate that we update and upgrade our laws 
to reflect the realities, the costs, and the opportunities 
there are to improve broadcasting for our consumers in all 
markets.
    Thank you, Mr. Chairman.
    The Chairman. Senator Lautenberg?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Yes, thanks, Mr. Chairman.
    I will be brief. First of all, I want to ask consent that 
my full statement be a part of the record----
    The Chairman. Without objection.
    Senator Lautenberg.--accompanied by an article written by 
Paul Krugman that was in the New York Times, March 25, 2003.
    [The information referred to follows:]

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey

    Mr. Chairman,
    Today's hearing brings to mind Ernie Kovacs' remark that TV is 
called a ``medium'' because it is neither rare nor well done.
    All joking aside, this hearing is on one of the most important 
subjects the Commerce Committee will consider: broadcast media 
ownership.
    Over the years, Congress established media ownership rules to 
ensure that the public would have access to a wide range of news, 
information, programming, and political perspectives. The courts have 
repeatedly recognized the public interest goals of diversity, 
competition, and localism.
    Repeal or significant modification of the rules will lead to 
mergers that reduce diversity, competition, and local control in the 
media.
    We have seen that happen with the Telecommunications Act of 1996, 
which relaxed the media ownership rules significantly. With regard to 
broadcast television the number of companies owning stations has 
dropped 40 percent since 1995. With regard to radio, in 1995, the top 
radio station group owned 39 stations. Today, Clear Channel owns over 
1200 stations.
    It's important to remember that the airwaves belong to the public, 
and are to be managed in the public interest.
    We will hear testimony today about the ``efficiencies of 
consolidation'' and the like. With all due respect, efficiencies of 
consolidation may benefit Viacom or News Corp and their shareholders, 
but they don't necessarily benefit the public interest.
    On September 13, 2002, the Federal Communications Commission (FCC) 
began a review of the current rules that limit television, radio, and 
newspaper cross-ownership. FCC Chairman Powell has announced that the 
Commission will conclude its review and vote on proposed changes on 
June 2, 2003.
    Last month, 15 Senators--including 12 members of this Committee--
appealed to Chairman Powell to give Congress and the public the 
opportunity to review the changes beforehand.
    Chairman Powell dismissed our appeal, noting that this review is 
late and that Congress rebuked the FCC for failing to finish its first 
biennial review on time.
    I think this is more of an argument for having Congress revise the 
biennial review mandated by Section 202(h) of the Telecommunications 
Act of 1996 than it is an argument for denying our request. As the 
Chairman himself noted, ``getting it right is more important than just 
getting it done.''
    I think Congress also needs to revisit Section 202(h) because of 
the D.C. Circuit Court's ruling that ``Section 202(h) carries with it a 
presumption in favor of repealing or modifying the ownership rules.''
    There has been revolutionary change in the industry as a result of 
the 1996 Act and I think it is very premature to determine whether that 
change is in the public interest.
    I would submit that the media consolidations and mergers we have 
already seen are not in the public interest in at least one crucial 
realm, and that's the public's access to fair and balanced news 
coverage that reflects a variety of viewpoints.
    One of our witnesses, Mr. Karmazin, will argue that ``Americans are 
bombarded with media choices via technology never dreamed of even a 
decade ago, much less 60 years ago.''
    That's true, but misleading. Who owns these media? Viacom, for 
instance, owns CBS and UPN; 35 television stations that reach 40 
percent of the national viewing audience; Universal Studios; cable 
channels such as VH1, MTV, Nickelodeon, Comedy Central, Showtime, and 
BET; and--through Infinity Broadcasting--185 radio stations. Viacom 
also has substantial ownership interests in several Internet 
properties, including CBS.com and CBSMarketwatch.com.
    The media empire News Corp. Chairman Rupert Murdoch has put 
together is already quite extensive. In the New York metropolitan area, 
for instance, it includes two VHF broadcast stations, a daily 
newspaper, a broadcast network, a movie studio, a satellite service, 
and four cable networks. And now he wants to gain access to the DirecTV 
platform.
    Consolidating media ownership means that a few large corporations 
can exercise considerable control over the news. And as the 
distinguished Supreme Court Justice Learned Hand remarked in 1942, 
``The hand that rules the press, the radio, the screen, and the far-
spread magazine rules the country.''
    Let's look at what has happened in radio. Clear Channel, as I 
mentioned, has over 1,200 radio stations, which reach 110 million 
listeners in every State and the District of Columbia.
    New York Times columnist Paul Krugman wrote an eye-opening column 
on March 25, 2003, entitled ``Channel of Influence.'' I ask unanimous 
consent that his column appear in the hearing record after my 
statement.
    In his column, Krugman notes that many pro-war demonstrations 
called ``Rally for America'' were organized by stations owned by Clear 
Channel, a company ``notorious and widely hated--for its iron-fisted 
centralized control.''
    Krugman further notes that Clear Channel's top management has a 
long--and mutually profitable--history with President Bush. According 
to Krugman,

        ``The Vice Chairman of Clear Channel is Tom Hicks . . . When 
        Mr. Bush was Governor of Texas, Mr. Hicks was Chairman of the 
        University of Texas Investment Management Company, called 
        Utimco, and Clear Channel's Chairman, Lowry Mays, was on its 
        Board. Under Mr. Hicks, Utimco placed much of the university's 
        endowment under the management of companies with strong 
        Republican Party or Bush family ties. In 1998 Mr. Hicks 
        purchased the Texas Rangers in a deal that made Mr. Bush a 
        multimillionaire.''

    Is there a quid pro quo going on here? One that involves a company 
whose radio stations already reach 110 million Americans? Is it really 
in the public interest to make it easier for this company--and a few 
others like it--to dominate the airwaves and determine what news the 
American people will--or won't hear?
    I don't think so. So I urge my colleagues to review the broadcast 
ownership rules very carefully. We made substantial changes in 1996 
that may not be in the public interest. The jury is still out. I don't 
think we should be in any hurry to deregulate the industry even more. I 
repeat what Chairman Powell said: ``getting it right is more important 
than just getting it done.'' Getting it right means serving the public 
interest, not boosting profitability. Thank you, Mr. Chairman.
                                 ______
                                 

 Copyright 2003 The New York Times Company--The New York Times--March 
                        25, 2003--Editorial Desk

                         Channels Of Influence

                            By Paul Krugman

    By and large, recent pro-war rallies haven't drawn nearly as many 
people as antiwar rallies, but they have certainly been vehement. One 
of the most striking took place after Natalie Maines, lead singer for 
the Dixie Chicks, criticized President Bush: a crowd gathered in 
Louisiana to watch a 33,000-pound tractor smash a collection of Dixie 
Chicks CD's, tapes and other paraphernalia. To those familiar with 
20th-century European history it seemed eerily reminiscent of. . . . 
But as Sinclair Lewis said, it can't happen here.
    Who has been organizing those pro-war rallies? The answer, it turns 
out, is that they are being promoted by key players in the radio 
industry--with close links to the Bush Administration.
    The CD-smashing rally was organized by KRMD, part of Cumulus Media, 
a radio chain that has banned the Dixie Chicks from its playlists. Most 
of the pro-war demonstrations around the country have, however, been 
organized by stations owned by Clear Channel Communications, a behemoth 
based in San Antonio that controls more than 1,200 stations and 
increasingly dominates the airwaves.
    The company claims that the demonstrations, which go under the name 
Rally for America, reflect the initiative of individual stations. But 
this is unlikely: according to Eric Boehlert, who has written 
revelatory articles about Clear Channel in Salon, the company is 
notorious--and widely hated--for its iron-fisted centralized control.
    Until now, complaints about Clear Channel have focused on its 
business practices. Critics say it uses its power to squeeze recording 
companies and artists and contributes to the growing blandness of 
broadcast music. But now the company appears to be using its clout to 
help one side in a political dispute that deeply divides the Nation.
    Why would a media company insert itself into politics this way? It 
could, of course, simply be a matter of personal conviction on the part 
of management. But there are also good reasons for Clear Channel--which 
became a giant only in the last few years, after the Telecommunications 
Act of 1996 removed many restrictions on media ownership--to curry 
favor with the ruling party. On one side, Clear Channel is feeling some 
heat: it is being sued over allegations that it threatens to curtail 
the airplay of artists who don't tour with its concert division, and 
there are even some politicians who want to roll back the deregulation 
that made the company's growth possible. On the other side, the Federal 
Communications Commission is considering further deregulation that 
would allow Clear Channel to expand even further, particularly into 
television.
    Or perhaps the quid pro quo is more narrowly focused. Experienced 
Bushologists let out a collective ``Aha!'' when Clear Channel was 
revealed to be behind the pro-war rallies, because the company's top 
management has a history with George W. Bush. The Vice Chairman of 
Clear Channel is Tom Hicks, whose name may be familiar to readers of 
this column. When Mr. Bush was Governor of Texas, Mr. Hicks was 
Chairman of the University of Texas Investment Management Company, 
called Utimco, and Clear Channel's Chairman, Lowry Mays, was on its 
Board. Under Mr. Hicks, Utimco placed much of the university's 
endowment under the management of companies with strong Republican 
Party or Bush family ties. In 1998 Mr. Hicks purchased the Texas 
Rangers in a deal that made Mr. Bush a multimillionaire.
    There's something happening here. What it is ain't exactly clear, 
but a good guess is that we're now seeing the next stage in the 
evolution of a new American oligarchy. As Jonathan Chait has written in 
The New Republic, in the Bush Administration ``government and business 
have melded into one big `us.' `' On almost every aspect of domestic 
policy, business interests rule: ``Scores of midlevel appointees . . . 
now oversee industries for which they once worked.'' We should have 
realized that this is a two-way street: if politicians are busy doing 
favors for businesses that support them, why shouldn't we expect 
businesses to reciprocate by doing favors for those politicians--by, 
for example, organizing ``grass roots'' rallies on their behalf?
    What makes it all possible, of course, is the absence of effective 
watchdogs. In the Clinton years the merest hint of impropriety quickly 
blew up into a huge scandal; these days, the scandalmongers are more 
likely to go after journalists who raise questions. Anyway, don't you 
know there's a war on?

    Senator Lautenberg. Mr. Chairman, I think the question that 
has to be answered is, What was the purpose of the law change 
that was made in 1996? What is the mission of the FCC? Is it 
not for the public good? And I do not understand what good it 
does the public to have these consolidations that are taking 
place. And I will not run through the review of how many 
stations were owned by Clear Channel and others in those 
earlier years and how many they have now.
    It is a question, to me, of the principle of, What do we 
want to accomplish? And what I see is, we want to accomplish a 
delivery to the public of information that is as balanced, as 
objective, as you can get. And it is very apparent in some of 
these cases that consolidation has resulted in getting a tilt 
one way, through lots of stations, lots of channels, and that 
is the dominant view that you hear constantly. And I wonder 
whether, with the Chairman of the FCC, Chairman Powell's, 
earlier announcement, whether there is an interest in 
responding to the public through those of us who are here to 
serve the public interest. I think it is unfortunate, and I 
agree with colleagues who ask for Mr. Powell's review once 
again. And I heard the Chairman very clearly about the question 
of interference. But it is my understanding, Mr. Chairman, that 
the law, the result of the legislation, was a court opinion 
that may not have so clearly defined what we wanted to have 
come out of that legislation.
    So I raise the question about, What good does it do the 
public? And I, frankly, do not see this concentration, 
expansion of stations and outlets, doing the public any good. I 
see it doing the owners, I see it doing the companies, lots of 
good. It is more revenues, there are more profits, there is 
more control, and, in some ways, I think, is more threatening 
to the public good.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman. And I thank you, as 
well, for conducting what is three of three hearings on this 
issue regarding media ownership rules, and I certainly think 
that this hearing is at a pivotal juncture, obviously, with the 
FCC prepared to either eliminate or ease some of the ownership 
and cross-ownership within the media industry without having 
the benefits of being informed, in terms of the impact of these 
significant issues that will have, obviously, profound 
implications in the future.
    And, obviously, it is of great consequence to the public 
and could result in an irreversible course of action resulting 
in a lessening of the diversity of opinion and voices in the 
public, lessening local and community input, reducing community 
involvement. So, obviously, this all has significant 
implications for the future.
    As the New York Times put it the other day, ``In a few 
weeks the FCC is going to be voting on what could be the most 
significant change in media ownership rules, expanding the 
reach of the Nation's largest broadcast and newspaper 
companies.'' And here we are 3 weeks out, Mr. Chairman, and we 
have no foreknowledge of what types of rules will be proposed 
by the FCC.
    Now, the biennial review is no secret. It was incorporated 
in the 1996 Telecommunications Act. So that was no secret, 
obviously, to the FCC, that they are required to meet those 
responsibilities and obligations. We understand about the D.C. 
District Court action. Again, it does not rationalize and 
justify the fact that we are not being informed, at least in 
terms of the intent of the FCC, because it does have major 
public implications.
    We have seen a lot discussed in the media. We have seen 
articles after articles talking about diversity index and what 
might happen in the 35 percent cap and so on, but we have not 
been informed. And that is why I joined the majority on this 
committee back in April asking for the Commission at least to 
give us a preview of these rules so that we could at least have 
an opportunity to weigh the implications and the ramifications.
    I think it would be appropriate before these significant 
changes that could have a sweeping impact on our society and 
how we engage in public debate. We are not talking about a 
cursory review. We are talking about a review process that 
potentially could open the door to the last barrier of 
restrictions to unfettered ownership within the industry. And 
when we look at the rate of consolidation--there is a recent 
report that was conducted that said five companies or fewer 
could control almost 60 percent of the television households. 
And, you know, these concerns are well grounded. They certainly 
have precedent. I mean, in 1945, Justice Black, in an opinion 
that was rendered by the Supreme Court, he stated that the 
widest possible dissemination of information from diverse and 
antagonistic sources is essential to the welfare of the public. 
So what happens, Mr. Chairman, with the diverse and 
antagonistic sources if those voices are silenced?
    So those have, I think, wide-ranging consequences that have 
no benefit, without a public airing of understanding. And that 
is why, Mr. Chairman, I do think it is essential that the 
Commission justify how any changes in media rules will promote 
diversity, will promote localism, will promote competition. And 
I would hope that before any final rules are made, that we have 
the opportunity at least to have a chance to respond and to 
explore those issues. They have obviously been explored in the 
media. They ought to be able to be explored before the U.S. 
Congress. More than 20,000 filings have been submitted to the 
FCC, so obviously there is considerable public interest.
    I am not saying that the FCC has not done their job, has 
not conducted a thorough review or analysis. The question is, 
Do we have an opportunity to have input before these rules are 
made final? In 3 weeks, on June 2, they will be made final. And 
I think that is the issue before us today.
    And I want to also say, Mr. Chairman, that I am very 
pleased that you have invited Mr. Frank Blethen, who is the 
Publisher and the CEO of the Seattle Times, that is owned by 
the Blethen newspapers, which Frank has continued the 
longstanding tradition of family media newspaper ownership. 
These newspapers serve communities for more than 100 years, and 
we, in Maine, came to know Mr. Blethen when the Blethen Maine 
newspapers purchased the Portland newspapers that were once 
owned by another great family, the Guy Gannett Communications 
that owned newspapers for more than 100 years in the State of 
Maine. So we were fortunate to have one family owned 
institution buying another. And under Frank's leadership, the 
Blethen newspapers are continuing longstanding community 
involvement, independence, and high standards of journalistic 
integrity.
    So, Mr. Chairman, I appreciate the opportunity to express 
my views.
    The Chairman. Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman. And welcome to the 
witnesses.
    Mr. Chairman, I think as we go through this hearing 
process, it is important that we do keep in front of us what 
the objectives of this regulation is under this statute. 
Senator Allen mentioned, and Senator Snowe, as well, that 
diversity and competition, those are important to keep in front 
of us at all times.
    It was suggested, maybe not intentionally, that one of the 
jobs of these regulations was to make sure that the information 
the public is getting is fair and balanced. Now, that sounds 
like a pretty noble goal. But I do not want the FCC in charge 
of deciding what is fair and balanced. I do not want 
legislators deciding what is fair and balanced. What is 
important is that we have diversity, diversity of ideas and 
opinions, whether it is coming from newspapers or radios or 
television, and not that we look to somehow shape what is or is 
not fair or balanced in the eyes of legislators somehow 
controlling what information does or does not get out there. 
Concerns were raised about, you know, The Matrix being on the 
front of a magazine and having a company that owns the magazine 
also having rights in the movie. Now, that is not something I 
lie awake at night worrying about.
    And if you go out to any newsstand right now, The Matrix is 
on the front of every magazine. And the week before, SARS was 
on the front of every magazine. And why would that be? It is 
because magazine owners want to sell magazines, and I think 
nothing more and nothing less. I think we have to be careful 
about seeing, sort of conspiracies where none exist, because if 
we focus on, sort of, the emotionalism of the issue, we are not 
going to do a good job in supporting or helping to shape a good 
policy or good regulation.
    Two final points. First, I think it is important that the 
FCC act on these issues in a timely way. There have been a lot 
of efforts to slow the process down, to delay the process, to 
say, ``Well, you know, there are 3 weeks to go. That cannot 
possibly be enough time to really do a proper job here.'' These 
regulations have been on the books for decades, and the media 
industry, the telecommunications industry, and the broadband 
industry are changing at a very, very fast pace, and I think it 
is fair to say that these regulations deserve a hard look, if 
nothing else.
    Second, we have had months, if not years, to collect 
information, to review information. And I think to suggest that 
the FCC does not have enough information to make an intelligent 
decision is simply wrong. They may not make a decision that 
every Member in this room will agree with or that every 
industry representative will agree with, but I think they have 
had ample time to collect information and make a good decision.
    And, to that end, I think it is also important that they 
have a sound basis for this decision. If, ultimately, these 
ownership criteria are arbitrary, we are going to go to court, 
and if recent cases are any precedent, they are going to be 
struck down. You need a sound basis for maintaining these 
regulations that are rooted in the principles of diversity and 
competition and locality. And if there is any message that the 
FCC should take from these hearings and these discussions, it 
is that you have got different opinions, but if you do not have 
a sound basis for the regulation, it opens itself up to 
litigation, and the public is not well served, the markets are 
not well served, and I think that would be a mistake.
    I look forward to the testimony and appreciate the time of 
the witnesses.
    Thank you, Mr. Chairman.
    The Chairman. I, too, look forward to the testimony, and I 
would ask my remaining colleagues to make their opening remarks 
brief.
    Senator Cantwell?

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman. I will make mine 
brief. I will submit them for the record and just say that I 
also welcome one of the panelists, Frank Blethen, from the 
Seattle Times. As far as localism and diversity, it is kind of 
interesting that Mr. Blethen has newspapers in two states, 
Washington and Maine, and that both those states are 
represented by two women Senators. So something is working well 
on the diversity side.
    With that, Mr. Chairman, I will submit my remarks.
    [The prepared statement of Senator Cantwell follows:]

Prepared Statement of Hon. Maria Cantwell, U.S. Senator from Washington
    Thank you, Mr. Chairman.
    Ownership of the broadcast and print media touches some of our most 
core American values: freedom of speech, open and diverse viewpoints, 
vibrant economic competition, and local diversity. I am pleased to 
welcome our witnesses today to talk on such important matters, and I 
want to welcome in particular Washington State's own Frank Blethen, 
whose family owns the Seattle Times.
    Washington State has a long and rich history of quality local news 
and broadcasting, and a strong commitment to highlighting the local 
angle.
    A similar attention to diversity and localism has served America 
well by expanding economic opportunities and energizing civic 
discourse. Diversity and localism promote competition and choices for 
advertisers. They create opportunities for small companies, minorities, 
and women. They allow innovative programming to find an outlet. They 
ensure the flow of information necessary to inform the democratic 
process. They guarantee that the interests of each community are 
served.
    If we are to continue to benefit from this freedom of the press, 
the Federal Communications Commission will need to answer some tough 
questions about the balance between the public interest and the 
economic efficiencies that result from consolidation. Since 1934, when 
Congress first charged the FCC with regulation of the public airwaves, 
its directions have been to regulate ``consistent with the public 
interest, convenience, and necessity.''
    Because the airwaves are a public resource, Congress required that 
the Commission go beyond mere economic analysis and above the bounds of 
traditional antitrust analysis. For most of the past sixty years, the 
FCC has worked to promote the diversity of owners and viewpoints, to 
ensure public access to multiple sources of information, and to meet 
the needs of local communities. Indeed, in this pending media ownership 
rules docket, the FCC has specifically recognized its mission as 
``promoting diversity, competition, and localism in the media.''
    While economic efficiencies may be available from relaxation of 
these media rules, any benefits must be measured against, and held up 
to, the standard of the ``public interest.'' As a Senator who cares 
about the citizens of my state, I am concerned that these rules benefit 
the radio listener in Cowlitz, the newspaper reader in Burien, and the 
television viewer in Methow, not just allow achieving a certain market 
share. Economic efficiencies may promote the public interest, but these 
efficiencies must be tested against the public interest standard.
    These rules must consider the ability of a local public to get 
urgent information, and they should not restrict the ability of new 
artists to reach listeners. They should not allow one provider to be 
the owner of every media source a viewer sees. They should not cause 
local advertising rates to skyrocket. If this is the result, it comes 
time to question whether relaxation is in fact in the best interests of 
the American people.
    Broadcast media in all its forms, print, electronic, over-the-air, 
have continuing and real obligations to inform and serve Americans.
    These media are often licensees of a public good, and are the 
``voice'' of news and ideas for many Americans. The FCC must ensure 
that these media are responsive to, and representative of, the 
political, educational, and entertainment needs of Americans. I hope 
that the witnesses today can enlighten us on the ways the FCC can 
structure its rules to meet those obligations.

    The Chairman. Senator Lott?

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Thank you, Mr. Chairman. I also would like to 
ask consent that my statement be put in the record and just 
make this one comment.
    I think our media-ownership rules are working well. It 
makes good sense to review them, but basically I think we 
should leave them as they are.
    With that, I would like to hear the witnesses.
    [The prepared statement of Senator Lott follows:]

  Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
    Mr. Chairman, thank you for holding this important hearing today on 
the media ownership rules which are currently under review by the 
Federal Communications Commission. Media ownership is a topic which has 
always been of great interest to me, and I have been following the 
status of the biennial review at the FCC very carefully. I am 
particularly interested in those rules which apply to the broadcast 
television industry. Since the public airwaves belong to the American 
people, I believe that the Federal Government has an appropriate and 
proper role to play in overseeing the ownership arrangements which are 
permitted for the broadcasting companies which operate over our public 
airwaves.
    I am especially interested in the 35 percent National TV Ownership 
Cap which protects the careful balance of interests in programming 
between national and local interests. I am concerned about permitting a 
single company to own more local affiliate stations, so that such a 
company could control the programming to a share of the national 
audience which is greater than 35 percent. I believe that the Nation is 
in danger of losing the localism and diversity of viewpoints that are 
offered under the current ownership cap structure if the current cap is 
raised.
    I also believe strongly that network affiliates should have great 
freedom to preempt programming when the station management deems it to 
be offensive under community standards, and preemption should also be 
allowed when local station managers decide that a program of local 
interest such as an important ball game would be better programming for 
that particular community in that time slot. I am concerned that such 
decisions regarding preemption would be curtailed if these decisions 
are made even more often in national headquarters offices rather than 
by those who work in the local stations. Some participants in this 
debate argue that the tremendous growth in the media marketplace in 
recent years through options such as cable, DBS, and the Internet 
supports a relaxation of broadcast ownership rules. As refreshing as it 
is to have more media options for American consumers in the 
marketplace, for the most part these options are national in scope, 
rather than local.
    The Newspaper/Broadcast Cross-Ownership Ban is also of interest to 
me. I have heard strong arguments that the ban should be repealed 
across-the-board--thus allowing one company to freely pursue the 
acquisition of a daily newspaper or broadcast television station, 
depending on which of the two the company already owns in that market. 
Despite the strong arguments for repealing this ban, I am worried about 
the effect that lifting the ban would have in smaller markets, such as 
the ones in my home State of Mississippi. If one company were allowed 
to own both a newspaper and a TV station in one of the small markets in 
my state, and that company proves not to be fair, accurate, and 
balanced in it's coverage of local news, the detrimental impact of such 
news coverage would be multiplied significantly.
    I regret that the FCC has not provided more information to Congress 
regarding the biennial review that is taking place on media ownership 
rules, since major changes in our media marketplace--especially the 
change of a number of rules at once--could have a far-reaching impact 
on the careful balance of the diversity of voices in our country. It 
would be helpful to know more about the diversity index which is being 
created by the FCC in order to better assess the effect that various 
possible rule changes could have on the media marketplace, and I wish 
that we had this information to weigh along with the testimony which is 
being provided today. Mr. Chairman, I do look forward to hearing the 
testimony of the witnesses who have joined us as this Committee 
exercises its oversight responsibilities regarding media ownership 
rules.

    The Chairman. Thank you.
    Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. And I, will just say that I think we all 
know common sense tells us that local content helps bring 
communities together, that diverse perspectives makes our 
democracy work, and that competition ensures that consumers 
will get a fair shake.
    Thank you.
    The Chairman. Thank you, Senator Nelson. I thank my 
colleagues.
    Our first witnesses are Mr. Mel Karmazin, President and 
Chief Operating Officer of Viacom; Mr. Jim Goodmon, President 
and CEO, Capitol Broadcasting Company; Mr. Frank Blethen, the 
Publisher of the Seattle Times; and Mr. William Dean Singleton, 
Vice Chairman and CEO of the Media News Group and Publisher of 
the Denver Post and Salt Lake Tribune. Welcome to the 
witnesses. Thank you for your patience.
    We will begin with you, Mr. Karmazin.

   STATEMENT OF MEL KARMAZIN, PRESIDENT AND CHIEF OPERATING 
                     OFFICER, VIACOM, INC.

    Mr. Karmazin. Thank you, Mr. Chairman. My voice is gone, so 
I will try to do the best I can.
    I assume I have about an hour for my opening comments, so I 
was going to deliver this testimony. But based on what I heard, 
there is no chance I will deliver that. I would rather address 
some of the issues that I have heard.
    First of all, I was here 2 years ago when the process 
started for us to review the biennial, which the 1996 Act 
required. It is now 2 years later, and I am still hearing that 
we ought to be delaying it because we have not had enough time. 
Trust me, we have had enough time to review it. And I agree 
with what the Senator said; I may not like everything that 
comes out, but clearly June 2 has been too far into the future 
for where this issue has been dealt.
    I saw an extraordinary chart of a company that showed that 
five companies appear to be controlling the world based on that 
chart. Viacom is the largest company in the advertising 
business. Viacom's revenues in advertising are $12.5 billion. 
The advertising pie is $300 billion. We are not Microsoft as 
far as what we have. The media business is a very 
extraordinarily fragmented business with so much competition 
out there that if you take a look at these charts, it has no 
semblance of the reality that is taking place in the 
marketplace.
    Then I heard a story about how one radio operator owns all 
of the radio stations in a market. I do not think that is the 
way it should be. I would absolutely not endorse that. I 
certainly think that diversity and localism and all of those 
things are important. I have been a broadcaster for 30 years. I 
loved the days when there were only three broadcast networks, 
when there was no FM radio, when there was no satellite, when 
there was no cable.
    In New York City, Senator, there are over 100 radio 
stations. Why is it right and what makes anyone believe that 
the courts are going to be able to say that eight is the number 
that you could have in New York? If you could have six in a 
small market, like you described, then in a big market like New 
York there really ought to be room for a whole lot more.
    Decide how many different owners you believe is 
appropriate. Do you believe that in radio in New York you want 
five owners, six owners, seven owners? Whatever you feel, the 
FCC feels, the courts support, then that would mean maybe one 
company should be able to own 10 percent, 15 percent of the 
stations in a market, not 100 percent? 15 percent? That would 
mean, in New York City, one company would be able to own 15 
radio stations, not the eight that is currently mandated.
    We agree on the subject of duopoly. We think that local 
ownership rules should be expanded. We believe that in some 
markets, smaller markets, there should be less expansion than 
in bigger markets where there are far more choices. So I think 
it is a local issue based on the number of voices, based on the 
amount of competition. That should be determined. But this 
should be, even though we do not have a horse in that race, we 
think in smaller markets there really ought to be expanded 
local ownerships so the industry can compete.
    We have heard an extraordinary amount of talk about the 35 
percent cap. As I understand, the reason, in part, the 
Commission is looking at it is the courts determined that the 
35 percent cap would not pass muster. We report to the FCC, at 
Viacom, CBS, and we report one segment, the network and the 
stations. We do not break out our network, we do not break it 
separately; it is one segment. And the reason for that is the 
network television business is not a very good business. Proof 
of it is if you take a look at who is in the broadcast-network 
business, the only people who are in it are people who also own 
television stations because the television-station business is 
a great business, which is why, in part, a lot of the station 
operators are against the expansion of the 35 percent cap. In 
order for us to preserve.
    So why is the Commission looking at this? Because someone 
should have an interest in preserving free, over-the-air 
broadcasting, because if somebody does not have an interest, 
then what would happen is content, sports content first and 
then other content, would find its way migrating onto cable, 
where you can charge the consumer $2 for a cable channel.
    So if the premise behind not giving relief on the 35 
percent cap is so that you do not want to encourage free, over-
the-air broadcasting by the networks, then what you will do is 
you will encourage the networks, us, to put more of our content 
on cable and charge the consumer for that; whereas, today all 
they need to do is watch our commercials.
    So I have about another hour, but you are looking at me 
like I should stop, so I am going to stop.
    [Laughter.]
    The Chairman. I was not doing that, Mr. Karmazin. Really. 
If you want to continue, go ahead.
    Mr. Karmazin. That is OK. Hopefully I will get a few 
questions.
    The Chairman. I am sure you will.
    [Laughter.]
    [The prepared statement of Mr. Karmazin follows:]

                  Prepared Statement of Mel Karmazin, 
             President and Chief Operating Officer, Viacom

    Good morning, Chairman McCain, Senator Hollings, and members of the 
Committee. I am Mel Karmazin, President and Chief Operating Officer of 
Viacom. Thank you for the opportunity to testify today about the FCC's 
ownership proceeding and the important review that agency has 
undertaken pursuant to Congressional and judicial directives.
    Viacom has a well-known position of asserting that fulsome 
deregulation of the Commission's outmoded broadcast restrictions is not 
only warranted but long overdue. It is utterly unsupportable and 
unrealistic that broadcasters should be handcuffed in their attempts to 
compete for consumers at a time when Americans are bombarded with media 
choices via technologies never dreamed of even a decade ago, much less 
60 years ago when some of these rules were first adopted.
    The current proceeding has had more focus and public attention than 
almost any review in the agency's history. There have been thousands of 
comments filed; an official FCC hearing took place in Richmond; and 
countless ad hoc hearings have been held in San Francisco, Chicago, Los 
Angeles, Seattle, Phoenix, New York and Burlington, Vermont, to name 
but a few venues. Letters also have poured into the FCC from both sides 
of the aisles in the U.S. Senate and House of Representatives. Little 
new can be said on this topic. Any hard evidence to be had is already 
on the record and, as many in Congress and the Administration have 
said, it is time for the Commission to do its job and complete this 
biennial review. The public interest is not served by delay.
    Anyone who has read the vast number of submissions in the FCC 
ownership proceeding will see that Viacom argues for deregulation of 
broadcasting rules across the board--even the ones that have no effect 
on us. Conversely, some big and powerful companies, along with their 
trade associations, have been arguing that the networks should receive 
no relief from the national ownership rules--particularly, the 
television cap. At the same time, these companies have been zealously 
advocating for relief on all of the local rules so that they can enjoy 
the efficiencies of consolidation. At Viacom, there is no talking out 
of both sides of our mouth when it comes to arguing for deregulation. 
We do not own newspapers, and despite the fact that newspapers are 
formidable competitors for ad dollars in local markets, we favor 
elimination of the newspaper-broadcast cross-ownership ban. We do not 
own television stations in small markets, where unhealthy consolidation 
is more likely to occur, but we support relaxation of the local 
television ownership rule across all market sizes. For there to be a 
robust broadcasting industry, all broadcasters need deregulation of all 
broadcast ownership rules.
    In the 1996 Telecommunications Act, Congress mandated that those 
wishing to preserve the broadcast ownership rules must prove that the 
rules are still necessary in light of competition. Viacom has joined 
with FOX and NBC in submitting substantial and compelling economic and 
factual evidence that cannot be ignored or refuted by proponents of the 
status quo. Those who favor maintaining the regulations have failed to 
carry their burden. The Commission, therefore, must repeal or modify 
the broadcast ownership rules--that's what the statute says.
    Let's focus on the national television station cap, the most 
vigorously debated rule under consideration. This rule, which limits 
ownership to TV stations serving 35 percent of the nation, is supported 
most ardently by network affiliates, the Network Affiliated Station 
Alliance, and their trade association, the National Association of 
Broadcasters. The arguments they have come up with against deregulating 
this rule are woefully lacking.
    First, NASA/NAB argue that affiliates, as opposed to stations owned 
and operated by the networks--known as O&Os--are ``local'' and, 
therefore, better understand and know their viewers. This is simply not 
true. Most television stations in this country are held by multi-
station groups owned by large corporations headquartered in cities 
located far from their stations' communities of license--Hearst-Argyle 
and the New York Times in New York, Tribune in Chicago, Cox in Atlanta, 
Belo in Dallas, Post-Newsweek in Detroit. What does it matter that 
Viacom's main offices are in New York? The corporate group owners are 
no more ``local'' in the cities where they own TV stations than is 
Viacom. Yet, like Viacom and all good broadcasters, group owners work 
hard to know what viewers want in each market where it has a media 
outlet. Localism is just good business.
    Networks invest billions of dollars in that programming, but most 
of the return on their investment is realized at the station level. 
Only two of the so-called ``Big Four'' networks are profitable in any 
year, operating on low, single-digit margins. Compare the networks to 
television stations--run by networks and affiliates alike--which 
operate on margins anywhere from 20-50 percent. If networks are 
precluded from realizing more of the revenue generated by stations, 
networks' ability to continue their multi-billion dollar programming 
investments will diminish, and more and more programming will migrate 
from broadcasting to cable and satellite TV, where regulation is less 
onerous. More Americans then will have to pay for what they now get for 
free.
    NASA/NAB's second argument, that affiliates provide more local news 
than do network-owned and-operated stations is, again, false. In a 
study commissioned by Viacom, FOX and NBC, Economists Incorporated 
found that the average TV station owned by a network provides more 
local news per week--37 percent more--than does the average affiliate--
a finding consistent with the FCC's own independently conducted study.
    Third, NASA/NAB contend that affiliates preempt network programming 
substantially more often than do O&Os in order to substitute 
programming more closely attuned to the interests of local viewers. 
Wrong again. In another study, Economists Incorporated found that 
preemption rates for both O&Os and affiliates in 2001 amounted to less 
than one percent of prime time programming, with affiliates a bit 
higher than network-owned stations. But the difference in preemption 
time cannot be attributed to affiliates caring more about their local 
viewers than their own bottom lines. Rather, as the study found, any 
difference between the preemption levels of O&Os and affiliates is 
largely due to higher rates of economic preemptions by affiliates (that 
is, for paid programming and telethons), not local public affairs 
programs and high school football, as they would have you believe. Nor 
is it true that affiliates stand as the bulwark against allegedly 
inappropriate network programming. The fact of the matter is that 
preemptions based on content are rare. But in the handful of cases over 
the past years when an affiliate has determined that a program's 
subject may be too sensitive for its market--as was the case last week 
with our Providence affiliate with respect to the ``CSI: Miami'' 
episode dealing with fire hazards at nightclubs--we understand and 
accommodate. Our own stations would do the same thing for their 
market's viewers.
    Finally, NASA/NAB argue that raising the cap will leave affiliates 
in need of protection in their network relationship. Companies like 
Cox, Hearst-Argyle, Gannett, the New York Times, and the Washington 
Post hardly need protection. Instead, networks and their affiliates 
need each other. Broadcast networks rely almost exclusively on 
advertising revenues for their survival, and a prominent feature of the 
pricing that broadcast networks can still charge despite declining 
audience levels is that they provide advertisers access to all U.S. 
households in 212 television markets virtually simultaneously. If a 
network cannot maintain affiliations in all of those markets, it loses 
its uniqueness in the advertising sales marketplace. Despite the 
inevitable tensions in the network-affiliate relationship, no network 
can afford to risk losing affiliations in even one market, much less 10 
or 20 or 50.
    Through this proceeding, the networks are seeking the opportunity 
to invest even further in the broadcasting industry. Doing so is a vote 
of confidence for all broadcasters: It will only serve to increase the 
value of television stations, and it ensures that free, over-the-air, 
quality programming will continue to be available to American 
households.
    I'd like also to address radio ownership, because in the last few 
months, radio consolidation has become the poster child against 
deregulation, the so-called ``canary'' signaling trouble in the mines 
of ownership rules relaxation. It's time for a reality check. It's true 
that the 1996 Telecom Act eliminated the limit for ownership of radio 
stations nationwide. But that doesn't mean the radio market is 
concentrated. There are 3,800 separate owners of commercial radio 
stations across the country. While the largest radio owner nationwide 
owns about 1,200 stations, that number constitutes only about 11 
percent of the nearly 11,000 commercial radio stations in this country. 
Viacom does not even rank among the top three radio owners. After Clear 
Channel, the second largest radio owner is Cumulus Broadcasting, with 
258 stations. Third largest is Citadel Communications, with 210 
stations.
    Through its Infinity Broadcasting, Viacom is the fourth largest 
radio station owner, with 185 stations nationwide, a mere 1.7 percent 
of all commercial stations. Further, our stations are located in only 
42 of the 286 radio markets in the United States. That means that 
Infinity has no radio station in 85 percent of the Nation's markets. 
Even in the smallest market where we operate--Palm Springs, California, 
ranked 162--Infinity owns a single radio station out of a total of 21 
commercial radio stations operating there. Yet, despite the fact that 
Infinity lags behind the largest group owner by more than 1,000 radio 
stations, we rank second to it in terms of revenues. This attests to 
the fact that competition is, indeed, alive and well in the radio 
industry. In 1992, 60 percent of all radio stations were losing money. 
Thanks to Congress and its wisdom, the radio industry is healthier 
today.
    The single biggest complaint of those opposing radio deregulation 
is that diversity has been lost and that the same songs are played on 
every radio station across the country. Just not true. The FCC's study 
found that song diversity has remained largely unchanged since 1996. 
And format diversity has also increased since that time, according to 
studies by Bear Stearns, Katz Media Group and others. Most importantly, 
listeners are happy. An Arbitron study released earlier this year found 
that radio listeners are ``very pleased'' with the programming choices 
available to them. More than two-thirds, or 69 percent of those 
surveyed, said their local stations do a ``very good'' or ``good'' job 
of providing a wide variety of programming. And nearly 75 percent of 
listeners think that their local radio stations do a ``very good'' or 
``good'' job of playing the music they like.
    Deregulation at the national and local levels has not changed the 
fact that Infinity, like any serious broadcaster, continues to operate 
the old fashioned way--by managing and programming all of its radio 
stations at the local level. Excellence in service to our customers--
that is, the local listeners--is critical to our stations' financial 
success. In order to attract advertisers, who are the sole source of 
revenue for radio, we must lure listeners with programming they want. 
Moreover, our station managers live where their radio stations are 
located, and they care about their communities.
    Once you look at the radio facts, you will see that deregulation 
has made the canary a happy fellow.
    In conclusion, the FCC must move forward now and complete its 
review based on the realities of today's competitive media marketplace. 
That's what the public interest demands.
    Thank you.

    The Chairman. Mr. Goodmon?

                 STATEMENT OF JAMES F. GOODMON,

             PRESIDENT AND CHIEF EXECUTIVE OFFICER,

               CAPITOL BROADCASTING COMPANY, INC.

    Mr. Goodmon. Well, good morning, Mr. Chairman.
    My name is Jim Goodmon. I am President of Capitol 
Broadcasting Company in Raleigh. It is a family-owned company. 
We own television stations in the Carolinas, and some radio. I 
am the third-generation president of my company. The fourth is 
now the program director of one of our stations, and the fifth 
would be working there, my grandson, if it did not violate the 
child labor laws. We are a family business.
    I also consider myself the best CBS affiliate in America. I 
hope Mr. Karmazin thinks that. We have worked very closely.
    [Laughter.]
    Mr. Goodmon. We were the first digital television station 
in the United States, the first high-definition, and all that 
was through our work with----
    The Chairman. Let us not get into that one.
    Mr. Goodmon.--CBS.
    [Laughter.]
    Mr. Goodmon. No, I am going to mention that. And then I am 
very proud of the progress that CBS has made. We are a proud 
CBS affiliate.
    Having said that, I need to suggest that I basically do not 
agree with anything that Mr. Karmazin said.
    [Laughter.]
    Mr. Goodmon. And let me go through that. I am here to talk 
about, specifically, the 35 percent cap.
    Now, the law says that when the Commission considers 
ownership, it should consider the public interest. And in the 
Commission's rulings, they consistently say, ``OK, what is that 
public interest?'' It is localism, diversity, and competition. 
Now, I would suggest that there is not any way you can say that 
allowing these large companies to own more television stations 
improves localism, improves diversity, or improves competition. 
I mean, it is intuitive. It does not happen.
    If you go by the law and if you look at the rules the 
Commission wrote, localism, diversity, and competition, there 
is no way you could say we should have fewer owners, we should 
have these large companies owning more TV stations. Well, now 
how do they get to it? Because that is what the Commission has 
said they are going to--how do they get to this localism, 
diversity, and competition is not important?
    Well, the first way they get there is they say, ``Wait a 
minute. These rules are old-fashioned. What are you talking 
about? We have got all these cable channels, we have got all 
this satellite stuff, we have got the Internet, we have got 
TiVo, we have got wireless. These rules do not make a 
difference anymore.'' Senator Allen, your point is that we have 
got all this diversity. OK? My suggestion is that when you look 
at that, you need to consider that in all those things I talked 
about, the only industry, the only group, the only 
organizations that are specifically charged with local service 
are local broadcasters.
    I would suggest to you, you could have 500 cable channels 
and you will never hear the name of your town mentioned. Those 
are national services--national cable, national satellite. 
There is no local requirement on the Internet.
    So I do not think there is a substitute. I would not agree 
with you that can substitute cable, satellite, the Internet for 
local broadcasting stations. Now, remember, there is a fixed 
number of these things, that there is a fixed number of these 
stations. It is very dangerous, when you have a fixed number of 
things, to let large groups own more and more of a very fixed--
it is fixed--this is not open market, free market. This is a 
fixed number of stations.
    So the first thing they say is, ``Well, diversity--these 
rules do not make any difference because we have got all this 
other stuff.''
    The second issue is that the broadcasting industry somehow 
needs economic assistance. I would suggest that any study you 
do would show that broadcast television stations are the most 
profitable business in the history of the United States. The 
head of Fox just announced a 54 percent cash-flow margin for 
his O&Os. I mean, these are the most profitable things you can 
have. Now, I am having trouble with--we are going to change 
this localism-diversity-competition notion for an economic 
reason. I mean, this is a very profitable industry.
    Now, and then the last is, ``Wait a minute, the R-word has 
left Washington. The R-word is gone. There is going to be--we 
are going to get rid of regulation.'' Deregulation. Let the 
free market decide here. I would just point--it is not a free 
market. There are a limited number of television stations. And 
anytime you study that kind of market, you fight very hard 
against concentration because you and I cannot start a TV 
station. You cannot. I mean, there is a limited number of them. 
You cannot do that.
    So the reason that the Commission is giving for avoiding 
localism and diversity and competition are not right. I mean, 
they do not--I cannot make it compute.
    Two other things. What you are going to do when you allow 
the networks to own more and more local affiliates is, you are 
basically saying, OK, we are going to let you program those 
local stations. I want to give you two examples quickly.
    Fox announced they want to do ``Marry a Millionaire.'' They 
paraded 25 or 30 women across the stage in bikinis. There was a 
guy behind the microphone. He picked the one he liked, and they 
got married. I mean, a legal marriage.
    OK, now, we said, at our Fox affiliate, ``We are not going 
to do that.'' You know, we are taking all this reality stuff. 
It is really tough to take all that. But we said we are going 
to stop a demeaning marriage and the family. We did not take 
it. Fox got upset with us about it, but we got through it.
    Now, the point I am making, and this is a very important 
point, it is--I am not saying I did the right thing. People 
were mad we did not take it; people, you know, wanted to 
congratulate us for doing it, but I said I did something. I 
tried to make a local decision. I tried to make a decision that 
had something to do with where I lived and what my community--
there is no manager of a Fox station that would not clear that 
program. As a matter of fact, if you look at the record, in 
history there has never been a network-owned station that 
preempted a network program for content reasons. That has never 
happened.
    So what you are doing now when you raise these caps is you 
are saying, ``OK, this is fine. We are going to let them decide 
what the program is in L.A. We are going to let them put it on 
their network, and then we are going to let them put it on the 
local station.'' Now, that does not have anything to do with 
the way local broadcasting is supposed to work, in my view.
    One other--we can talk about--there are two or three other 
programs, but I do not have the time to do that. Let me suggest 
this. What you all are saying, Senator Allen and Senator 
Sununu, you all are saying we have got all this diversity; and, 
therefore, these rules are not important. I would take it a 
step further. I would say that because the networks have the 
most popular cable channels, because the networks have the most 
popular Internet sites, these other mediums we were talking 
about, they also dominate those mediums, that we have less 
diversity. We have got a whole lot more channels, but we do not 
have a whole lot more voices. I mean, it is not even--well, you 
can tell what I am working on. I mean, I just do not buy this 
diversity business.
    And, finally, I am having the worst time getting people to 
talk to me about this. We have a 35 percent rule, which says 
stations can own 35 percent of the country. We do not have a 35 
percent rule. We have a 70 percent rule, because a UHF station 
only counts half. So you can own 70 percent of the country 
under the current rule. We raise it to 45, then you would be 
able to own 90. So the suggestion--I do not get this. It is not 
a 35 percent rule; it is a 70 percent rule. And the notion that 
we are supposed to raise a 70 percent rule, I cannot get them 
interested in this at the Commission.
    And one final factor. We are now in the middle of--I am 
getting back to what you told me to not talk about--we are now 
in the middle of an enormous transformation in broadcasting 
from analog to digital. We are right in the middle of this. 
Right? Why in the world would we change ownership rules? 
Because we do not know what in the world the digital future is. 
On one station, I can run five channels, or I could run HD. Why 
are we doing this now? I mean, it does not make sense to 
consider ownership changes right here in the middle of the 
digital transition.
    And if you are interested in the future economics of the 
broadcasting industry, please make some rules for digital. 
Listen, I have been on the air 7 years, and I still do not have 
the rules for the digital transition. That is the economic help 
that we need in broadcasting.
    So I want to thank--it looks like it is lost in FCC, the 
position that we are taking. I wanted to thank Congressmen 
Burr, Dingell, Deal, Markey, and Price, for H.R. 2052, which 
will codify the national cap. My understanding is that there 
will be a--the same bill will be introduced in the Senate, and 
I really urge you all to take a look at that. I really urge you 
to take a look at codifying the 35 percent cap.
    And, by the way, the recent poll that was published says 72 
percent of your constituents do not even know we are talking 
about this. This is sort of inside baseball to 75 percent of 
the country. And you are not going to find anybody--I have not 
seen anybody who says it is a good idea to let the big 
companies own more stations. It just does not fit.
    I will say, again, that I am the best CBS affiliate in 
America, and I love CBS, and it was very hard for me to oppose 
my Chairman.
    And thank you very much.
    Mr. Karmazin. He should have been sworn in.
    [Laughter.]
    [The prepared statement of Mr. Goodmon follows:]

 Prepared Statement of James F. Goodmon, President and Chief Executive 
              Officer, Capitol Broadcasting Company, Inc.

    Chairman McCain, Senator Hollings and members of the Committee, I 
appreciate the opportunity to appear before you in support of the 
public interest and its core values--localism, diversity and 
competition. I am Jim Goodmon, President and Chief Executive Officer of 
Capitol Broadcasting Co., Inc., which launched the Nation's first 
digital broadcast station 7 years ago. Capitol owns and operates five 
television stations and one radio station--all in the Carolinas. 
Although we own the facilities and equipment, the airwaves are valuable 
public property--property that deserves our respect. As a third 
generation broadcaster, I am concerned that we are no longer adequately 
guarding the airwaves. That is why I believe that it is imperative that 
we retain the national television ownership cap at 35 percent. I want 
to quickly address four issues and concerns: the uniqueness of 
broadcasting as a medium; the attack on localism; the myth of 
marketplace changes creating more diversity; and the reality of today's 
35 percent rule being a 70 percent rule.
The Uniqueness of Broadcasting as a Medium
    First, broadcasting is a unique medium--distinct from all other 
media. Our licenses are granted by the Commission to serve ``the public 
interest, convenience, and necessity'' of a local community. It does 
not matter if you own a station in New York City or Glendive, Montana. 
It does not matter if you own one station or 50. Our duty is the same. 
We must serve the public interest and reflect local community 
standards. No other medium is charged with this responsibility.
    Due to spectrum scarcity creating a significant barrier to entry, a 
free market analysis simply does not apply to the broadcasting 
industry.
    And there is no substitute for local broadcast television. It is 
free and available to all the Nation's economic levels. It is the 
primary source for local news, weather, public affairs programming, and 
emergency information. Two hundred national cable and satellite 
channels cannot replace a single local news and information signal.
The Attack on Localism
    Broadcasting's uniqueness begins with localism, which is the second 
issue I would like to address. Your predecessors wisely made localism 
the bedrock upon which broadcasting in the United States was built, but 
today large media giants are trying to replace localism and community 
standards with financial opportunity and corporate objectives. Since 
the national television cap was increased from 25 percent to 35 
percent, we have seen significant consequences, including a shift in 
the delicate balance of power between the networks and local affiliates 
resulting in many local programming decisions being made in New York 
and Los Angeles, not Phoenix or Columbia or Juneau or Baton Rouge or 
Topeka.
    At Capitol, we made the decision not to air several FOX reality 
programs, including ``Temptation Island,'' ``Who Wants to Marry a 
Millionaire'' and ``Married By America'' because we thought they 
demeaned marriage and family. Managers at stations owned by the Fox 
network could not have made those decisions. The record at the 
Commission does not include a single example of a network owned and 
operated station pre-empting a program based upon community standards. 
I am not saying we made a right or wrong decision--I am simply saying 
we made a local decision reflecting our view of local community 
standards in Raleigh-Durham, North Carolina. Promos are also an issue 
of concern. During last year's World Series, we ran alternate network 
promos due to the violent and explicit promos FOX planned to air to 
promote its new line-up of network shows. Why? Because we believe the 
World Series should be family-friendly programming. The right to reject 
or preempt network programming must remain at the local level for 
stations to discharge their duty to reflect what they believe is right 
for their individual communities, whether it is to reject network 
programming based on community standards or whether it is to preempt 
national network programming in order to air a Billy Graham special, 
the Muscular Dystrophy Telethon or local sports.
    I can't imagine that anyone in this room really wants to take away 
local control over television programming. The Parents TV Council says 
that American families are ``disgusted'' by the ``raw sewage . . . that 
is flooding into their living rooms day and night through the 
television screen, and poisoning the minds of an entire generation of 
youngsters.'' The Christian Coalition, Family Research Council, and 
others joined in a call to reinstate the family hour. And in my own 
state, the North Carolina Family Policy Council recently spoke out in 
favor of the 35 percent cap to maintain local control.
    In the early days of broadcasting, there were three checks and 
balances--the content providers as producers, the networks as 
wholesalers and aggregators of programming, and the local affiliates as 
the distributors. Independent producers no longer provide checks and 
balances because the networks now produce much of their own programming 
thanks to vertical integration, and as the networks are allowed to buy 
more local stations, they are becoming the distributors as well--
dissipating the final check and balance. Can you imagine only having 
one branch of government? In effect, that is what is happening to 
broadcasting.
The Myth of Marketplace Changes Creating More Diversity
    Third, proponents of media deregulation claim that the marketplace 
has changed--that there are now 100s of cable and satellite channels 
and thousands of Internet sites. Yes, it is true that there are more 
outlets, but the voices are the same. The bottom line is that five 
companies--four of whom are the broadcast networks--control most of the 
so-called new voices in the marketplace. Those five companies own most 
of the top-rated cable channels, as well as the most-viewed websites. I 
contend that it is a myth that marketplace changes have created more 
diversity.
The 35% Rule is Actually a 70% Rule
    Fourth, today's 35 percent rule is actually a 70 percent rule due 
to the UHF discount, which allows owners to only count 50 percent of 
the TV households in markets in which they own UHF stations. This rule 
is outdated with over 85 percent of all viewers receiving their local 
signals via cable or satellite. And when the digital transition is 
complete, the rule will be obsolete with 94 percent of all digital 
stations being located in the UHF band.
Conclusion
    Three final thoughts in conclusion, the economic arguments offered 
by those proposing increasing the cap are ludicrous. Free over-the-air 
and network television is a very profitable business with tremendous 
margins that other industries envy. With deregulation comes a flood of 
investment bankers, the people that stand to gain the most from the 
Commission's proposed action. And with the digital transition, now is 
not the time to make major ownership changes. The technology and its 
multiplicity of uses are changing daily. With digital it is technically 
possible to broadcast four or five channels on a single station. My 
point is that after 7 years of operating a digital television station, 
and experimenting with a number of ideas, we still don't know where the 
transition will lead. To open the gates at this point is dangerous. We 
need to know more before making decisions that could have dramatic 
impact on a communication future still to be determined. Finally, I am 
concerned, as we all should be, that deals are going on between certain 
members of the Commission and a few large media groups. A letter from a 
major broadcast group to Chairman Powell offers to ``trade'' increasing 
the ownership cap for other concessions. Deal making should not be 
taking place between a few media giants and a government agency with 
appointed, not elected, officials.
    Let's honor the system that has served our democracy so well in the 
past and require that the airwaves be used for the ``public interest, 
convenience, and necessity'' on a local basis, like your predecessors 
envisioned. We must retain the national television ownership cap to 
preserve localism that reflects local community standards. I am 
grateful to Congressmen Burr, Dingell, Deal, Markey and Price for 
introducing H.R. 2052 on Friday to codify the national cap at 35 
percent. I urge the Senate to introduce a companion bill. One poll 
shows that 72 percent of your constituents are not aware that media 
ownership restrictions may be relaxed, so I am grateful this committee 
is giving this issue attention. Thank you for allowing me to testify.

    The Chairman. Mr. Blethen, welcome.

           STATEMENT OF FRANK A. BLETHEN, PUBLISHER, 
                       THE SEATTLE TIMES

    Mr. Blethen. Good morning. Thank you for having me.
    I am Frank Blethen, the fourth, family publisher of the 
fourth-and-fifth generation private family-owned Seattle Times. 
I appreciate the comments from the Washington Senator, where my 
family has 107-year connection, six generations.
    The Chairman. Pull the microphone just a little bit closer, 
please, Mr. Blethen.
    Mr. Blethen. Is that OK?
    And from the Senator from Maine, where my family has a 12-
generation connection. But, Chairman, I think only you know 
that I am probably the only Sun Devil that is testifying today.
    [Laughter.]
    The Chairman. Thank you.
    Mr. Blethen. There is, in freedom, a variety of voices. 
There is, I believe, a fundamental reason why the American 
press is strong enough to stay free. That reason is that the 
American newspaper, large and small and without exception, 
belongs to a town, a city, at the most to a region.
    ``The secret of a free press is that it should consist of 
many newspapers, decentralized in their ownership and 
management, and dependent for their support on the communities 
where they are written, where they are edited, and where they 
are read.'' These eloquent words were from noted journalist 
Walter Lippman, more than 50 years ago. Today, we live in the 
America of Mr. Lippman's worst nightmare, an America whose very 
democracy is at risk because we are on the verge of losing our 
free press.
    When I began my career, American democracy appeared secure. 
Its foundation was the 1,700-some newspaper voices deeply 
connected to the communities that they served. Today, there are 
fewer than 280 of us independents left, and most in small 
communities.
    Recently, we saw the L.A. Times fall to a Wall-Street-
driven conglomerate. We are about to witness the same fate for 
the Orange County Register. Imagine that by the end of the 
year, L.A. will no longer have a newspaper owned and managed by 
people who care about or are a part of the city. This is our 
future if you permit repeal of the cross-ownership ban and 
other FCC restrictions on monopolization.
    This committee gave us a peek into this bleak future with 
your recent hearings on the abuses of radio concentration and 
cable rates. Less localism, fewer voices, less access, less 
original information, and higher advertising rates and consumer 
subscription rates. If cable rates and Clear Channel made you 
nervous, just wait for the monopolization feeding frenzy if 
cross-ownership is repealed.
    More than 200 years ago, Thomas Jefferson said he foresaw 
battles, ``between rapacious capitalism and democracy.'' 
Jefferson understood that power and size, left unchecked, would 
invite abuse and would crowd out civic values and overwhelm the 
public interest.
    It is instructive that the only entities that want these 
rules repealed are large, Wall-Street-driven conglomerates. 
They claim they need less competition and more monopolization 
to compete, yet these are very lucrative businesses. They brag 
about newspaper profit margins of 30 percent or greater, and up 
to 50 percent on their broadcast houses. These are hardly 
businesses that need to worry about new competition.
    Ownership matters. Lippman's variety of independent voices 
gave us the structure for the press' critical watchdog 
function. Media concentration and Wall Street ownership has 
turned the watchdog into a lap dog. It has always been that the 
most serious problem in American journalism is not what we 
cover, but what we do not cover. When the watchdog stops 
barking, we are all in trouble.
    The FCC rules discussion has been a big business, special-
interest discussion conducted in dark behind closed doors 
without the light of media scrutiny and the enlightenment of 
robust public debate. Why? Because the corporate entities that 
financially gain from monopolization now control most of what 
we read, see, and hear, and how we receive it.
    The arguments made for less regulation are false. Yes, we 
have the Internet, and we have hundreds of cable channels. But 
we all know most reliable news and information on the Internet 
or cable is generated from already existing newsrooms almost 
always from newspapers. Simply repackaging and repeating 
someone else's content is hardly new news. And, besides, the 
very corporations who claim this is a new competition have 
already monopolized the most visited Internet sites and cable 
ownership. There may be more access points, but there are fewer 
voices and less competition.
    This committee has become the first line of defense in 
Jefferson's battle to save our democracy from rapacious 
capitalism. There is no business justification that I am aware 
of, other than monopolization, for lifting any of the current 
rules or allowing any entity to engage in any cross-media 
ownership.
    As a businessman journalist, as a local independent, my 
family knows how to make a profit to survive. We have no 
problems with profits. They are essential. But in our family, 
we have a saying that we make money so we can practice fiercely 
independent journalism. We represent and are beholden only to 
the citizens of the handful of communities we are privileged to 
serve. We are not beholden to Wall Street or any other powerful 
local sources. We are our community's watchdogs. But we are a 
fast-dying breed. America needs your leadership to take freedom 
of the press off the endangered species list.
    Thank you.
    [The prepared statement of Mr. Blethen follows:]

  Prepared Statement of Frank A. Blethen, Publisher, The Seattle Times
Freedom Is a Variety of Voices


    ``There is freedom in a variety of voices.''
    ``There is, I believe, a fundamental reason why the American press 
is strong enough to remain free. That reason is, that, the American 
newspaper, large and small, and without exception, belongs to a town, a 
city, at the most to a region.''
    The secret of a free press is, ``that it should consist of many 
newspapers decentralized in their ownership and management, and 
dependent for their support--- upon the communities where they are 
written, where they are edited, and where they are read.''
    These eloquent words were from noted journalist Walter Lippman more 
than 50 years ago.
    Today, we live in the America of Mr. Lippman's worst nightmare.
    An America whose very democracy is at risk because we are on the 
verge of losing our free press.
    When I began my career, American democracy appeared secure. It's 
foundation was the 1,700 newspaper voices deeply connected to the 
communities they served.
    Today, there are fewer than 280 of us independents left.
    Most in small communities.
Concentration and Monopolization Feeding Frenzy
    Recently we saw the L.A. Times fall to a Wall Street-driven 
conglomerate. We are about to witness the same fate for the Orange 
County Register. Imagine, by the end of the year L.A. will no longer 
have a newspaper owned and managed by people who care about or are part 
of the city.
    This is our future if you permit repeal of the cross ownership ban 
and other FCC restrictions or monopolization.
    This Committee gave us a peek into this bleak future with your 
recent hearings on the abuses of radio concentration and cable rates.
    Less localism, fewer voices, less access, less--information and 
higher advertising and subscription rates.
    If cable rates and Clear Channel make you nervous, just wait for 
the monopolization feeding frenzy if cross ownership is repealed.
Bigness and Power Corrupt
    More than 200 years ago, Thomas Jefferson said he foresaw battles 
between ``rapacious capitalism and democracy.''
    Jefferson understood that power and size, left unchecked, would 
invite abuse and would crowd out civic values and overwhelm the 
public's interests.
    It is instructive that the only entities that want the rules 
repealed are the large Wall Street-driven conglomerates.
    They claim they need less competition and more monopolization to 
compete.
    Yet, these are very lucrative businesses.
Monopoly Profit Margins
    They brag about newspaper profit margins of 30 percent, and up to 
50 percent on broadcast houses.
    These are hardly businesses that need to worry about new 
competition.
Ownership Matters
    Ownership matters.
    Lippman's variety of independent voices gave us the structure for 
the press' critical watchdog responsibility.
    Media concentration and Wall Street ownership has turned the 
watchdog into a lapdog.
    It has always been that the most serious problem in American 
journalism is not what we cover, but what we don't cover. When the 
watchdog stops barking we are in trouble.
    The FCC rules discussion has been a big business, special interests 
discussion. Conducted in the dark, behind closed doors. Without the 
light of media scrutiny and the enlightenment of robust public debate.
    Why?
    Because the corporate entities that financially gain from 
monopolization now control most of what we read, see and hear.
False Arguments
    The arguments made for less regulation are false.
    Yes, we have the Internet and we have hundreds of cable channels.
    But we all know most reliable news or information on the Internet 
or cable is generated from already existing newsrooms, almost always 
from newspapers.
    Simply repackaging and repeating someone else's content is hardly 
new news.
    And besides, the very corporations who claim this is a new 
competition have already monopolized the most visited Internet sites 
and cable ownership.
    There may be more access points, but there are fewer voices, and 
less competition.
Action
    This committee has become the first line of defense in Jefferson's 
battle to save our democracy from rapacious capitalism.
    There is no business justification that I'm aware of--other than 
monopolization--for lifting any of the current rules or for allowing 
any entity to engage in cross-media ownership.
    I am a businessman/journalist. As a local independent, I know how 
to make a profit to survive. I have no problem with profits. They are 
essential.
    But in our family, we make money so we can practice fiercely 
independent journalism. We represent and are beholden only to the 
citizens of the handful of communities we are privileged to serve. We 
are not beholden to Wall Street or any other powerful local forces.
    We are watchdogs.
    We are a fast-dying breed.
    America needs your leadership to take freedom of the press of the 
endangered species list.
    Thank you.

    The Chairman. Thank you.
    Mr. Singleton?

 STATEMENT OF WILLIAM DEAN SINGLETON, VICE CHAIRMAN AND CHIEF 
   EXECUTIVE OFFICER, MEDIANEWS GROUP, INC.; IMMEDIATE PAST 
                   CHAIRMAN OF THE BOARD OF 
          DIRECTORS, NEWSPAPER ASSOCIATION OF AMERICA

    Mr. Singleton. Good morning.
    I am Dean Singleton, Vice Chairman and Chief Executive 
Officer of Media News Group, a private, family-owned company 
that publishes 50 daily newspapers, from the Denver Post, in 
Colorado, to the Humboldt Sun, in Winnemucca, Nevada, as well 
as 121 non-daily newspapers. I am also immediate past-Chairman 
of the Board of the Newspaper Association of America.
    I cannot talk very much today about the bikini-clad women 
on TV. We just print news, and we would like to be able to 
broadcast it.
    I am very pleased to appear before the Committee today to 
discuss the compelling reasons for eliminating the FCC's long 
outdated and counterproductive ban on newspaper/broadcast 
cross-ownership. The newspaper ban is the last vestige of a 
series of one-outlet-per-customer local media-ownership 
restrictions adopted by the FCC in the 1960s and 1970s. Of 
those limitations, only the newspaper/broadcast cross-ownership 
rule has remained completely unchanged over the past three 
decades. All of the Commission's other restrictions on 
broadcast ownership have been either eliminated or 
significantly relaxed over the years. Only newspapers have been 
completely barred from participating in the broadcast markets 
of their local communities.
    This inaction on the part of the Commission is not for a 
lack of evidence. To the contrary, in four exhaustive 
proceedings over the past 6 years the agency has accumulated a 
mountain of evidence supporting the repeal of the newspaper/
broadcast cross-ownership ban.
    In 1975, when the FCC adopted the ban, hundreds of 
newspapers were allowed to keep their broadcast stations. Forty 
of so of those grandfathered communities still exist today. 
These communities have essentially taken the guesswork out of 
eliminating the ban. They have provided the Commission with 
illustrative case studies of the substantial public-interest 
benefits that will result from repeal of this rule. 
Representing the full gamut of market sizes, the record shows 
that they have consistently provided their communities with 
unmatched levels of service.
    At the same time, there is simply no evidence that the 
existing grandfathered situations have threatened competition 
in their local markets. To the contrary, there is substantial 
evidence before the FCC showing that even the smallest markets 
containing newspaper/broadcast combinations remain vibrantly 
diverse and competitive.
    The evidence offered by grandfathered communities further 
shows that co-owned outlets generally present diverse 
perspectives on news and informational issues. Jointly owned 
newspapers and broadcast stations have strong economic and 
professional incentives to avoid coordinating their viewpoints. 
Local autonomy and editorial freedom is the tradition of 
newspapers, and the same principles apply to the operation of 
local stations owned by newspapers.
    The evidence presented by newspaper publishers and other 
parties has been confirmed by several recent studies. A study 
commissioned by the FCC specifically found that, and I quote, 
``Affiliates co-owned with newspapers experience noticeably 
greater success over our measures of quality and quantity of 
local news programming than other network affiliates.''
    The results of a 5-year study released by the Project for 
Excellence in Journalism at Columbia University echoes these 
findings. That study concluded that, ``Stations in cross-
ownership situations were more than twice as likely to receive 
an A grade than were other stations,'' and that, on the whole, 
``these stations were more likely to do stories that focused on 
important community issues and more likely to provide a wide 
mix of opinions.''
    Let me offer what I believe would happen close to home in 
my newspaper markets. Fairbanks, Alaska, is perhaps the most 
remote, isolated community in America. There are six commercial 
television stations in the market. All struggle financially. 
Under today's rules, my newspaper thrives with an award-winning 
news presentation while the television stations struggle to 
broadcast even a small amount of local news. There are no 
commercial news radio stations. In Central and Northern Alaska, 
many communities cannot get my newspaper delivered because they 
are so isolated, but they can get radio and television. They 
deserve more.
    In Eureka, California, in another remote section of the 
country, there are four commercial television stations. The 
strongest station has a news staff of 11, and the other 3 do 
not produce substantive newscasts at all. Imagine the community 
service we could provide by putting our newspaper resources 
behind television and radio news, especially if we purchase a 
station that produces no news today.
    I own a newspaper in Pittsfield, Massachusetts, which 
covers the western quadrant of Massachusetts. There is no 
television station there and there never has been. If this rule 
is changed, we could put a TV station on the air that provides 
local television news for the first time ever in that 
community.
    Newspapers will add new resources to struggling television 
and radio enterprises, and those broadcast outlets will 
strengthen newspapers as the number of media choices continue 
to explode in a changing media environment. If the FCC's 
decision is based solely on the record evidence and not on 
political emotion, the Commission will be compelled to 
eliminate the archaic and wholly unnecessary cross-ownership 
prohibition.
    Thank you. I will be happy to answer questions.
    [The prepared statement of Mr. Singleton follows:]

 Prepared Statement of William Dean Singleton, Vice Chairman and Chief 
 Executive Officer, Medianews Group, Inc.; Immediate Past Chairman of 
        the Board of Directors, Newspaper Association of America

    Good morning. I am Dean Singleton, Vice Chairman and Chief 
Executive Officer of MediaNews Group Inc., a private company that 
publishes 50 daily newspapers--including The Denver Post, the Los 
Angeles Daily News and The Salt Lake Tribune--as well as 121 non-daily 
newspapers.
    I am also the immediate past-Chairman of the Board of the Newspaper 
Association of America. I am very pleased to have this opportunity to 
appear before the Committee today to discuss the compelling reasons for 
eliminating the FCC's long outdated and counterproductive ban on 
newspaper/broadcast cross-ownership.
    The newspaper ban is the last vestige of a series of ``one outlet 
per customer'' local media ownership restrictions adopted by the FCC in 
the 1960s and 1970s. Of these limitations, only the newspaper/broadcast 
cross-ownership rule has remained completely unchanged over the past 
three decades, with only four permanent waivers of the rule granted by 
the FCC over the last 28 years. All of the Commission's other 
restrictions on broadcast ownership have been either eliminated or 
significantly relaxed over the years. Aside from these four situations 
and the newspaper/broadcast combinations that were ``grandfathered'' 
when the rule was originally adopted, newspaper publishers--alone among 
local media outlets--have been completely barred from participating in 
the broadcast markets of their local communities.
    This inaction on the part of the Commission is not for a lack of 
evidence. To the contrary, over the past few years, the agency has 
accumulated a mountain of evidence supporting the repeal of the 
newspaper/broadcast cross-ownership ban. Recognizing the need to review 
the cross-ownership restriction in light of the explosive growth among 
media outlets that has occurred in the years since the ban was first 
adopted, the FCC has initiated no fewer than four proceedings over the 
past 7 years to reconsider the ban. In a scaled-back version of the 
promise it made to the Court of Appeals to review the rule in its 
entirety during its consideration of the ABC/Cap Cities merger, the FCC 
in 1996 launched an inquiry regarding its waiver policy for newspaper/
radio combinations. Two years later, the Commission sought public 
comment on the rule as well as other media ownership regulations in its 
first biennial review proceeding. In 2001, the agency again gathered 
evidence by initiating a broad notice and comment rulemaking proceeding 
specifically on newspaper/broadcast cross-ownership. Just over a year 
later, that rulemaking proceeding was rolled into the FCC's current 
omnibus proceeding on media ownership, giving interested parties a 
third opportunity in 4 years to submit evidence on the rule. Each of 
these proceedings has produced a wealth of record evidence regarding 
the extensive public interest benefits--as well as the lack of public 
interest harms--that would result from repealing the ban. There is no 
substantial evidence or data in the record supporting the ban.
    In particular, the evidence concerning the operations of the 40 or 
so grandfathered newspaper/broadcast combinations has essentially taken 
the guesswork out of eliminating the ban. These combinations have 
provided the Commission with illustrative case studies of the 
substantial public interest benefits that will result from repeal. 
Indeed, the extensive record before the FCC is replete with evidence of 
the clear public interest benefits offered by newspaper-affiliated 
broadcast stations. Representing the full gamut of market sizes, these 
co-owned facilities consistently have provided their home communities 
with unmatched levels of service.
    At the same time, there is simply no evidence that the existing 
combinations have threatened competition in their local markets. To the 
contrary, there is substantial record evidence before the FCC showing 
that even the smallest markets containing newspaper/broadcast 
combinations remain vibrantly diverse and competitive. The evidence 
offered by existing combinations further shows that co-owned outlets 
generally present diverse perspectives on news and informational 
issues. Jointly-owned newspapers and broadcast stations have strong 
economic and professional incentives to, and do in practice, avoid 
coordinating their viewpoints. It is important to note that, especially 
with newspaper ownership of broadcast stations, viewpoint diversity 
does not require ownership diversity. Local autonomy and editorial 
freedom is the tradition of newspapers, and the same principles apply 
to the operation of local stations by newspapers.
    The evidence presented by newspaper publishers and other parties 
has been confirmed by several recent studies on newspaper/broadcast 
cross-ownership. A study commissioned by the FCC in connection with its 
omnibus media ownership proceeding specifically found that 
``[a]ffiliates co-owned with newspapers experience noticeably greater 
success under our measures of quality and quantity of local news 
programming than other network affiliates.'' That conclusion was true 
even where the newspaper and TV station were located in different 
markets, and the results were even greater for combinations in the same 
markets. The results of a five-year study recently released by the 
Project for Excellence in Journalism at Columbia University echoes 
these findings. That study concluded that ``stations in cross-ownership 
situations were more than twice as likely to receive an `A' grade than 
were other stations'' and that, on the whole, these stations ``were 
more likely to do stories that focused on important community issues, 
more likely to provide a wide mix of opinions, and less likely to do 
celebrity human-interest features.'' In addition, dispelling any 
concern that newspaper/broadcast combinations will simply represent 
single, monolithic viewpoints, the FCC-commissioned studies also 
confirmed the extensive evidence already on the record that existing 
newspaper/broadcast combinations do not demonstrate a pattern of 
coordinating viewpoints on important political issues.
    Those who oppose relaxation of the antiquated newspaper/broadcast 
cross-ownership rule usually predict that mass, national consolidation 
of the newspaper and broadcast industries will happen if the rule is 
changed. I believe those predictions are unfounded. Instead, relaxation 
of the rules will result in dramatically improved information flow in 
each local market--market by market.
    Let me give you some examples close to home in my newspaper 
markets.

        Fairbanks, Alaska, is perhaps the most remote, isolated 
        community in America. There are four commercial television 
        stations in the market. All struggle financially. One station 
        covers news with a staff of eight, another has six, the third 
        has two and the fourth has no local news gathering capacity. My 
        newspaper employs 31 in the news department. Under today's 
        rules, my newspaper thrives with an award-winning news 
        presentation, while the television stations struggle to 
        broadcast even a small amount of local news. There are no 
        commercial news radio stations. In central and northern Alaska, 
        many communities cannot get my newspaper delivered, but they 
        can get television. Imagine how their lives could be improved 
        if I could put my 31 newsroom personnel behind television 
        coverage.

        In Eureka, California, in another remote section of the country 
        on the North Coast of California, there are four commercial 
        television stations. The strongest station has a news staff of 
        11, and the other three don't produce substantive local news. 
        My newspaper devotes 23 people to local news coverage. Imagine 
        the community service we could provide by putting these news 
        resources behind television and radio news, especially if we 
        purchase a station that produces no news today.

        I own a newspaper in Pittsfield, Massachusetts, which covers 
        the western quadrant of Massachusetts. There is no television 
        station there and never has been. But there is a license 
        allocated to the market. But with 51 newsroom employees at my 
        newspaper, I could serve this community with television news 
        for the first time ever. The current restraints, however, do 
        not allow that to happen.

        And let me talk about a larger market . . . Denver, Colorado. 
        There are at least three radio stations that call themselves 
        news stations, but they're really not news stations at all. 
        They are talk stations. The largest two have news-gathering 
        staffs of about six, and the other has five. Not much news-
        gathering resources. But the two newspapers managed by the 
        Denver Newspaper Agency have combined news resources of almost 
        500. Imagine the public service we could provide by putting our 
        news assets behind a real, full-time news station.

    There are similar stories to be told in almost every American 
market. Newspapers will add new resources to struggling television and 
radio enterprises, and those broadcast outlets will strengthen 
newspapers as the number of media choices continue to explode in a 
changing media environment.
    The fact is that the communications world--and the media 
alternatives available to our citizens--has undergone a vast 
transformation since the newspaper/broadcast cross-ownership ban was 
adopted over a quarter of a century ago. Back in 1975, the FCC was 
concerned that daily newspapers might dominate the still-fledging 
television broadcast industry. Whatever merits that concern may have 
had nearly three decades ago, it simply has no place in today's media 
environment. For example, there are now 70 percent more radio outlets 
and 50 percent more television stations than there were in the 1970s. 
Now omnipresent cable and satellite television services were still in 
their infancy in 1975, and the Internet--with its vast potential for 
delivering news and information--was non-existent when the newspaper/
broadcast rule was adopted. Traditional media thus have been bombarded 
with a host of new, multi-media rivals in recent years.
    In this vastly diverse, competitive, and ever-growing environment, 
the ban on cross-ownership of daily newspapers and broadcast outlets 
plainly is not needed. Quite to the contrary, the extensive record 
before the agency demonstrates beyond question that the prohibition 
frustrates the achievement of significant and vitally needed operating 
efficiencies and, most importantly, deprives the public of enhanced 
local news and other new and innovative informational services.
    Based on that record evidence, the FCC is required by the terms of 
Congress' Biennial Review mandate to eliminate the archaic and wholly 
unnecessary cross-ownership prohibition.
    Thank you. I would be pleased to attempt to answer your questions.

    The Chairman. Well, thank you, Mr. Singleton, and thank all 
the witnesses already. It has been very interesting.
    Mr. Singleton, in your testimony you state that local 
autonomy and editorial freedom is the tradition of newspapers 
and the same principles apply to the operation of local 
stations by newspapers. Mr. Kimmelman, however, provides an 
example where this is not the case. ``One thing that has not 
changed over time,'' he says, ``is that owners have a bias. For 
example, of all the newspapers that have editorialized on the 
issue of whether the Government should give digital spectrum to 
the broadcasters during the debate in the 1996 
Telecommunications Act, every newspaper that did not have an 
ownership stake in a broadcast property editorialized against 
giving away the spectrum for free, and every newspaper that did 
have such an ownership stake editorialized in favor of the 
spectrum giveaway.'' Not a small issue either, Mr. Singleton. 
About $70 billion worth of an issue. One of the great giveaways 
in American history. Do you think that is an anomaly, or do you 
think that Mr. Kimmelman has a point?
    Mr. Singleton. Well, I cannot speak for other newspaper 
owners. I can speak for my newspapers. All of our editorial--
comments on our editorial pages are made by an independent 
editorial board of people who live in the local community and 
vote their own beliefs on that editorial board. I, as the 
owner, do not participate in their editorial decisions.
    The Chairman. Well, then, in all due respect, your 
comments, ``local autonomy and editorial freedom is a tradition 
of newspapers, and the same principles apply to the operation 
of local stations by newspapers,'' applies only to your 
newspaper.
    Mr. Singleton. No, I think that is true of most newspaper 
companies.
    The Chairman. That is why I go back to my previous 
question. If you are talking about your newspaper, if you are 
here to testify about your newspaper, fine. But if you are here 
to testify as a witness on the larger issue, then it seems to 
me you could address this issue, that every newspaper that was 
owned by a broadcaster editorialized in favor of a $70 billion 
giveaway, every newspaper that was not associated editorialized 
the other way. Do you think that is an anomaly?
    Mr. Singleton. I do. It is my experience that most 
newspaper companies leave editorial comment to their local 
editorial boards.
    The Chairman. So it was a coincidence.
    Mr. Blethen, we have examples of newspapers and television 
stations cross-ownership, right? And we have them, in the case 
of New York, New York Post and WWR and WNYW, the Tribune, and 
the Los Angeles Times, and KTLA Tribune, Chicago Tribune, and 
WG and Cox Atlanta Journal, Constitution, and WSV, Gannett, 
Arizona Republic, and KPNX, et cetera. Have you seen any 
stifling of localism, diversity, or in competition as a result 
of these major--and there are many others, but these are major 
markets in America?
    Mr. Blethen. Well, absolutely, and I would take issue with 
my friend, Dean Singleton, that I think ownership does matter. 
And if you have Wall-Street-controlled ownership, ultimately 
there is a chill over what you comment on and what you do not. 
To my knowledge, there has been only one conglomerate newspaper 
that has editorialized against a repeal of the cross-ownership 
rule, and that is by the Philadelphia Inquirer, who is owned by 
a newspaper company that is public but is pure newspaper. I 
think if you look at what all the other chain and conglomerate 
newspaper editorials have said, you would find the same result 
you did in spectrum, that, uniformly, they have been 
editorializing for cross-ownership repeal----
    The Chairman. But have you seen----
    Mr. Blethen.--and relaxing any of the rules.
    The Chairman.--any examples of a lack or reduction in 
localism, diversity, and competition as a result of this cross-
ownership?
    Mr. Blethen. Absolutely. I think any city you go to where 
you have this cross-ownership, you have reduced voices. Our 
industry, the newspaper industry, has gone through some of the 
most massive disinvestment and layoff in the last half-dozen 
years that it has ever experienced. Chain-owned newspapers are 
smaller, there is less original news. And what they talk about 
is not synergism anymore, but how they are going to reduce 
expenses by doing cross-ownership.
    The Chairman. Mr. Goodmon, a Chicago Tribune article dated 
August 14, 2002, discusses local Fox affiliates' discontent 
with the network's airing of an episode of action show 24, 
commercial free. The affiliates wished to preempt the program; 
however Fox Networks Group president and CEO stated in the 
article, quote, ``Any station that does that is in violation of 
their contract and is in danger of losing their affiliation.'' 
Have any of the national broadcast networks ever threatened to 
pull your or other affiliation due to your decision to preempt 
network programming?
    Mr. Goodmon. Let me buildup to that. In our Fox agreement, 
there is what is called the ``three-strikes rule.'' And that is 
if you preempt the network and they do not approve it, after 
the third time you do that they have the right to pull your 
affiliation agreement.
    Now, the preemption that we did for ``Marry a 
Millionaire,'' ``Temptation Island,'' and ``Married by 
America,'' it took us a little while, but we made those 
preemptions under our community-standards part of the contract. 
Now, in getting through that, it took Fox a little while to get 
to that. I mean, there was some suggestion, and one of the 
station reps suggested to us if we did not like their 
programming, why did we not sell the station to them? My notion 
about that is, ``I didn't say I didn't like Fox or didn't want 
to be a Fox affiliate. I'm trying to decide what programming I 
think should be in our market.''
    But there is, clearly in the contract, if you have three 
preemptions that they do not approve that are not community 
standards--oh, there was one case where we had the chance to 
get the Duke-Maryland game. They were number one and number two 
in America. And Fox said, no, it will be the third strike, 
because they did not want us to preempt their--that would be, 
sort of, what I would call a ``business preemption.''
    So I would not say that we have been threatened. I would 
say it is in the agreement. I mean, it is part of the network 
agreement.
    If I may add one thing, Senator, we have, in Raleigh, a 
news-sharing agreement with the local paper. We are just 
getting into this. They use our weather. We have their reporter 
on our 11 o'clock news. My point is, there are a lot of news-
sharing agreements that can come about without joint ownership.
    The Chairman. Mr. Karmazin, you should have the ability to 
respond. Go ahead.
    Mr. Karmazin. First of all, the idea of a fixed number of 
stations. We own 35. There are 1,100 commercial television 
stations. So what we are talking about is approximately 3.5 
percent of this fixed number of stations.
    I do not have a horse in the race on newspapers, that we 
have no plans that if the broadcast/newspaper----
    The Chairman. Mr. Goodmon raised the point that five 
companies control 60 percent of news and entertainment 
programming.
    Mr. Karmazin. Yes, I have no idea where that statistic came 
from. I certainly know that there are unlimited number of 
choices out there. It sounds to me like not a real number. It 
depends upon how you count things. But I think that there is 
just--if you include the Internet--the last time I testified, 
there wasn't even here a Fox news network. You know, when I 
started coming here there was CNN. There are far more choices. 
For the first time this year, the cable audiences have exceeded 
the broadcast audiences.
    The other thing that I agree on is that television stations 
are very profitable businesses. So the idea of when Mr. Goodmon 
says that it is a very good business, it is. The idea of a 
broadcast network is a less-good business. We are not crying 
poverty, we are not asking for a collection. What we are saying 
is that if there is an interest--if there is an interest--to 
keep the NFL on free, over-the-air broadcast television, 
because we have seen that there is now a Sunday-night package 
that is on cable, how long before we see another package when 
the broadcasters are not going to pay for the NFL? We have seen 
the NBA migrating more to a cable model.
    You know, companies like ours that are involved in a bunch 
of different businesses, we have a choice as to where we 
allocate resources. We are very committed to this free market. 
We believe in localism. Our general managers are in the market. 
It is no different than these newspaper companies that own 
television stations. They are not sitting all in their local 
market. They have got the same local managers that we have 
sitting in our local managers.
    If you are going to be a good television station, you are 
going to do all the things that Mr. Goodmon says. You are going 
to serve your community, you are going to serve your 
advertisers, you are going to serve the public interest. 
Localism is all about that.
    We have stations--our affiliate in New York, which is an 
owned and operated station, Channel 2, preempts the network to 
run the Yankees. They preempt our network to run the Yankees. 
Someone has got to pay for the people we are sending into Iraq 
to cover the news. Somebody has got to pay for the NCAA 
tournament, because the affiliates are not paying. The network 
is paying and giving it to them.
    And, by the way, including our good affiliate here, we are 
paying them. So the fact that Fox might expect them to run 
their programming is, in part, because Fox is also paying them 
to do that in the form of comp.
    The Chairman. Senator Dorgan?
    Senator Dorgan. Mr. Karmazin, you are very good. I 
followed, almost for the last year, all of the discussions 
about the leadership issues in your corporation and the stakes 
that were involved for your continued leadership, and I 
understand why. You are very good.
    You, in response to the chart I put up, seemed to suggest, 
``You know, gosh, we are just kind of a mom-and-pop operation, 
and mom ain't doing so well, and there are so many voices and 
there's so much opportunity out there that--do not worry about 
concentration.'' And yet 90 percent of the top-50 cable 
channels are owned by the top four television and cable 
networks. You know what has happened with respect to both radio 
and television concentration. And you talked just a moment ago 
about free market and localism. And it seems to me that 
concentration and the words ``free market'' and ``localism'' 
travel in opposite directions, inevitably. Is there a point at 
which you think that there are appropriate limits to be placed 
on ownership with respect to broadcast stations? If so, what is 
that?
    Mr. Karmazin. Well, let me give you an example, Senator. We 
own, in New York City, a TV station, Channel 2, which has its 
own independent local news operation. We also own CBS network. 
And, by the way, I love all this stuff about publicly traded 
companies. I believe the assumption is that as a publicly 
traded company, I am calling Mike Wallace and I am calling Don 
Hewitt, and I am telling them what companies to do stories on 
on 60 Minutes. Anyone who has ever watched 60 Minutes or got 
that famous phone call from Mike Wallace, OK, will know that 
that is not the case. There is as much news integrity at 
publicly traded companies as anywhere else.
    I believe, in the area where we are dealing with today, I 
believe there are antitrust laws, I think that there is a role 
for Government. All that has happened is----
    Senator Dorgan. Do you think there should be limits?
    Mr. Karmazin. Ithink that there should be limits when those 
limits are justified for good reason.
    Senator Dorgan. Can you----
    Mr. Karmazin. So, absolutely.
    Senator Dorgan.--tell us when they are justified?
    Mr. Karmazin. I am sorry?
    Senator Dorgan. Can you tell us when they are justified?
    Mr. Karmazin. They are justified when one company has six 
radio stations out of six in that market. But it is not 
justified when one company can only have eight out of 100 in 
New York. That is not justified, and I believe the courts will 
see our side of that argument more than the argument, if that 
rule stayed, that says that.
    There is also--the courts have said there is no argument 
for the 35 percent cap. So that is why we are here. So if there 
is an argument----
    Senator Dorgan. Well----
    Mr. Karmazin.--make it----
    Senator Dorgan. Yes. Let me just say, on the 35 percent 
cap, you know, in 1996, when we had the bill on the floor of 
the Senate, I am the one that offered the amendment that would 
have struck the cap and reverted back to the 25 percent. And I 
actually won that vote about 4:30 in the afternoon. And I 
thought, this is a pretty big deal, winning a vote on the floor 
of the Senate. And then dinner intervened, and several Senators 
had an epiphany over dinner, and we came back and had a re-vote 
and I lost. So I won----
    Mr. Karmazin. Senator----
    Senator Dorgan.--for about 4 hours.
    Mr. Karmazin.--if, in fact, it went the way it was supposed 
to, had you had a drink after dinner we would have the cap 
totally eliminated.
    Senator Dorgan. Yes, we do not drink up here.
    Mr. Karmazin. OK.
    [Laughter.]
    Senator Dorgan. You are thinking of New York. We do not 
drink here.
    [Laughter.]
    Senator Dorgan. But let me ask Mr. Goodmon--Mr. Goodmon, 
this issue that Mr. Karmazin discusses, we are just bit players 
in New York. It is a giant market. We are just bit players. 
And, therefore, using that extrapolation, let us relax the 
ownership rules. How do you respond to that? He has made that 
point twice.
    Mr. Goodmon. Right, I would have the--I actually got these 
from Fox--of the top 200 channels in New York, program 
channels, 189 of them are broadcast channels. I mean, broadcast 
is clearly the dominant media. When Bush did one of his 
speeches about the war, the broadcast networks had 50 million 
viewers, and all the cable networks put together had ten or 
eleven. I mean, the horsepower is with the broadcast stations.
    And Mr. Karmazin wants to talk about 1,300 and put a number 
to that. You have got to see where the stations are. You know, 
5 percent of the country is in New York. I mean, the way we do 
this is what percentage of the total country do you cover in 
people, not in numbers of markets.
    And I do want to say this about the court. My reading, 
which is just my reading, is the court said, ``Look, this 35 
percent rule, you guys did not give us a reason.'' They did not 
say, ``You have got a bad reason.'' They said, ``You have to 
give us a reason.'' And they further said, and they double-
negatived, it was really hard to understand, ``We do not think 
that you cannot establish a cap and make it stick.'' I mean, 
the court believes that there should be a cap, and they believe 
that the Commission should establish it, and they want the 
Commission to defend it. They never said, ``You cannot have a 
cap.'' I mean, that is----
    Senator Dorgan. All right.
    Mr. Karmazin, in order to retain some shred of credibility, 
I had better amend my statement when I said there is no 
drinking in Washington. Clearly I must have been jesting.
    [Laughter.]
    Senator Dorgan. But let me ask Mr. Blethen, on this issue 
of concentration, you heard the comments about localism and 
competition and diversity. I thought your statement and Mr. 
Goodmon's statement were particularly effective dealing with 
these issues.
    What do you think will happen if the FCC takes full measure 
of its opportunity and does a kind of a ``Katie, bar the door'' 
ruling here and we substantially relax the limits and move 
ahead? What is the future look like to you in that 
circumstance?
    Mr. Blethen. Well, you know, one hates to be accused of 
being overly dramatic, but I think we see the beginning and the 
end of our democracy. All you have to do is look at the 
decrease in a variety of voices, an investment in news and 
editorial, and the increase in concentration in the last 20 
years and project that forward another 10 to 20 years, we have 
got no watchdog, we have got no free press left.
    For the last 2 years, most of the trade media, at least the 
newspaper trade media, has been speculating on all of the 
rumored deals that the large companies have been talking about. 
They have been planning deals to start swapping newspapers and 
TV stations and start having big chains take over small chains. 
They have been planning this for 2 years. They have been buying 
cross-ownerships in places like Phoenix and L.A. in 
anticipation of the rule being repealed, they are so sure it is 
going to be repealed.
    It is going to be a sad day for America if this happens.
    Mr. Singleton. Senator, may I comment on that?
    Senator Dorgan. Yes.
    Mr. Singleton. Frank, who is a dear friend of mine, likes 
to make it look like the world is going to come to an end 
because groups own newspapers. In fact, he is a group who owns 
many newspapers himself, and the reason he is in Maine and I am 
not is he bid more money to buy the newspaper than I did.
    But there is not a big concentration in the newspaper 
industry. There are 13 public companies that own newspapers in 
America, and they account for 22 percent of the daily 
newspapers published in the country, which means there are 78 
percent of the daily newspapers published in America that are 
owned by independent privately owned family companies, like 
mine. And this woe that is going to happen because of some 
relaxation of the rules belies the fact that 78 percent of the 
daily newspapers in the country are owned by independents, like 
us and like Frank's family.
    Mr. Blethen. I could respond, but I do not think that is 
what you want me to do.
    Senator Dorgan. Mr. Chairman, I think I am out of time, but 
if I could ask just one additional question of Mr. Goodmon, and 
ask for a very short answer.
    Mr. Goodmon, I asked, when I began my opening statement, I 
rhetorically asked about the meeting that I referred to with 
Chairman Powell, in which news reports had you quoted as 
saying, ``Let's Make a Deal,'' atmosphere. Can you amplify on 
that and what you know or what you think you know happened at 
these meetings?
    Mr. Goodmon. Well, as you know, we have--it is not just the 
cap which I am talking about; it is newspapers duopolies, there 
are several proceedings in here.
    Senator Dorgan. That is correct.
    Mr. Goodmon. And what it looks like, what it has been 
looking like for some time, is the idea is, you know, I will 
support--you know, if you want me to do the ownership, then you 
have got to support the newspapers, or I will do the 
duopolies--I mean, there is sort of a very bad way--each one of 
these things needs to be separate--so they looked to be like 
there was some trading. I did not say anything about that until 
a letter was released by Belo suggesting that they would change 
their position on the cap--they would have been against the cap 
for 100 years--in return for the Commission acting--those are 
his words--in return for the Commission acting favorably on the 
NASA petition, which is not even part of the ownership.
    Senator Dorgan. Right.
    Mr. Goodmon. So then I had something to bring this up and 
say, ``Do we really want to do these ownership rules, you know, 
with newspaper duopolies and everybody sort of trading 
around?'' And I think there has been some maneuvering in order 
to get the votes.
    Senator Dorgan. Mr. Chairman, you have put together a 
really excellent panel. I think this panel, more than most any 
I have seen, shows the contrast in views on these issues. Thank 
you for bringing the panel to us.
    The Chairman. Thank you. Senator Burns?
    Senator Burns. Thank you very much, Mr. Chairman.
    Mr. Goodmon, I have more than a passing interest in 
Raleigh----
    Mr. Goodmon. Yes, sir.
    Senator Burns.--North Carolina.
    Mr. Goodmon. Yes, sir.
    Senator Burns. And you know what that connection is.
    Mr. Goodmon. Yes, sir. He told me to tell you hello.
    [Laughter.]
    Senator Burns. But I am interested in these preemptions.
    Mr. Goodmon. Right.
    Senator Burns. Even though it may be in the contract that 
you have with your network, if you view something that clearly 
that your community does not want and finds it runs counter-
culture to their community. Do you mean to tell me that Fox, 
that is a one-time--if you exempt them, that is a strike one?
    Mr. Goodmon. No. If we invoke the community-standards 
clause--that has been done very seldom--then it is not a 
strike. A strike is if we decide to run a basketball game 
instead of the network or we decide to preempt for some 
business or programming reason. That is a strike. A community-
standards is not a strike and--now we had to work on that, but 
I think the network now understands that point of view.
    Senator Burns. Well, that sort of concerns me. And does 
Viacom, with their affiliates, do they have the same kind of a 
contract, Mr. Karmazin, as--with their non-owned stations, with 
their O&Os--not with their O&Os?
    Mr. Karmazin. I understand the question. What we negotiate 
when we negotiate an affiliation agreement includes an amount 
of preemptions. So in Mr. Goodmon's contract with CBS, he has 
an amount of opportunity to preempt for whatever reasons he 
chooses to preempt our network. OK? We like it as little as 
possible, because we need to have Raleigh covered in our 
market. But there is a negotiation by the broadcaster and our 
affiliate-relations department on the amount of preemptions one 
can do, because you cannot have a network unless you have an 
affiliate system. So if the affiliates are not going to run it, 
you are not going to have a network.
    So I will also tell you that this whole right-to-reject 
argument is so bogus as it applies to us--I cannot tell about 
Fox, and I doubt it is an issue with Fox--is that the existing 
preemption level that exists in the contracts today have not 
been approached. The affiliates have the right, but do not, of 
preempt. Those facts are available, they are quantifiable, and 
we have them.
    Senator Burns. Now, you say you own 35 stations in Viacom, 
and now is there a difference between the preemption rates with 
the O&Os and the independents?
    Mr. Karmazin. They are both negligible. My guess would be 
that the CBS owned-and-operated stations would be more inclined 
to deal with the programs. We do not take our programming 
recommendations from our affiliates. That would be chaotic, 
because there would be no way to have 212 people in the room in 
deciding what programs go on the air. But the CBS owned-and-
operated stations are in the room. So when the decision is made 
to air programming and what programming is appropriate, the 
person who runs our owned-and-operated stations would 
participate in that decision and more inclined----
    And, by the way, if you go down the list of who is 
preempting, the other networks--so let us forget the fact that 
there would be nothing anybody would ever want to preempt on 
CBS, but let us assume the other networks. The amount of 
preemptions are de minimus. It is a non-issue.
    Senator Burns. OK, now, we learned from this business of 
concentration, and my good friend from North Dakota, we have 
suffered in our States from concentration, and we understand 
what it does and what it is going to do to the industry that is 
number one in each one of our States. We are seeing three 
packers kill 85 percent of the fat cattle in this country. Now, 
I know we are not in an Ag Committee meeting here, and maybe 
most of you do not know much about that, but some of you do, or 
some have got a grain or two. We know that--and also in our 
market for our grains.
    We see this happening, because there is--and from the 
testimony that was offered to this committee in the hearing 
that the Chairman on radio concentration, we heard about 
outdoor advertising, we heard about venues, we heard about a 
lot of--for entertainment--the control; other words, the 
horizontal and vertical integration that happens.
    Because basically, folks, market power, we are talking 
about advertising dollars. Now, we might want to talk about 
this great thing about diversity and news and is it balanced 
and are they going to endorse me or the other guy or this idea 
or are they limiting voices. Basically, we are talking about 
advertising dollars, because that is what drives our industry. 
That is what keeps us on the air. That is what keeps our 
printing presses running. But whenever you get the integration 
thing going, then that is market power, and then it is very 
difficult for a little independent in Bismarck, North Dakota, 
to go against a big conglomerate that comes in and owns maybe 
seven stations out of the eight, because that is pretty tough.
    So I think what we are talking about here is we have to be 
very careful on the impact of especially vertical integration, 
because of the market power it gives in a local market, even 
though they may be managed from Wall Street. And that is what 
we have to worry about more than anything else, especially in 
rural areas, and that is why we are concerned about this, and 
we will continue to monitor that.
    And I thank the Chairman.
    The Chairman. Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Karmazin, let me tell you what happened in Eugene, 
Oregon, so we walk through sort of a specific case.
    The community very much wants a 10 p.m. news broadcast, and 
the network said, ``No, we are not going to do it. It is going 
to get in the way of national programming.'' The network sent 
to the local affiliate a letter saying, and I will quote here, 
what their interest was, was ``to have a consistent national 
pattern of distribution.'' Those were their words from the 
network to the local affiliate talking about a newscast at 10 
p.m. in the evening. Are you telling me that kind of thing is 
rare, that we do not see much of that? Because I think, to my 
colleagues, what you said was, ``Hey, this business about, you 
know, preempting, you know, local coverage hardly ever 
happens.'' Well, that is not what the network affiliates, the 
local people, tell me in Oregon. And this is a specific, 
concrete case of something that is important to the community, 
news.
    Mr. Karmazin. OK, so I cannot speak for Eugene, Oregon. But 
let us assume that in America there is nobody requiring the 
owner of that station to be a network affiliate, that if that 
station thinks that they can serve that community better by 
doing a 10 o'clock news and a 9 o'clock news and an 8 o'clock 
news, they do not have to carry the network. So I do not think 
it is quite that simple that there is the issue that--in 
Eugene, Oregon.
    On the other hand, there is still the ability of the people 
in Eugene, Oregon, to decide if, in fact, they want a 10 
o'clock news. I do not know. I am, unfortunately, a little 
naive about the number of TV stations that are licensed or 
available in Eugene, Oregon. If you gave me some help----
    Senator Wyden. Mr. Karmazin, you are saying that this 
particular station could have exercised their constitutional 
right to go broke. I understand that.
    Mr. Karmazin. I do not believe that that is the----
    Senator Wyden. I understand that. They wanted some news, 
and I do not think it is rare.
    Mr. Karmazin. If you are saying that it is the networks 
that are making these stations rich so that they do not go 
broke, that is part of the reason that--what we are saying; it 
is the network, OK, that is bearing the cost so that the 
stations do not have the costs. So, yes, you are getting right 
to my point, which is the fact that being an affiliate--when I 
die and come back, I want to come back as an affiliate.
    [Laughter.]
    Senator Wyden. All right.
    Mr. Blethen, when the companies talk about efficiencies and 
economies of scale as justification for consolidation, I think 
we need to look at what that really means in practice. There 
was an article in the Columbia Journalism Review that recently 
noted that when TV stations in the same market combine, and I 
will quote here, ``it often means combining news staffs and 
resources, reducing the richness of the community's news 
diet.'' What is your sense? Is that as prevalent as this 
particular journalism review seems to suggest?
    Mr. Blethen. Well, even the people advocating cross-
ownership repeal no longer talk very much about convergence or 
synergism, which they used to, because it has been proven not 
to be there.
    When you look at newspapers and you look at TV, you are 
talking about two very different kinds of enterprises, and 
there have been these attempts to try to turn reporters and 
editors into technicians, carrying cameras and carrying 
microphones, and they have not worked. They have distracted 
from the journalism that they did, and they have not worked in 
terms of enhancing anything. And even the people advocating 
this will now admit that there are really two things they can--
three things--they are able to cut costs, because they can cut 
the news and public-service presentations because they no 
longer have a competitor; they gain market power and eliminate 
a competitor; and they can raise rates.
    Senator Wyden. All right. One last question for you, Mr. 
Karmazin, with respect to this question of conflicts of 
interest, because I think, as much as anything, what I am 
concerned about is the prospect that it is going to be harder 
for people to blow the whistle. I looked, for example, I 
mentioned in my opening statement the question of reporters, 
for example, being willing to dig into accounting 
irregularities at a parent corporation. And you all now own 15 
broadcast stations and--excuse me, in 1996 you owned 15 
broadcast stations; today, you are at 35. In 1996, you owned 
one cable station; today, you own 25. You own Paramount, UPN 
Network, Simon & Schuster. The subsidiary, Infinity 
Broadcasting, owns 180 stations, not to mention the Internet 
interests, CBS.com, PBD.com, MTV.com, CBSSportsline.com, and 
you have got the 50 percent interest in Comedy Central.
    Now, I think you have made the argument with respect to the 
fact that you do not call people up and say, ``Hey, you know, 
bag that story.'' I understand that, and nobody thinks that 
kind of thing goes on. But are not you a little bit troubled 
about the potential for conflicts of interest that are going to 
make it a little less likely for people, in areas such as the 
question of accounting fraud, to be willing to spend the time 
knowing that it is going to be hard to justify to somebody at 
the top, at the parent?
    Mr. Karmazin. Not the least. And I will point to Fortune 
Magazine, which is owned by AOL/Time Warner. And if you ever 
wanted to take a look at a magazine who was critical of a 
merger, it is Fortune Magazine being critical of its own parent 
company. So, no, I have seen countless examples of where that 
does not work.
    And thank you for the commercial on our assets, but I would 
go back to our revenues. So all of those things you have added 
together come to $12-1/2 billion in advertising out of $300 
billion. What percentage do you feel is so concentrated? 
Because we are certainly nowhere there.
    Senator Wyden. My time is just about up, and I guess I am 
not willing today to pluck a percentage out of the air, but I 
do think that the policies that we have today, which have put 
basically a tremendous number of eggs in the basket of five 
powerful interests, is producing the kind of thing we are 
seeing right now in Eugene, Oregon, which you have basically 
said, ``Hey, look, if you want a newscast, then, you know, so 
be it, and I guess you are going to go broke in the process.'' 
I think the country deserves better, and I think it is possible 
for people to make money and to be profitable, at the same time 
be sensitive to local interests. And my concern is we are 
draining the lifeblood out of what a lot of communities in this 
country want, particularly in my home State, which is 3,000 
miles from a lot of these major markets, and that is why you 
are hearing a bipartisan point.
    Senator Dorgan. Would the Senator yield for just a quick 
point?
    Senator Wyden. Of course.
    Senator Dorgan. Mr. Karmazin's response to you, that if 
that station in Eugene, Oregon, says, ``No, we are going to do 
this newscast,'' that they would yank the CBS affiliate status, 
I mean, that is exactly the opposite of localism, is it not? I 
mean, localism would be giving people at home the opportunity 
to make local decisions. But saying, ``You go ahead and make 
your local decision. We will yank your affiliation with CBS,'' 
is that not exactly moving in the opposite direction?
    Mr. Karmazin. No, I totally disagree. That is not it at 
all. The idea is that--and, by the way, I have lived in this 
country longer than you, because I am older, so I believe in 
the same rights of the people in this country as you do. What I 
am saying about a network is when a station--usually the 
network relationship has a term, there is a term, and two 
people sit down and they decide, ``Do you want to be a network 
affiliate, or don't you?'' And if, in fact, you do, then you 
are expected to run the network. It means if something local 
happens, you want to preempt it, you get a certain amount of 
preemptions you are entitled to, but if you decide that instead 
of watching 60 Minutes, instead of watching--a local affiliate 
says, ``You know what? I do not want it to air 60 Minutes 
because it is too controversial, you know, to my community or 
something.'' If that is the reason, so be it. But if what they 
are saying is they can make more money by preempting 60 Minutes 
and running an info-commercial or they can make more money 
running something else, that is not what makes a network exist. 
You have to have a national coverage. You cannot not have 
Eugene, Oregon. So if we cannot clear our program in Eugene, 
Oregon, then the advertisers in that program, the performer in 
that program--so let us assume it was one of our lower rated 
shows, one of our news magazines. Our feeling is the people in 
Eugene, Oregon, have a right to see that news magazine, so we 
will have to go to another station to find somebody willing to 
carry that program. It is not like we want to deprive it from 
Eugene, Oregon.
    Senator Wyden. Mr. Chairman, my time is up. I just want to 
acknowledge that I think there will be tensions between the 
desire for national coverage and localism. But what has 
happened is all the trends now are against localism, and that 
is why we have got a significant community in my state without 
a 10 o'clock newscast. And that is the bottom line.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Goodmon, you were eager to comment.
    Mr. Goodmon. Yes, sir.
    You know, I want to point out that there is not anything in 
localism or diversity or competition that has to do with 
percentage of advertising. We keep talking about these business 
terms. What we are talking about is voices. We are talking 
about control.
    But, now, there is an obvious conflict between the 
affiliate and the network. I mean, it goes on at--CBS pays me 
because of the situation I am in. Because I am in another 
situation, I have to pay Fox. I mean, everything--there are all 
these different situations.
    Now, if, if, you allow the networks to own the local 
affiliates, then there is no balance. We do not have a chance. 
There will be no negotiation. Mr. Karmazin buys a station in 
Raleigh, he can own more stations. I am not a CBS affiliate 
anymore. I mean, there is a--we have got this very important 
national network programming, and we have got this very 
important local programming, and we have a great system. And 
the deal is to keep it in balance. And what I am afraid is 
going to happen is we are going to get out of balance. The 
affiliates need to have some--I will point out this--when the 
rule changed from 25 to 35, since that happened, preemptions 
have gone way down. I mean, we are scared. We are scared. The 
balance is in favor of the network, and getting more so that 
way. And as they own more stations, it is more in their favor.
    Now, I think that this is--it is not one or the other. We 
need the networks. We need the local stations. So where is the 
balance? And I am suggesting that if you let the networks own 
more and more stations, then those stations are going to be 
programmed nationally. They are going to make the decision 
nationally as to what is on that station. And the local 
operators will not get an affiliation.
    We just need a balance here. And my suggestion is we have 
got a pretty good one.
    The Chairman. Senator Sununu? I apologize. I had misplaced 
him in the order in the opening statements.
    Senator Sununu. And I am enraged.
    [Laughter.]
    Senator Sununu.  And I want you to know that, Mr. Chairman.
    Well, Mr. Blethen, how many newspapers do you own?
    Mr. Blethen. We own six.
    Senator Sununu.  Six?
    And, Mr. Singleton, how many do you own?
    Mr. Singleton. We own 50.
    Senator Sununu.  Fifty.
    Mr. Blethen, how long have you been in the newspaper 
business?
    Mr. Blethen. My entire life.
    Senator Sununu.  How many papers did you own, say, 30 years 
ago?
    Mr. Blethen. Two.
    Senator Sununu.  Two. Now, you talked about the 1,700 
newspapers, and now there are only 280 independents. How many 
of those 1,700 do the 280 own?
    Mr. Blethen. I am not sure I completely tracked the 
question, but I think what the answer is, is when you look at--
--
    Senator Sununu.  Well, let me be clear. You said there are 
1,700 newspaper voices deeply connected to the communities they 
serve.
    Mr. Blethen. Right.
    Senator Sununu.  Today there are fewer than 280 left. Are 
you saying the 1,700 have gone down to 280 independents?
    Mr. Blethen. No, there are about 1,500 newspapers left in 
America, and about 280 of them are classified as independents. 
And the----
    Senator Sununu.  Do you consider yourself an independent?
    Mr. Blethen. I consider us an independent.
    Senator Sununu.  But you own six papers.
    Mr. Blethen. We own papers in two states where we have, in 
one state, 108-year family connection; and, in one state, a 
300-year family connection. We have no intention of ever owning 
any newspapers outside of states that we deeply care about----
    Senator Sununu.  But my point is, obviously, that you are 
partly responsible for this consolidation, and you suggest that 
at the beginning of your career, when there were more of these 
papers, American democracy appeared secure because there were 
1,700 voices. Today, there are fewer than 280. Does that mean 
that, as a participant in this consolidation, you are a threat 
to democracy?
    Mr. Blethen. No, it is a great question, and you phrase it 
very well. The fact of the matter is, I have never taken 
objection with some level of size or scale in newspaper 
ownership.
    Senator Sununu. Is Mr. Singleton a threat to democracy?
    Mr. Blethen. Yes.
    [Laughter.]
    Mr. Blethen. What I object to is----
    Senator Sununu. And I appreciate----
    Mr. Blethen.--54 newspapers and----
    Senator Sununu.--the candidness of your response, but I 
think it is an outrageous response. I think to suggest that a 
business owner that happens to own 50 newspapers, by virtue of 
his ownership of 50 newspapers, is somehow a threat to 
democracy, I think that is an outrageous statement. And I will 
certainly give you time to amplify it a little bit, but it is a 
strong charge, and I think it is an inappropriate charge. But, 
please, give your side of the story.
    Mr. Blethen. There are two things that matter, whether it 
is absentee ownership and whether it is Wall-Street-controlled 
ownership. And what we are seeing in the----
    Senator Sununu. Which does Mr. Singleton represent?
    Mr. Blethen. He represents both. He is not a public 
company, but he has financed his newspaper chain through heavy 
debt, dealing extensively with bankers and Wall Street folks.
    Senator Sununu. Mr. Singleton----
    Mr. Blethen. My----
    Senator Sununu. Mr. Singleton, who did you----
    The Chairman. Senator Sununu?
    Senator Sununu. --borrow your money from?
    The Chairman. Senator Sununu, please let the witness 
respond.
    Go ahead, Mr. Blethen.
    Mr. Blethen. In the America I talked about that--30 years 
ago, most ownership was connected to the city or the region. 
Today, that is not the case. And when your newsrooms are run by 
people who are absentee owners, in effect, who do not have any 
connection with the community that they are involved in, you 
get a different brand of commitment and a different brand of 
journalism. When you make the next step, and you go to publicly 
traded ownership, you only have one fiduciary responsibility, 
and that is your short-term stock prices and your short-term 
earnings, and it is not journalism, and it is not community 
service.
    I am going on my 18th year as publisher of my newspaper, 
and I have not hit the average yet. The Hearst newspaper we 
compete with averages a new publisher about every 5 years.
    Senator Sununu.  Mr. Singleton, how do you respond to the 
charge that your local newspapers are not committed to the 
communities they serve, and that because you have borrowed 
money, somehow you owe fealty to Wall Street?
    Mr. Singleton. I think it is preposterous. Our company is 
owned by two families, one family in New Jersey that goes back 
in this business to 1852 in this business. We are a privately-
owned company owned by two families that are expansion minded. 
Yes, we borrow money. But I suspect my debt ratio is no higher 
than Mr. Blethen's debt ratio.
    To say that we are a problem because we have 50, but he is 
not a problem because he has 6 really makes no sense. And it 
gets into the emotional issue that we are talking about.
    The facts are the facts. There are 13 public companies that 
own newspapers, and they control 22 percent of the daily 
newspapers published in this country, and they put out some of 
the best newspapers in this country; not just because they are 
public. Being public does not get in the way of putting out 
good newspapers. But there are only 22 percent controlled by 
public companies; 78 percent are controlled--privately-owned, 
private families like mine and like Frank's and like many other 
private families. And to suggest that private families that own 
newspapers are a threat to democracy is not very credible.
    Mr. Blethen. Could I respond?
    Senator Sununu.  Well, I think you already did, and my time 
is limited. I mean, I think you responded to the exact point 
that was made, which is trying to justify the argument that by 
virtue of his ownership of 50 newspapers, he is a threat to 
democracy.
    Mr. Karmazin, you own local stations? Or you own TV 
stations, certainly. How many do you own?
    Mr. Karmazin. Local TV stations and local radio stations.
    Senator Sununu. How many TV stations?
    Mr. Karmazin. Thirty-five.
    Senator Sununu. Thirty-five stations. Do you do any local 
news on those stations?
    Mr. Karmazin. On all but one. Or two.
    Senator Sununu. Do you do any other local programming?
    Mr. Karmazin. Sure. Yes, obviously in order for our TV 
stations to be successful in the market, they have got to serve 
their local community. So, obviously, in addition to running 
the network, all of our stations do, with the exception of a 
couple, local news and local programming and local public 
affairs and local fund raising and the same kind of localism 
that any good television operator would do in any market.
    Senator Sununu.  Finally, let me just ask Mr. Blethen. You 
talked about cross-ownership. There are, I think, a couple of 
dozen, maybe a few dozen, cases where there is cross-ownership 
between newspapers and TVs. These have been grandfathered, I 
guess, over time or, in some cases, waivers have been given. 
You suggested earlier, in response to questioning, that somehow 
this cross-ownership results in less local value, less quality 
of news, or it somehow weakens the local connection, but you 
did not give any specific examples. Can you give an example of 
where there is a partnership or a consolidation between TV and 
the newspaper and that the quality of service has degraded and 
the local interests have not been served?
    Mr. Blethen. Spokane, Washington.
    Senator Sununu.  Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Would you like to elaborate?
    [Laughter.]
    Mr. Blethen. Well, I am already at risk of losing one 
friend, and I would kind of hate to----
    [Laughter.]
    Mr. Blethen. I am trying to save a few friends, and I would 
rather not elaborate.
    The Chairman. In the Committee, we try to stay with a time 
clock, but we also think it is most important to make the 
record complete. And I appreciate Senator Sununu's questions, 
and perhaps, for the record, you could elaborate on your answer 
to Senator Sununu's--I think it is an important question.
    Mr. Blethen. Well, it is a very good question, but let me 
elaborate in a little different fashion. Mr. Singleton referred 
to the Committee of Concerned Journalists and the Columbia 
study, which took a look at the 40 grandfather stations and 
came to the conclusion that they are two-and-a-half times more 
likely to have good news. What that does not tell you, though, 
is--it does not get under the individual makeup of each of 
those 40.
    I know in some of the newspaper associations comments, they 
have singled out Cedar Rapids, Iowa, as an example of this 
quality news. Well, Cedar Rapids, Iowa, is a third-generation 
family newspaper and television station that does some of the 
best journalism and public service in our country. Ownership 
matters. And I think if you get under those 40--and I am not 
sure where they all are--but when you get under those 40, what 
you are going to find is if you do not have ownership that is 
connected to those communities--and increasingly, that is the 
case--you get a disinvestment in the news on both the print 
side and the TV side.
    The Chairman. What happened to Spokane, Washington?
    Mr. Blethen. You are going to make me lose more friends, 
aren't you? Spokane, Washington, is a grandfather--it is a 
family-owned paper, it is a grandfathered situation. The family 
that owns the newspaper and the TV station has been involved in 
a major city redevelopment that has become very controversial. 
Even Editor and Publisher Magazine, which never criticizes the 
industry, criticized them for not covering it. The only 
coverage that has come out of this controversy, and there is 
lots of legal action around it now, has been by a struggling 
weekly that has been trying to get their story out.
    Senator Sununu. If I may conclude, Mr. Chairman, that 
suggests that you do not find cross-ownership a problem as long 
as the cross-ownership is not driven by people that uncaring 
and cold and do not really care about local content. And----
    Mr. Blethen. I find cross-ownership a problem whether it is 
public or whether it is private. You are making----
    Senator Sununu. But you are----
    Mr. Blethen.--35 percent margins--30, 35 percent on 
newspaper, 50 percent on TV. Why in the world do you need to 
combine your voice?
    Senator Sununu. Well, this is not a----
    Mr. Blethen. Why not remain a more----
    Senator Sununu.--question of who is making money. It should 
not be a question of who is making money and who is not making 
money and are they making enough money. I am certainly----
    Mr. Blethen. Except that is----
    Senator Sununu. I do not want the----
    Mr. Blethen.--that is the argument the advocates make for 
wanting to repeal cross-ownership, that they need it to 
compete.
    Senator Sununu. I have not heard that argument made, at 
least not in this panel. Maybe somebody will step up, maybe in 
the next panel, and make that argument. But you certainly have 
not refuted the facts of the study that show increased local 
content over all of these 40 combinations, and you have 
expressed the concern about the personality or the tenor or the 
management style of those involved in the consolidation. But I 
do not see that. There may be other reasons, but I do not see 
that as a basis for sound regulation.
    You have been very generous, Mr. Chairman.
    The Chairman. Thank you.
    Senator Lautenberg?
    Senator Lautenberg. Thanks, Mr. Chairman.
    This last discourse was kind of interesting, because it was 
said earlier that the FCC knows best about what ought to 
happen, and we legislators ought not to interfere. But we 
legislators can call one person's statement outrageous and talk 
about the other person as wanting to make money and all kinds 
of insinuation and accusations here.
    I would like to modify that a little bit, because what we 
should be interested in is encouraging commentary from the 
witnesses, to the fullest extent possible, that has relevance 
to whether or not we do anything to reexamine the law as it was 
promulgated.
    Mr. Singleton and I know each other a long time. I have not 
seen you. You look well. And, based on what I hear, you are 
doing OK.
    [Laughter.]
    Senator Lautenberg. I would ask you about a comment that 
was made apparently while I was out of the room or maybe in 
your statement--I did not see it--13 public companies owning 
just 22 percent of the newspapers. That was the statement that 
you made that----
    Mr. Singleton. That is correct.
    Senator Lautenberg. OK. I think the more relevant issue is, 
What percent of the circulation, percentage of the circulation, 
do these 13 companies account for?
    Mr. Singleton. Because they tend to own larger newspapers, 
they account for somewhere close to 50 percent.
    Senator Lautenberg. Wow.
    Mr. Singleton. Because they tend to own larger newspapers, 
they account for somewhere close to 50 percent.
    Senator Lautenberg. Wow. And I think that is really the 
issue. The question is--and I asked it in my initial comments--
What good does it do the public at large? What good does it do 
to promote interest, values, et cetera? I am not talking about 
a cleansing mechanism. I am just talking about--people can hear 
what they want. Mr. Singleton, you know very well that there is 
a chain in New Jersey that has newspapers around the country, 
some of which have very radicalized conservative views, some of 
which are more liberal. But the fact is that people are getting 
a chance to hear--or to read, rather, what it is that they 
choose to read, if there is competition.
    And I ask the question, once again, about what good does it 
do the public to have these ceilings lifted? Right now, the 
prospects are 45 percent. But what happens if we were to get 
down to where there were five papers, five media outlets that 
had all of the power? What possible good can come out of that 
kind, if I can call it, a deregulation of a standard? It is, 
after all, a public commodity that we are talking about--the 
airwaves, not so much directed at the newspapers, but the 
broadcasts over the airwaves. Does the public get better served 
as these companies get larger? I am afraid to ask Mr. Karmazin, 
because his--why do I not ask you that?
    [Laughter.]
    Mr. Karmazin. Thank you for asking.
    Yes, I do. Before the radio consolidation took place, in 
1996, there were about 60, six-zero, percent of all the radio 
stations losing money. Legitimate, not funny accounting. Losing 
money. The fact is today there are still 3,800 different owners 
of radio stations today. In order for you, as a businessman, to 
invest in your programming, to invest in your business, to hire 
people, you need to have a good business. So what you want to 
do--I cannot tell you the number, but what you need to do is 
have a healthy, free, over-the-air broadcasting system, because 
if, in fact, you did not have it, there would be no investment, 
there would be nobody covering the news, there would be nobody 
investing in their business, there would be nobody paying--I 
assume you listen to some New York radio every once in awhile, 
so we are paying Don Imus an awful lot of money to be on the 
radio. We think that serves the people of New York and New 
Jersey real well. The same, though you probably do not listen 
to Howard Stern, but the same thing for Howard Stern.
    Senator Lautenberg. Then you are deciding where my taste 
begins and ends, huh?
    Mr. Karmazin. Yes, I can tell in your phone calls.
    Senator Lautenberg. Get me out of that realm. How about 
public radio?
    [Laughter.]
    Mr. Karmazin. We have, as you know, two all-news radio 
stations. If we were not healthy, if we were not successful, we 
would consolidate the news room of CBS and WINS and have one 
all-news radio station. So it is very important, and it is very 
important to the public, to have a successful, free, over-the-
air broadcasting system.
    And, listen, I do not have a horse in this race, but I 
cannot let it go. To say that companies like the New York Times 
and Tribune and Gannett, these public companies, you know, are 
causing democracy to go away in the United States is bizarre to 
me. OK? I do not see it at all.
    Senator Lautenberg. Well, you obviously are expressing--I 
know it is not a self-interest opinion.
    Mr. Blethen. Could I respond to that, please?
    Senator Lautenberg. I would like you to.
    Mr. Blethen. I did not say the New York Times is making 
democracy going away, and I need to clarify. The New York 
Times, the Wall Street Journal, and the Washington Post are 
publicly companies, but they are controlled by the families. 
They are essentially private companies. And thank goodness that 
we do have them, because right now they are a beachhead against 
the pall that has been created in journalism in America today.
    Mr. Singleton. Senator Lautenberg, could I respond to that 
question, too?
    Senator Lautenberg. Sure.
    Mr. Singleton. I do not have a horse in cap rate 
percentage, but what we are talking about in newspapers and 
owning television in the same market, there are 40 stations 
last year who eliminated local news because they could not 
afford to produce it anymore, and there will be many, many more 
of those as network compensation goes away.
    We are saying we are in the news business in our markets. 
We do an excellent job with a lot of people covering local 
news. Let us use those resources to keep local news in stations 
that otherwise would not have local news. That goes by the 
wayside in this argument. We are trying to improve or even have 
local news in television markets where there is not much local 
news in the television markets.
    Senator Lautenberg. Mr. Goodmon, you are the only one who 
has not commented. Do you have a----
    Mr. Goodmon. I am enjoying this.
    [Laughter.]
    The Chairman. You need the microphone, Mr. Goodmon.
    Mr. Goodmon. What we are talking about, again, is localism. 
Mr. Karmazin says that broadcasting stations are very, very 
profitable. I would suggest there is nothing any more 
profitable than that. Next he says is that he has to own more 
because his network does not make much money. I cannot connect 
it. I mean, I do not know--that is certainly not in the 
communications. That is never mentioned network financial 
health. We are talking about localism, diversity, and 
competition.
    We have a fixed market here. The financial problems of 
other organizations--you do not want to throw away localism for 
that, and I will argue forever--I will argue forever that a 
local owner is better than a group owner, because the local 
owner is there. I mean, I know--I mean, I call it the ``haircut 
rule.'' When I get a haircut, and that is not often, but when I 
do, I hear about what is on my television station. Localism is 
very important. It is why we have them.
    In the Communications Act, it did not say we are going to 
have these national stations. It said we are going to have 
these local stations. And if there is a fixed number, we need 
as many owners as possible. And I do not understand why we are 
going to change this because Mr. Karmazin wants to make more 
money on his network.
    I am just--let us do a tax break or an oil well or 
something.
    [Laughter.]
    Mr. Goodmon. I mean, it does not--the two are not 
connected. Now, this relationship is really important. I love 
my network. I cannot go without my network. He cannot go 
without a local station. But this balance is very important, 
and we have got to have some say in what is cooking.
    Mr. Karmazin. But when I go to this affiliate, and I tell 
him the new AFC football contract is costing us so much money 
that we cannot afford to put it on our CBS network, we are 
going to put it on cable, he is going to sit there and say, 
``What is my network doing to me? Where is my network?'' The 
NCAA tournament costs us $6 billion. You know, then I am 
saying, ``OK, what is my network doing if they do not give me 
that program?'' If we do not do CSI, if we do not do the kind 
of programming our affiliates want, you know, they are not 
going to be affiliates.
    So I think it is sort of disingenuous to separate the 
network and the stations.
    Mr. Goodmon. Now, the FCC report that I read said that the 
networks are very profitable. I mean, maybe I will go back and 
look at that, but the FCC report said the networks are 
profitable. We will have a national system of broadcasting if 
you allow the networks to own the stations. They will determine 
all the programming. They do--the big groups. I am not just 
picking on the networks. The groups do it, too. A group will 
buy a program. It will call all of its stations and say, ``You 
are going to run this.'' They buy everything for the group, 
they program the group nationally, there is no local input. I 
mean, that is all I am saying.
    Mr. Karmazin. If you have----
    Senator Lautenberg. Mr. Chairman, I thank you very much for 
the time, Your Honor, but the witnesses--the case rests.
    [Laughter.]
    Mr. Karmazin. There are--let us assume the big networks, 
say--so Fox, Viacom, and CBS, Disney, and GE--you can call as a 
witness anyone in the financial community--I cannot speak for 
whatever the FCC report is--to determine the profitability of 
the broadcast networks. That data is available. Disney is 
losing hundreds of millions of dollars this year.
    Senator Lautenberg. Is some of that--since you are 
provoking this; forgive me a minute more, Mr. Chairman--does 
that talk to Disney's management?
    [Laughter.]
    Mr. Karmazin. I think Disney's management is terrific. I 
think Michael Eisner has done a great job for that company. I 
think it speaks to the complexity and the difficulties of 
running a business where the costs are going up, the audiences 
are going down, there is far more competition; and the best way 
to solve it is relaxing the ownership rule.
    Senator Lautenberg. I come out of the corporate world, and 
I ran a pretty good company, I think that Dean Singleton knows, 
and we have done well because we worked hard. But simply 
because you get larger does not mean that you get more 
profitable, and that cannot be the objective in something as 
sensitive as the public access to information. That, to me, is 
the question that really is at stake here, and I think we have 
to determine whether growth in size will benefit or harm the 
public's access to information.
    Thanks, Mr. Chairman.
    The Chairman. Senator Allen?
    Senator Allen. Thank you, Mr. Chairman.
    Several points I want to make here. Number one is, let us 
get updated in reality. Number two, Mr. Jefferson. And, number 
three, on to the cross-ownership issues.
    Let us look at reality here, and it seems to be getting 
lost. Let us look at the media marketplace. We are talking 
about regulations, and regulations have to have some rational 
reason, and also this discussion ought to be based on reality 
in the real marketplace here in the last 25 years, and you have 
these FCC regulations.
    FM, there are twice as many FM stations, 4,000 to over 
8,200 stations. Full-power TV stations, from 988 in 1978 to now 
over nearly 1,700. Low-power TV stations have gone from zero in 
1978 to 2,200-plus. Cable subscribers, from about 13 million in 
1978 to now 69 million. DBS subscribers, zero in 1978, 16-
million-plus now. And a variety of other things, including the 
Internet, which were no one on the Internet in 1978, 72 percent 
now. There were three networks back then, broadcast networks. 
Now there are seven in English, two in Spanish, 231 cable 
networks, as opposed to 28 back then. And you just think back 
then, in some local communities you had a weekly newspaper in 
that county. You have a daily that may have been in that 
community, and you had maybe a TV station and a radio station. 
The point is, is that the people have so many more options and 
opportunities to get their ideas.
    And as far as Mr. Jefferson is concerned and regulations, 
202 years ago, Mr. Jefferson enunciated his view of the sum of 
good Government in his inaugural address here in Washington, 
and he said, ``The sum of good Government was a wise and frugal 
Government, which should restrain men from injuring one 
another, but shall leave them otherwise free to regulate their 
own pursuits of industry and improvement, and that the 
Government should not take from the mouths of labor the bread 
they have earned.''
    So the point is, is Mr. Jefferson loved freedom. Mr. 
Jefferson loved people searching and finding the truth. In his 
day, the only opportunity was the newspaper. Today, Mr. 
Jefferson would be thrilled, because he was one who embraced 
advances in technology. He was an inventor, an innovator, and 
he would love--as far as localism, the Internet is an 
individualized empowerment zone where the individual determines 
whether they want to read WashingtonPost.com or the Danville or 
the Roanoke paper or any other paper, the Denver Post if you 
want to see what they are blasting the Raiders about, or any 
other newspaper, you can read it. And so the reality is, is 
that there has been a tremendous change here.
    Now, my question to you all is, where you have cross-
ownership, newspaper/TV cross-ownership, which according to 
facts, and it is not just from the FCC, but also from the 
Columbia University Project on Excellence in Journalism 5-year 
study released, they said that stations in cross-ownership 
situations were more than twice as likely to receive an A grade 
than were other stations. And they are also more likely to do 
stories focused on important community issues, more likely to 
provide a wide mix of options and opinions, and less likely to 
do celebrity human-interest features.
    Now, let me ask you all, any who want to comment on this, 
why would these studies that have shown an empirical basis that 
the FCC should treat smaller markets more similarly than large 
markets? Why should small markets not be able to have that same 
opportunity, as do larger markets?
    Mr. Blethen. Well, there is a real danger in using that 
study as empirical evidence. That is the only study I am aware 
of that has been done trying to evaluate that quality. It has 
not been out very long. It has not been discussed, it has not 
been vetted, and it has not been debated. And I have already 
mentioned a handful of communities that I am aware of where I 
am aware that there is good television journalism and 
investment in these situations is where there is local 
ownership.
    And I know, in our situation in Seattle, if we were to buy 
a television station, we do not see that there is any 
synergism, but we would eliminate a competitor, we would have 
more control over rates. And any kind of sharing of information 
and news, we already have an arrangement with the owner of 
another newspaper----
    Senator Allen. Well, let me ask you this. Why should larger 
markets allow this? Why should there be a distinction between 
larger markets and small markets on these limitations?
    Mr. Blethen. I do not think there should be.
    Senator Allen. You do not think they should be allowed 
anywhere.
    Mr. Blethen. Exactly.
    Senator Allen. All right. Well, let me ask you--anybody 
else want to comment on this?
    Mr. Singleton?
    Mr. Singleton. I would just like to point out, once again, 
in the media issue there are emotions and there are facts, and 
the facts speak for themselves.
    Thank you.
    Senator Allen. Let me ask Mr. Goodmon a question. How many 
stations do you own in Raleigh?
    Mr. Goodmon. Two.
    Senator Allen. Two.
    Mr. Goodmon. Yes.
    Senator Allen. All right. Any why do you own two stations? 
Why did you desire to own two stations?
    Mr. Goodmon. Well, the Commission made it possible. I 
compete against an ABC O&O, an NBC O&O, a Sinclair duopoly, and 
a Paxson duopoly. I did not want them to get it. I mean, that 
is a strategic issue. If you are asking me if I like 
duopolies--is that the question?
    Senator Allen. Well, I mean, I would not imagine that you 
would invest in something you do not like.
    Mr. Goodmon. No, well, I--well, no, that is defense. I did 
not want the other guy to get it. You do not want the other 
stations to get it against you. I do not think we should have 
duopolies.
    Senator Allen. Even though you do have that.
    Mr. Goodmon. Well, but the----
    Senator Allen. Under what----
    Mr. Goodmon. Well, but the rule says you can do it, and if 
your opposition can buy one, you want to get it before they do.
    Senator Allen. Has that been harmful to the viewers in the 
Raleigh/Durham area that you own those two stations?
    Mr. Goodmon. Has it been harmful?
    Senator Allen. Has it been beneficial or harmful, the fact 
that you all own two stations in the Raleigh/Durham viewership 
area?
    Mr. Goodmon. Well, I would have to say because I own it, it 
is beneficial.
    [Laughter.]
    Mr. Goodmon. But I--that is not the issue. It was----
    Senator Allen. Well, no, this is----
    Mr. Goodmon. No, it is a financial issue.
    Senator Allen. Well, the fact that you have done this----
    Mr. Goodmon. Right.
    Senator Allen. --and your testimony is that it has been 
beneficial. Maybe you do not think it is beneficial, but do you 
not think others in smaller markets ought to have that same 
opportunity?
    Mr. Goodmon. Well, if you are going to do duopolies, I 
think the test that they have now is pretty good. You know, if 
you are going to do----
    Senator Allen. You have to have eight stations.
    Mr. Goodmon. You have to have some others. My view--right. 
That is what I am saying. I think we have got a pretty good 
rule now. I think if you----
    Senator Allen. Were you----
    Mr. Goodmon.--do not have many stations and you do 
duopolies--if you have got a station with four markets or----
    Senator Allen. Four stations.
    Mr. Goodmon.--a market with three stations or four 
stations, I do not think, in terms of voices, you want to 
double them up. But I am not--the truth is, I do not--you know, 
I just----
    Senator Allen. All right. Let us say you have a small----
    Mr. Goodmon. I think it is another----
    Senator Allen. Let me ask you this.
    Mr. Goodmon. Right.
    Senator Allen. As far as your business----
    Mr. Goodmon. Right.
    Senator Allen.--these two stations you own----
    Mr. Goodmon. Yes.
    Senator Allen.--where there is some convergences or 
efficiencies and that some of the improvements, your technology 
or----
    Mr. Goodmon. Yes.
    Senator Allen.--equipment could be used for both----
    Mr. Goodmon. Yes.
    Senator Allen.--both stations?
    Mr. Goodmon. Yes.
    Senator Allen. Now, in a smaller market, do they not have a 
harder time, really, sometimes, because they do not have as 
many viewers that they do in larger areas?
    Mr. Goodmon. Yes.
    Senator Allen. And so could they not also benefit----
    Mr. Goodmon. They are having a tough----
    Senator Allen.--from this----
    Mr. Goodmon.--time with the digital conversion, too.
    Senator Allen. Exactly.
    Mr. Goodmon. Right.
    Senator Allen. And so to the extent they can do that and 
will cover two stations rather than having one completely fail, 
would that not be beneficial, conceivably, as a business 
proposition?
    Mr. Goodmon. As a business proposition, yes. As a matter of 
localism and number of voices, I am not sure. You got me on one 
on this list that I am not working on. Generally speaking, I 
think there should be as many owners as possible. Now, there 
might be some economic reasons to do them in a--but that is 
fine. That is fine.
    Senator Allen. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Allen.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. I believe that 
Senator Snowe was giving her statement before I----
    The Chairman. Senator Snowe?
    Senator Cantwell. Senator Snowe, go ahead.
    Senator Snowe. That is OK. Go ahead.
    Senator Cantwell. Well, thank you, Mr. Chairman.
    I guess, listening to the back and forth from our 
witnesses, I guess the question that comes to mind is really in 
categorizing this issue of whether you think there are cultural 
differences between your organizations. And I guess Mr. 
Karmazin, I wondered if you thought that there was a cultural 
difference between your organization and Mr. Blethen's 
organization.
    Mr. Karmazin. Sure. I think that each of our general 
managers at each radio station creates the culture at that 
radio station, and the same thing would be true of the general 
manager of a TV station. The culture at Nickelodeon is very 
different than the culture at MTV. So I believe that, within an 
organization, the managers create their culture. And 
particularly on the local level, there is a distinct cultural 
difference. If you were to walk into our radio stations here in 
Washington, D.C., you will see a different culture in each 
different radio station.
    Senator Cantwell. And so you do not believe that there is a 
larger parent umbrella culture that is created by being part of 
a large organization?
    Mr. Karmazin. I cannot see it at all. I do not believe that 
anybody who is watching Nickelodeon and watching Sponge Bob 
knows that that is the same company that is watching Ozzy 
Osbourne.
    Senator Cantwell. Well, let me be more specific. The Dixie 
Chicks and Clear Channel. Now, whether the organizations 
collectively decided or somebody said, ``Hey, our station in 
such-and-such city is deciding they are not going to play the 
Dixie Chicks,'' I have to believe that culturally there was a 
lot more security of somebody saying, ``Hey, some 
organization--some of the radio stations within our 
organization felt the same way, so let us use our own 
discretion, but let us do the same thing because there is a 
little bit of comfort here. Our parent organization is not 
coming down on this. Our parent organization is encouraging it, 
so let us join the fray,'' which I find to be different 
culturally stationed in Seattle, all of a sudden deciding that 
some station unrelated in Miami is doing some activity, now 
they are going to pick it up. So, culturally, I see a 
difference.
    Mr. Karmazin. And I do not. I compete with Clear Channel. 
They own 1,200 radio stations, and we own 15 percent of their 
stations. So if they are not playing Dixie Chicks, and the 
people in that market, because these have a lot of choices, 
want to hear Dixie Chicks, I am all over the Dixie Chicks.
    [Laughter.]
    Mr. Karmazin. So the sense is that I do not find those--and 
I am not suggesting, by the way, that the decision--I do not 
know where the decision was made, but if they make dumb 
decisions, you can own 100 radio stations and make dumb 
decisions. It does not matter whether you own 1,200.
    Senator Cantwell. Mr. Karmazin, I disagree. It reminds me 
of a discussion of another company in the State of Washington 
who felt, just because it got big, that maybe the culture was 
not going to cause problems for it, and they found out that the 
culture and aggressive attitude of their employees did, in 
fact, cause problems for them, because they did not realize 
that they were a large corporation. They did not realize how 
big they had become and how far their reach had gone.
    Mr. Karmazin. Senator, I would invite you to visit any 
operation within our company and see whether or not we have 
sacrificed the culture for its size.
    Senator Cantwell. Well, I--thank you for your answer, 
because I do believe you are different cultures, and you said 
you were.
    Mr. Blethen, did you want to comment on that?
    Mr. Blethen. Well, yes, I--they are clearly different 
cultures. One is a culture of maximizing profits for an 
absentee owner, and one is the culture of journalism and public 
service when you have local ownership.
    We have an example in Seattle that you know well, Senator, 
which is KING Television, which was long owned by the Bullitt 
family and was considered one of the best journalism and 
community-service stations in the country. I would even argue--
I think they had had a period of time when it was probably the 
best of an exceptional commitment by the family. Unfortunately, 
they sold to a public company a few years ago. And, you know, 
you watch the same stations I do, and they are a shadow of 
their former selves.
    Senator Cantwell. Well, I guess that is my concern. I 
believe that communities across this country are melting pot of 
different opinions and ideas, and they have different texture, 
they have different flavors to them. And I think this proposal 
is about stripping that away. It is about making things more 
vanilla. And I do not think that that is what America wants to 
see in the diversity of their news.
    So it leads me to the question, What is the rush? When I 
think about these rules and regulations, they have been in 
place for 60 years, and now all of a sudden--and I certainly 
applaud everyone's interest in the variety of new technologies 
and medium devices that people will be able to get content, but 
I think we are still quite a few years from that providing any 
kind of true competition to today's mass market. So what is the 
rush in overturning this rule? And what is the secrecy about?
    Mr. Karmazin, I think, in your testimony, alluded to the 
fact that this had gotten more public debate than just about 
any other issue, and yet all I know was one public hearing, 
officially, in Richmond, and it took two FCC Commissioners, who 
decided to go out on their own to have non-formal hearings, and 
we almost had a riot in Seattle, people were so upset over this 
concept. I mean, I have gotten more mail on this issue lately 
than just about any other issue, because citizens are 
concerned. And yet we really have not had a public-hearing 
process.
    So what is the rush?
    Mr. Karmazin. So I guess the rush is that in 1996, in the 
biennial, the Congress told the FCC to review these rules every 
2 years. I mentioned in my opening comment that I was down here 
2 years ago, which was the start of this biennial. I cannot 
imagine anybody in Washington would want to be believing that 
this is a process that is being rushed. In my 30-plus years in 
the broadcasting business, I have never seen a issue get more 
attention than this one has gotten.
    Senator Cantwell. Well, here is a very detailed letter from 
14 Members, mostly from this committee, and many from my 
colleagues. So we have, in the budget, I think, some language 
to the FCC saying, ``Complete your business in a required 
timeframe.'' I am sure one of my well-meaning colleagues 
slipped in that little note basically urging the FCC to finish 
their business, in direct contrast to a very detailed position 
statement by many members of this committee and others who say, 
``We are going too fast, without public comment.'' I mean, if 
you think you are right, if you think that you are on the right 
side of this, you should not care whether we have more dialogue 
and debate about this issue to make sure that the public 
concern is addressed.
    Mr. Karmazin. There are many things that I have read in the 
papers about this issue that I do not like, but the one thing I 
do have is a great deal of respect for all five members of the 
FCC. If they believe they needed more time, then they would 
have taken more time. But if they believe they have exhausted 
this study and that they have a conclusion, then I say this 
body should let them do their work and let them come out with 
their report in order.
    Senator Cantwell. Well, I think this hearing is probably a 
sign that there is anxiety about just letting them do just 
that.
    Thank you, Mr. Chairman.
    The Chairman. I think they are constrained, also, by a 
court order to act, Mr. Karmazin.
    Senator Snowe?
    Senator Snowe. They certainly are. But, on the other hand, 
Mr. Karmazin, June 2 is final. I mean, that is the issue here 
today. And it is true, the biennial review has been 
incorporated, in the 1996 Act. It does mandate the FCC to 
review it, obviously, every 2 years. And so it certainly was 
anticipated on their part that they had to conduct this review. 
And, yes, it was a court order, but it still does not negate, I 
think, the responsibility of the FCC to share the intent of 
their changes and modifications. Would you not agree these are 
significant changes, just based on what has been speculated 
about in the media?
    Mr. Karmazin. I really do not know what the outcome is 
going to be.
    Senator Snowe. Yes, that is the point.
    Mr. Karmazin. But I trust the process. And if we do not 
trust the process, then I do not know what else we have. So the 
sense would be there are checks and balances. I assume we 
have--there have been hearings here. As I mentioned, I 
testified 2 years ago at a hearing here. There comes a time 
when even unpopular decisions--I mean, whatever way it goes, I 
have to live with it or go to court. But I do think we have a 
right to move on with our business and should not take this 
long to develop those modifications, if there are to be 
modifications. Whatever the rules are, we have an opportunity 
to follow them or go to court and see if they are 
constitutionally correct.
    Senator Snowe. Well, you know, I guess the fact of the 
matter is that, obviously, the FCC has to conduct its own 
exploration, but we also have a responsibility, as well, and it 
is to serve the public. I mean, this is serving the public 
interest, without question. I mean, we have had precedent in 
law, precedent in statute for more than 70 years with respect 
to these issues. And they are going to be undone very quickly 
on one day, June 2. That is the issue here.
    Mr. Karmazin. That is true.
    Senator Snowe. There is no flexibility. And I have enormous 
respect for the members of the Commission. And obviously some 
Commissioners have concerns, as Senator Cantwell indicated, 
several of them had their own public hearings. I had urged 
public hearings back in January, and we had the first of three 
oversight hearings on this matter.
    I just was watching CNN last night, and they were doing a 
story on this subject, and they invited the viewers to 
register, to log in, their yes or no with respect to the 
question, Do you think too few companies own too many media 
outlets? Yes, 98 percent.
    Mr. Karmazin. And you want to----
    Senator Snowe. No, 2 percent. So, you know, I think the 
point is that there is a concern publicly about it, and it is 
the sanitizing of this process now. The fact that five 
companies are going to own 60 percent of prime-time 
broadcasting both in the broadcast and cable networks, that is 
disconcerting, because I do not know how that affects the 
three-pronged approach of diversity and localism and 
competition. I mean, those are the issues that we cannot 
overlook. Those were, sort of, the foundations and premises for 
these rule changes.
    Now, I do not object, necessarily, to deregulation, per se, 
but we have gone through many deregulations--with the airline 
industry, with the telecommunications sector--and they have 
unintended consequences, and I have not been able to understand 
how you put the genie back in the bottle. I do not understand 
how you reverse courses once this is unleashed. That is what I 
am not understanding. Because this is really the last barrier. 
It is the last bulwark against open, unfettered ownership, you 
know, and that is the problem that I have with this. And I do 
not understand either with the rush.
    I understand that the deadlines, but I think if the 
Commission had asked for time to--given the enormity of this 
issue, or if our biennial review is unreasonable, then that is 
something we ought to consider in terms of the timetable, Mr. 
Chairman. But it should not negate the consequences of not 
having a full airing of these issues before the Congress and 
before the public.
    Mr. Karmazin. And, Senator, it is for that reason----
    The Chairman. I think Mr. Goodmon wanted to comment, if he 
might.
    Senator Snowe. Yes, OK, thank you. Yes, go ahead, Mr. 
Goodmon. And we will go back.
    Mr. Goodmon. Please remember my sign.
    Senator Snowe. Yes, 70 percent.
    Mr. Goodmon. 70 percent, not 35 percent.
    Senator Snowe. Yes.
    Mr. Goodmon. We have got plenty of diversity. What is the 
rush?
    Senator Snowe. Yes.
    Mr. Goodmon. What is the hurry? The hurry is they have the 
votes at the Commission, and the hurry is that this is very 
important to the investment and financial sector in the 
country. Because what they see is going to be, as there was 
last time when the rules changed, a whole lot of station 
trading. There is going to be a lot of money loaned, and there 
are going to be a lot of commissions.
    So what we have is the big companies wanting to get bigger, 
and I think that--Mr. Karmazin should want to own all of his 
affiliates. But I am saying that is not a good plan. We have 
enough--they are 70 percent. If they raise it to 45, it becomes 
90 percent.
    So I am saying there is already enough relaxation of 
ownership. There is no hurry on this, particularly because we 
are going into digital, and nobody has a clue as to what the 
broadcasting world is going to be like when we get there.
    Senator Snowe. That is right. Mr.----
    Mr. Goodmon. But it does not make any sense.
    Senator Snowe.--Mr. Blethen, you mentioned an important 
point in response to Senator Sununu's question. The issue is 
ties to the community and localism. And that is one of the 
important dimensions in terms of establishing and upholding 
important principles regarding the dissemination of news and 
information to the public, and that is having ties to the 
community. And that is essentially what you have done both in 
Seattle and both in Maine with your ties to the state. We 
welcomed that, I should tell you, Mr. Chairman, because at the 
time we were sort of very concerned about who was going to 
purchase the Portland newspapers that had been owned by the 
Gannett family, as I said, for well more than 100 years and 
rooted in the community, they have been part of the community. 
And so we were certainly relieved when the Blethen family, the 
Blethen newspapers, purchased those newspapers, because it 
really continued that very important tradition in our State, 
and that is having ties and being sensitive to the issues and 
the needs of the community.
    Mr. Blethen. If I could comment----
    Senator Snowe. Yes.
    Mr. Blethen.--the comment about the ``we should trust the 
process.'' You know, I am sort of a newcomer to this, but I am 
finding it really hard to trust a process which has been done 
behind closed doors with only the major players, the major 
owners involved. Over 80 percent of the American public does 
not know what is going on. Most of the Hill did not even know 
what was going on until recently. And where the vast 
preponderance of all these comments the FCC says they have 
received, indeed, have been against any relaxing of these 
rules. The Commission will talk about something like 18- to 
20,000 comments, but I am told that 18,000 or so of those are 
all against repeal and that they are hard-pressed to find 
anything for appeal that is not from a corporation.
    Senator Snowe. Mr. Karmazin?
    Mr. Karmazin. I think it is important to have a healthy 
industry to be able to evolve into a digital environment. We 
are all going to be UHF stations in the digital world, and I do 
not think, since it is many years away, regretfully not our 
fault, that I think you want to have a healthy industry to get 
to that digital transition. This is a bogus argument, because 
there is clearly a disadvantage of being a UHF station in the 
market, and the rules over the years have looked at the 
difference between a UHF station and a VHF station. I want one 
VHF station in a market, as compared to two UHF stations, when 
I can. So, you know, it is just another argument.
    And regarding the process, just like I respect the Senator, 
the Chairman, and Senator Hollings, that this committee has had 
plenty of opportunities to deal with this over the time. And, 
again, I cannot speak for whether you have all the facts or 
not, but I think it is open. I hear a total disconnect. I hear 
no one knew about it, but there are 18,000 people complaining 
about it. So somebody knows about it.
    Senator Snowe. We do not know the specificity of what they 
are going to recommend.
    Mr. Karmazin. Neither do we.
    Senator Snowe. OK, well, that is--but that is the point. 
Should we not? I mean, that is the issue here on a major 
modification. This is not inconsequential, and that is the 
issue that we are raising. Hence, the 20,000, you know, 
responses to the FCC. I would assume that that is a very 
substantial response to proposed changes by the FCC, whatever 
they happen to be. We are saying given the magnitude and the 
enormity of this issue and the implications for the future that 
will be unending, and the risk if we are wrong--the risk if we 
are wrong--and where is the balance, as Mr. Goodmon and Mr. 
Blethen have indicated? Where is going to be the balance? It is 
a high-risk proposition if we are wrong, and I think that is 
the issue, and it has been enshrined in statute and judicial 
precedent for more than 70 years, so I think we should hesitate 
and pause before we go into this June 2 up-or-down vote and no 
recourse.
    And that is a concern, Mr. Chairman. And, you know, when 
they predicate this decision on the diversity of voices out 
there with subscribers to cable and Internet and so on, but the 
fact of the matter is, it is whose ownership? Who are the 
owners of all of these entities? And that is going to be the 
concentration of the source that is going to be disseminating 
the information in the final analysis. And that is, I think, a 
major concern. And they are predicating it on that basis, in 
terms of, you know, the diversity of voices, but it is going to 
be owned by a few, and that is the bottom line.
    And so, you know, I just wish we were in a very different 
position here today and in the future, because I know the FCC 
is struggling with the deadline and all that. But I think, in 
the final analysis, it is more important to get it right, 
because the risks are far too great.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Snowe.
    We are all in agreement that no one entity or company or 
corporation should own 100 percent of any media market. Is that 
right? Mr. Karmazin, do you agree with that?
    Mr. Karmazin. That is right.
    The Chairman. Mr. Goodmon?
    Mr. Goodmon. Yes, sir.
    The Chairman. Mr. Blethen?
    Mr. Blethen. Yes, sir.
    The Chairman. Mr. Singleton?
    Mr. Singleton. Yes, sir.
    The Chairman. So I guess what we are doing here is trying 
to decide what is appropriate, and that is what the difficulty 
that we are encountering. I think that Clear Channel, the 
situation that exists there today with 1,200-and-some stations 
and domination of various markets, was a warning sign to me, 
and I am concerned but unsure, uncharacteristically, unsure in 
how we maintain the balance that is necessary. But this hearing 
has been very helpful. I thank you for the spirited discussion, 
and I hope you will all remain friends.
    [Laughter.]
    The Chairman. And I thank the witnesses for coming. Thank 
you.
    Due to the lateness of the hour and the lack of 
participation by members of the Committee, we will have another 
hearing between now and June 2, and Mr. Kimmelman and Mr. 
Mikkelsen will be invited back at that time, because I do not 
think they would get a fair amplification of their views by 
calling them at this late hour.
    I thank you, and I thank the witnesses. This hearing is 
adjourned.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]

                            A P P E N D I X

            Prepared Statement of Hon. Ernest F. Hollings, 
                    U.S. Senator from South Carolina

    Thank you, Mr. Chairman. Today we return to the topic of media 
ownership, and more specifically, to plans afoot at the Federal 
Communication Commission to radically liberalize or eliminate many, if 
not all, of the current media ownership rules that have long guided our 
stewardship of the public airwaves.
    Over the last several years, the amount of consolidation in the 
entertainment and media industries has been staggering. We have seen 
the combination of AOL and Time Warner, Viacom and CBS, Tribune and 
Times Mirror, and now, face Rupert Murdoch's bid to merge News 
Corporation with DirecTV. While technology has provided Americans with 
new media outlets, this growth has failed to outpace the insatiable 
desire of big media to effectively control what Americans see and hear 
on television. Today 90 percent of the top 50 channels on cable are 
owned by either the major TV networks or by cable operators. Moreover, 
the top 5 programmers (Viacom/CBS, Disney/ABC, News Corporation/Fox, 
NBC, and Time Warner) now control 75 percent of prime time programming 
and are soon projected to increase their share to 85 percent--the level 
reached by NBC, CBS, and ABC at their peak.
    Mr. Chairman, Teddy Roosevelt once said that ``the only way to meet 
a billion dollar corporation is by invoking the protection of a 
hundred-billion dollar government.'' As defenders of capitalism, we 
expect large media corporations to pursue policies in their own 
economic self-interest. But to protect the public interest, we 
similarly demand that our government act to protect civic and local 
community interests of ordinary citizens, particularly in areas related 
to the public airwaves and the marketplace of ideas.
    While details of the Commission's proposal are finally starting to 
leak into the press, the process conducted by the FCC on a matter so 
fundamental to the foundation of American democracy has been shameful. 
Instead of sparking a national debate by putting forward specific rule 
changes to stand in the rigors of sunlight, as earlier requested by a 
majority of the members of this committee, the FCC has instead opted to 
keep its plans under wraps, further strengthening the hand of big media 
companies with direct-dial connections to the FCC and keeping the 
American public in the dark. Furthermore, by creating an arbitrary 
deadline of June 2, Chairman Powell and other proponents further 
deregulation have sought to squelch any meaning criticism of this 
proposal and hammer through one of the most far-reaching policy 
decisions in the history of American media.
    Mr. Chairman, the American people deserve better. Unless we reverse 
course, radical rule changes in the existing national and local 
ownership limits could seriously, and perhaps irreparably, alter the 
fabric of American culture and civic discourse. While proponents claim 
that new rules will only be ``incremental changes,'' the American 
public will not be fooled.
    Further media concentration will mean fewer creative outlets for 
independent TV and content producers; higher ad rates for local and 
family businesses; fewer antagonistic sources of news and opinion, less 
air time for local politicians and community groups, and a growing 
reluctance of local station operators to take on network executives in 
rejecting nationally-produced programming that violates local community 
standards.
    While many of us in Congress had hoped that the FCC would recognize 
the serious consequences that could result from a laissez faire 
approach to media ownership, it appears the message is not getting 
through. As a result, Senator Stevens and I will introduce legislation 
today to do what should not have to be done--namely, to re-establish by 
statute a 35 percent national broadcast ownership cap. This legislation 
is identical to a bill introduced in the House last week by Congressmen 
Burr and Dingell, and serves to underscore the substantial support in 
Congress for keeping the existing TV broadcast cap and protecting the 
interests of local communities.
    While I welcome the testimony of the witnesses today and their 
responses to our questions, I hope that in the near future, we will 
have the opportunity to hear from the individual members of the 
Commission. These are not state secrets. The American people deserve to 
see the specifics of changes in store for them so as to allow for 
vigorous and meaningful debate. I have seen little out of the FCC to 
suggest that such a change of heart is in the offing, but I look 
forward to being pleasantly surprised.
                                 ______
                                 
         Prepared Statement of J. Stewart Bryan III, Chairman 
            and Chief Executive Officer, Media General, Inc.

    Twenty-eight years is a long time to ban an entire industry from 
entering a market based on nothing more than a conjectural ``hoped-
for'' gain in diversity and absolutely no proof of any competitive 
harm. Yet, that is how long newspapers will have been prohibited from 
purchasing broadcast stations in their home markets when the Federal 
Communications Commission (``FCC'') meets early next month to act in 
its omnibus media ownership proceeding. And this ban has continued 
despite the fact that the FCC does not regulate newspapers. The time 
for repeal of the FCC's newspaper/broadcast cross-ownership rule in all 
markets is long overdue, particularly given the recent liberalization 
of every other FCC media ownership regulation. This liberalization has 
left newspaper owners unique, among all business owners in the nation, 
in their inability to buy broadcast outlets in their home markets.
    At the same time, the existence of the rule is preventing the 
development and delivery of new and innovative local information 
services and the infusion of new resources into struggling television 
news operations. In the last decade, as the cost of operating 
television stations and producing televised news, in particular, has 
gotten more expensive, we have begun to see an erosion in the delivery 
of local television news. Not only have television stations been faced 
with the expense of converting to digital transmission, but the 
presence of large group buyers has made it more difficult for small 
operators to compete in the program syndication market. Many small 
television stations have also seen their network compensation payments 
evaporate or change into ``reverse compensation.''
    The result has been that many small market stations, and even some 
in large markets, have had to curtail or entirely eliminate their local 
newscasts. In the last 4 years, viewers of over 40 television stations 
around the country have lost local news coverage. Repeal of the 
newspaper/broadcast cross-ownership rule is desperately needed to 
reverse this trend.

The Media General Experience: Common Ownership of Newspaper and 
        Broadcast Television Outlets in the Same Markets Has Increased 
        Local News and Information Content and Not Caused Any 
        Diminution in Staff
    My name is J. Stewart Bryan III, and I am the Chairman and Chief 
Executive Officer of Media General, Inc., an independent, publicly-
owned communications company situated primarily in the southeastern 
United States with interests in newspapers, broadcast television 
stations, interactive media, and diversified information services. 
Media General's corporate mission is to be the leading provider of 
high-quality news, information, and entertainment in the southeast by 
continuing to build on its position of strength in strategically 
located markets.
    Media General is also one of the media industry's leading 
practitioners of ``convergence,'' the melding of newspaper, broadcast 
television, and online research in the preparation and dissemination of 
local news. Media General's News Center in Tampa, Florida, is the most 
advanced convergence laboratory in the nation, and the only one, as far 
as Media General is aware, in which the news staff of a newspaper (The 
Tampa Tribune), broadcast television station (WFLA-TV), and online 
operations (TBO.com) are housed together under one roof. Besides this 
strong presence in Tampa-St. Petersburg (Sarasota), the Nation's 13th-
ranked Designated Market Area (``DMA''), an operation that is 
``grandfathered'' under the FCC's cross-ownership rule, Media General 
has similar convergence efforts underway in five additional markets 
where it has recently purchased television broadcast stations and daily 
newspapers--Roanoke-Lynchburg, Virginia, the 67th-ranked DMA; Tri-
Cities, Tennessee/Virginia, the 90th-ranked DMA; Florence-Myrtle Beach, 
South Carolina, the 110th-ranked DMA; Columbus, Georgia, the 126th-
ranked DMA; and Panama City, Florida, the 159th-ranked DMA.
    At the beginning of 1995, Media General owned just three daily 
newspapers and, as of the start of 1997, it held only three broadcast 
television station licenses. Since then, Media General has expanded, 
now serving newspaper readers in 25 markets and television viewers in 
21 DMAs. To The Tampa Tribune, the Richmond Times-Dispatch, and the 
Winston-Salem Journal, Media General has now added 22 other daily 
newspapers in Virginia, North Carolina, Florida, Alabama, and South 
Carolina, as well as nearly 100 weekly newspapers and other 
periodicals. Today, its 26 network-affiliated television stations reach 
more than 30 percent of the television households in the southeastern 
United States and nearly 8 percent of the nationwide television 
audience. Media General's Interactive Media Division also provides 
online content that includes news, information, and entertainment 
sources in virtually every one of the company's markets.
    Initially, Media General's convergence efforts focused on Tampa, 
where it has owned NBC affiliate WFLA-TV and The Tampa Tribune since 
before adoption of the newspaper/broadcast cross-ownership rule. Over 
10 years ago, WFLA-TV's news director and The Tampa Tribune's sports 
department began to take a coordinated approach to covering local high 
school football and other sports. Shortly thereafter, the two outlets 
began sharing political polling information and coordinating political 
coverage, and the paper's religion columnist began making on-air 
reports on WFLA-TV.
    Expanded convergence at Media General began in earnest 3 years ago, 
when WFLA-TV, The Tampa Tribune, and TBO.com moved all their news 
staffs and content operations into a new $35 million state-of-the-art 
facility, The Tampa News Center. While each of the three outlets has 
its own specific news and editorial staffs that make independent, final 
decisions about content, this convergence laboratory features a central 
news desk, the ``Super Desk,'' which is continuously staffed by editors 
from all three media and facilitates the rapid exchange of story ideas, 
news content, and video images among the three outlets. All three 
outlets also maintain their news ``budgets'' or plans for stories on a 
building-wide ``intranet,'' and the staff of each outlet can access the 
news ``budgets'' from the other properties.
    Newspaper reporters are writing scripts for television newscasts 
and appearing on-air, and television reporters are writing stories for 
the newspaper. The newspaper has also made its archives available to 
the other two outlets. With the provision of special equipment to the 
photographers of all three outlets, The Tampa Tribune and TBO.com have 
been able to provide stories with pictures that otherwise would have 
been only text, including aerial footage obtained from WFLA-TV's 
helicopter. Similarly, The Tampa Tribune's photojournalists have been 
able to provide WFLA-TV with video for airing on its newscasts.
    In Tampa, the pooling of news-gathering resources has increased the 
output of news content and has allowed the reporters at the three 
outlets to build on each other's ``scoops'' to present various angles 
of the same story. WFLA-TV's and TBO.com's full access to The Tampa 
Tribune's archives and research desk has also allowed these electronic 
outlets to bring more depth and perspective to their coverage of news 
and information. In return, The Tampa Tribune has gained faster access 
to breaking news and valuable opportunities for branding its product in 
a highly-competitive, two-newspaper market. Finally, by working 
together, the three outlets have gained improved access to political 
candidates and government officials. Together, they now conduct their 
own joint polls, hold town hall meetings, and organize other civic 
events, such as health fairs and community telephone banks that would 
not have been feasible without common ownership.
    These convergence efforts have benefited both the Tampa outlets 
themselves and the communities they serve. A little over a year after 
moving into The Tampa News Center, WFLA-TV was recognized by the 
Project for Excellence in Journalism, which is affiliated with Columbia 
University, as providing the best television journalism in the Tampa-
Bay region. Local polls of Tampa-Bay area residents have also found 
that a majority of the respondents believe that convergence has 
improved the quality of news coverage and had a positive effect on news 
presentations in the Tampa market. The three properties have also 
experienced the following successes as a result of the convergence 
model:

   Media General has increased the number of full-time news 
        professionals in Tampa, despite the very serious advertising 
        recession.

   While daily newspapers across the country generally have 
        been suffering declining newspaper circulation, the Tribune's 
        circulation again increased in total and in its core market of 
        Hillsborough County during the last quarter of 2002 and the 
        first quarter of this year.

   While many television stations were losing viewers, the 
        ratings for WFLA-TV's 11 p.m. newscast have increased 
        consistently through 2001, 2002, and 2003.

   Despite a downturn in the economy, WFLA-TV has maintained 
        the same number of local newscasts and has replaced a 
        syndicated program with a new, locally originated 
        entertainment/variety program at 10 a.m. on weekdays.

    Media General's three Tampa outlets continue to gain recognition in 
the journalistic community, receiving an extensive list of journalistic 
awards.
    As in Tampa, the newspapers and television stations in each of 
Media General's other five convergence markets maintain separate news 
and editorial staffs. Nonetheless, despite the fact that they do not 
have the advantages of co-location as in Tampa, the news staff at these 
co-owned properties regularly share story ideas by e-mail, fax and 
telephone, and they publicize each other's news content. Media 
General's convergence markets have made great progress in providing 
their television cameramen with equipment that allows the newspapers to 
retrieve newsprint-quality photos, and they are equipping the print 
photojournalists with digital video cameras to provide the television 
station with video. The newspapers consistently make their archives 
available to the television stations. As a result of cross-ownership, 
the television stations in each of Media General's five smaller 
convergence markets have been able to increase the news and information 
they deliver to their communities.
    Roanoke-Lynchburg DMA. Since Media General acquired WSLS(TV) in 
Roanoke, the station has expanded its weekday early morning newscast 
from 60 to 90 minutes. It has also added a locally-produced hunting and 
fishing show; numerous local specials concerning the Virginia and 
NASCAR races in Martinsville, Virginia, and the opening ceremonies of a 
nearby National D-Day memorial; and coverage of local and statewide 
political debates. As a result of convergence, the station's overall 
staff has grown by two individuals, and the news department staff, in 
particular, has increased by nine.
    Tri-Cities, TN/VA DMA. Through convergence, WJHL(TV) in the Tri-
Cities, TN/VA DMA has added a new 30-minute weekday newscast at 5 p.m. 
In addition, its program lineup now includes locally produced sports 
specials and periodic ``Medical Watch'' and ``Education Week'' shows. 
Convergence has also created employment opportunities. The station's 
full-time staff has increased from 74 to 88 employees.
    Florence/Myrtle Beach DMA. In Florence, South Carolina, WBTW(TV) 
and The (Florence) Morning News have shared coverage of a number of 
major stories over the last year, including initiation of new local 
airline service, expansion of a local plant, and the shooting of a 
sheriff's deputy. Together, they have completed many projects, which 
the outlets believe could not have been covered if they had tried to do 
so alone, such as a seven-part series about the seven worst local 
traffic intersections and distribution of a hurricane tracking chart, 
which helped many local citizens monitor potentially devastating storms 
in the area during hurricane season.
    Perhaps the Florence outlets' most notable achievement to date has 
been the extensive effort that they made in 2002 to cover local 
political campaigns and elections and provide debates among the 
candidates. In April 2002, the combined outlets sponsored a debate 
among gubernatorial candidates in the Republican primary, the first 
debate of the campaign and the first in which all seven party 
candidates participated. In October 2002, the outlets sponsored a 
debate among the Democratic and Republican gubernatorial candidates. In 
both debates, the outlets encouraged their readers and viewers to 
submit questions to be used in the debate. In November 2002, the 
outlets established a joint ``election results'' desk to which their 
reporters telephoned results, enabling both improved timeliness and an 
expansion of their election coverage. Both Florence outlets also 
launched a cooperative effort to stage a ``town hall'' community 
meeting called ``Our Town Hartsville,'' and they each coordinated on a 
six-part series covering the meeting. In Florence, the overall employee 
count at WBTW(TV) has also increased by two individuals.
    Columbus, GA DMA. Through convergence, WRBL(TV) in Columbus, 
Georgia, has been able to add a new 30-minute weekday newscast and, 
later this fall, is scheduled to debut both an additional half-hour 
newscast at 5:30 p.m. and a locally produced public affairs show. The 
combined outlets have also been active in efforts intended to 
facilitate civic discourse and debate, hosting a ``Political Forum'' in 
spring 2002 that was carried in both outlets and brought together a 
cross-section of local citizens to discuss and ascertain civic topics 
that they thought candidates should address. Several months later, on 
election night, the newspaper's reporters created print stories and 
provided constant on-air updates. The outlets' combined efforts have 
also allowed in-depth coverage of a local murder trial, presentation of 
a ``Hurricane Watch'' project, coverage of the collegiate Iron Bowl 
football game, and hosting and coverage of special events related to 
National Signing Day, featuring local area high school football players 
and their college selections. As a result of convergence, WRBL(TV) has 
added an additional staff reporter in the newsroom and plans to add 
another two in September 2003, with the debut of its expanded newscast 
and public affairs programming.
    Panama City, FL DMA. In Panama City, Florida, Media General's 
smallest convergence market, WMBB(TV) works closely not only with the 
Jackson County Floridan, which is in the same DMA, but also with The 
Dothan Eagle and the Enterprise Ledger in the adjacent Dothan, Alabama 
DMA. In May 2002, WMBB(TV), the three newspapers, and their websites 
jointly produced a special section on a locally controversial proposal 
to construct an I-10 highway connector between Florida and Alabama; 
reporters from the newspaper appeared on-air, and television station 
reporters contributed print pieces.
    With convergence, WMBB(TV) has added an early evening newscast on 
Sundays from 5 p.m. to 5:30 p.m., and the newsroom staffs of the Panama 
City station and newspaper daily discuss developing new stories to 
improve both the timeliness and depth of local reports. In one recent 
example, the television station first learned about a breaking news 
story involving a bank robbery from a report phoned in by a member of 
the newspaper's staff. The two outlets also worked together to delve 
into accusations against a local sheriff's deputy for sexual misconduct 
with a young girl. Despite efforts from local government officials to 
prevent the story's dissemination, the station's and newspaper's 
reporters, working together, used their combined resources and clout to 
ensure its presentation to local residents.
    As in other Media General markets, the outlets have collaborated on 
weather-related stories. The newspaper's daily weather package is 
produced by Media General's Interactive Division based on information 
from the television station's meteorologists. Both the newspaper and 
television station jointly produce a hurricane tracking map that 
includes basic information about hurricanes, a list of telephone 
numbers to call for help, and pointers on developing a severe weather 
survival plan.
    Convergence has allowed staffing levels at WMBB(TV) to remain 
constant despite the general economic downturn. The station's news 
staff has increased by three, but overall the station has lost three 
employees.
    Media General's success with convergence shows that the size of the 
market is irrelevant. With co-owned operations, it has been able to 
bring better, faster, and deeper news and other benefits to 
communities, large and small. The critical ingredients for successful 
implementation of convergence are co-ownership and strong leadership, 
and it is for these reasons that Media General has been able to achieve 
these public interest benefits in markets large and small.

Repeal of the Newspaper/Broadcast Cross-Ownership Rule Is Long Overdue
    In 1975, the FCC asserted authority under the Communications Act to 
adopt a rule flatly prohibiting newspaper publishers, who hold no 
spectrum-related assets, from acquiring and operating broadcast 
stations in markets in which their newspapers are published. This rule 
was adopted not because the FCC had found any reason that newspaper 
owners as a group were unqualified for broadcast ownership, or because 
any claim had been made that newspaper-television station owners 
committed any specific non-competitive acts, but solely because the FCC 
hoped such a rule would add to local diversity. Although well-
intentioned, the FCC conjectured that the rule would improve diversity 
despite making a number of contrary empirical findings on the record. 
For instance, the FCC found that there generally was significant 
diversity or separate operation between commonly owned broadcast 
stations and newspapers. Moreover, a study of licensee programming 
conducted by the FCC's staff documented that newspaper-owned stations 
rendered more locally-oriented service. On appeal, the reviewing courts 
explicitly recognized the lack of any documented public interest harm 
compelling adoption of the rule.
    More than a quarter century later, the newspaper/broadcast cross-
ownership rule still remains unchanged despite profound growth in media 
outlets and owners, liberalization of all other media ownership rules, 
and a mountain of evidence on the rule that shows, in contrast to the 
predictive judgments upon which the FCC relied in 1975, that cross-
ownership does not harm any of the FCC's articulated policy goals and 
that the rule, in fact, now hinders the provision of news and 
innovative media services. Last fall, when the FCC issued its Notice of 
Proposed Rulemaking in its omnibus ownership proceeding, the action was 
at least the eighth time in almost as many years that the FCC had 
considered or been asked to consider the rule's possible repeal. Time 
and again, the FCC has collected more and more evidence supporting 
repeal, and each time has failed to take action on the evidence, 
promising repeatedly to act but never doing so.
    The omnibus media ownership proceeding, which is to be decided on 
June 2, 2003, incorporated by reference all the comments filed in a 
separate 2001-2002 rulemaking proceeding dedicated solely to review of 
the newspaper/broadcast cross-ownership rule. Common throughout all the 
comments opposing repeal of the newspaper/broadcast cross-ownership 
rule that have been filed in both the omnibus and the newspaper-
specific proceedings is a profound misunderstanding of the 
newsgathering resources and financial commitment required to deliver 
high-quality local news and information to the public. The same 
comments also reflect a complete unawareness of the fact that local 
media content at successful outlets is not dictated on a ``top-down'' 
basis but is consumer-driven and responsive to the needs of the 
audiences and communities they serve. The opponents of repeal cling to 
the simplistic and erroneous notion that maximization of the number of 
separate media owners is the only way to ensure diversity and 
competition in the local information marketplace. In light of the very 
real financial constraints and pressures facing broadcasters and 
newspaper publishers in today's vigorously competitive environment, 
however, eliminating the ban is the FCC's best option for ensuring 
continued vitality and, indeed, improvement in local news and 
information available to the public.
    As the media industry has recognized and called to the FCC's 
attention in virtually unanimous comments, the current system is 
broken. Diversity of viewpoint does not require diversity of ownership, 
and the newspaper/broadcast cross-ownership ban has resulted in 
noneconomic ownership ``islands.'' As noted above, both worsening 
financial conditions in the media sector and the economy overall and 
increasing competition from larger national and international players, 
which typically present the same undifferentiated non-local information 
in all markets, have caused many television stations in both large and 
small communities to curtail or terminate local newscasts. Prompt 
repeal of the rule is needed to stem and help reverse this decline.

Any Action Short of Complete Repeal of the Newspaper/Broadcast Cross-
        Ownership Rule Is Unconstitutional and a Violation of Numerous 
        Statutory Provisions
    Anything short of total repeal of the newspaper/broadcast cross-
ownership rule will raise a whole host of legal problems. Most 
significantly, any ban on local newspaper/broadcast cross-ownership 
violates the First Amendment. Failing to repeal the rule in its 
entirety will also violate the Equal Protection Clause and Section 
202(h) of the 1996 Telecommunications Act. In addition, keeping the 
rule in any market will run counter to the FCC's goals of fostering 
localism, innovation, and diversity.
    First Amendment. Although the newspaper/broadcast cross-ownership 
rule unquestionably implicates First Amendment rights, the Supreme 
Court declined to apply traditional standards of First Amendment 
scrutiny when it affirmed the rule in 1975. Instead, relying on two 
cases from the early days of broadcasting, the Court concluded that 
broadcast spectrum scarcity justified a less rigorous First Amendment 
analysis that did not require consideration of whether the regulation 
was narrowly tailored or otherwise sufficient to withstand traditional 
First Amendment scrutiny.
    In the intervening years, technological advances, media 
proliferation, and the FCC's revised approach to licensing broadcast 
stations have rendered the spectrum scarcity rationale obsolete. 
Broadcast licenses are now auctioned and, for all practical purposes, 
traded on the open market. There is no longer anything unique about 
spectrum that distinguishes it from other economic goods. Today, 
broadcasters are entitled to the same level of constitutional 
protection that all other media enjoy.
    Without spectrum scarcity, the newspaper/broadcast cross-ownership 
rule must be evaluated, for First Amendment purposes, under strict or 
intermediate scrutiny, and it can survive neither analysis. Strict 
scrutiny requires the FCC to show that the rule is the ``least 
restrictive means available of achieving a compelling state interest.'' 
In the past, the FCC and the courts have justified the newspaper/
broadcast rule on the ground that it would produce a ``hoped for'' gain 
in diversity. As the extensive record before the FCC shows, with the 
amazing growth of new and traditional media outlets over the last 
quarter century and evidence that the rule is preventing the 
development of new and innovative information services, fostering 
diversity is no longer a ``compelling state interest'' that requires 
retention of any vestige of the cross-ownership rule. Moreover, the FCC 
cannot demonstrate that a ban on newspaper/broadcast cross-ownership 
actually achieves diversity. A blunt ownership restriction that bans 
all cross-ownership, particularly in smaller markets, is not ``the 
least restrictive means'' for attaining the FCC's purported 
``diversity'' goal. Indeed, the rule may have the opposite effect of 
protecting and perpetuating ownership by companies not interested in 
providing news and information, a possibility that is more likely in 
small markets where the economics of television operations can be 
especially dire. The rule thus cannot survive strict scrutiny review.
    The rule must also fail even under the lessened standard of 
intermediate scrutiny. That standard requires the FCC to demonstrate 
the harm posed by cross-ownership, provide a record that validates the 
regulation, and show that the rule is ``narrowly tailored to further a 
substantial governmental interest.'' Again, the record before the FCC 
fails to demonstrate any actual harm but shows very positive benefits 
of cross-ownership, such as those common to Media General's experience 
in its six convergence markets. Moreover, a ban on cross-ownership in 
all small markets is not ``narrowly tailored.''
    No matter which standard is applied, small markets have been just 
as affected as large markets by the dramatic growth in the number of 
media outlets and owners since the newspaper/broadcast cross-ownership 
rule was adopted. Media General has seen this profusion in all its 
markets, but particularly in the six DMAs where it practices 
convergence. The FCC staff's own recent study on outlets and owners 
also included many medium- and small-sized markets and found such a 
high rate of growth that it used words like ``whopping'' to describe 
it. There is also no question that consumers in smaller markets are 
just as entitled as those in large markets to the benefits of common 
ownership and access to the increased local information it produces.
    Equal Protection. When restrictions like the newspaper/broadcast 
cross-ownership rule affect fundamental rights such as the First 
Amendment, the Equal Protection Clause of the United States 
Constitution requires that such regulations be narrowly tailored to a 
legitimate governmental objective. In the absence of an effect on 
fundamental rights, if a regulation is to withstand an Equal Protection 
challenge, the government must establish a rational relationship to a 
legitimate state interest.
    As noted earlier, the ``legitimate'' objective that the FCC 
asserted in defending the initial adoption of the newspaper/broadcast 
cross-ownership rule, i.e., enhancing diversity, has completely 
evaporated because of the profusion of media and lack of spectrum 
scarcity. In addition, ``diversification'' is no longer taken into 
account in initial licensing by the FCC, a point upon which the Supreme 
Court had relied in 1978 in upholding the rule based on a spectrum 
scarcity rationale.
    Even if the FCC's assertion of a ``diversity'' objective in the 
Equal Protection context were deemed to be legitimate, a modified ban 
on cross-ownership that stops short of providing small-market relief 
would not be ``narrowly tailored'' because the FCC could not show, 
based on the record before it, that the rule in any way directly or 
materially advances diversity in such markets. The record before the 
FCC does not include evidence of any correlation at all between 
diversity and the existence of the rule, but, rather, suggests that the 
rule is harming the delivery of diverse local news. Thus, the rule also 
flunks the less strict ``rational relationship'' test.
    The Supreme Court's denial in 1978 of the Equal Protection claims 
of newspaper owners has preserved a regulatory regime that has 
radically changed, and retaining any form of a newspaper/broadcast 
cross-ownership rule that discriminates against small market owners 
would also fail on Equal Protection grounds given other changes in the 
FCC's regulation of media ownership. For instance, vacatur of the cable 
television/television cross-ownership rule has occurred in all markets. 
When the Court of Appeals for the District of Columbia Circuit recently 
vacated that rule, it did not suggest any need to retain its 
restrictions in small markets; the FCC never mentioned such a concept 
when it sought rehearing; and the FCC has allowed the rule to disappear 
nationwide. If there is no reason to follow a graduated market approach 
in repealing cross-ownership of television and cable television, two 
outlets that the FCC does regulate, there can be absolutely no reason 
to do so for combination of newspapers, which are otherwise unregulated 
by the FCC, and broadcast stations. In addition, television/radio 
cross-ownership is allowed in all markets provided a certain number of 
``voices'' remain, a standard that can be met in virtually all small 
markets. Moreover, businesses closely related to broadcasting, such as 
advertising agencies, rep firms, broadcast networks, equipment 
manufacturers, and program suppliers, may own broadcast stations in 
small markets, whereas newspaper publishers in the same markets are not 
be able to do so. Finally, all other businesses unregulated by the FCC 
(many of which compete with newspapers and television stations at the 
local level, such as Internet site owners and billboard companies) may 
own broadcast stations in their home markets, regardless of size, 
whereas newspapers may not.
    Section 202(h) Violation. Section 202(h) of the Telecommunications 
Act clearly requires the FCC biennially to determine whether any of its 
ownership rules remain ``necessary in the public interest as the result 
of competition'' and to ``repeal or modify any regulation'' that is 
``no longer in the public interest.'' The United States Court of 
Appeals for the District of Columbia Circuit has found that this 
section carries with it a strong presumption in favor of repeal. The 
record before the FCC overwhelmingly demonstrates that the public 
interest benefits of repeal, in markets of all sizes, outweigh the 
benefits of retention. This record combined with the presumption in 
favor of repeal leaves no legally sustainable case other than full 
repeal. Section 202(h) also requires the FCC to consider the impact of 
competition on its rule review and, any standard short of full repeal 
that measures the permissibility of cross-ownership only by reference 
to one or two types of outlets in a market and ignores the documented 
and pervasive competition from all other media in a market will run 
afoul of Section 202(h).
    Violation of the Statutory Goals of Localism and Innovation. The 
Communications Act articulates a number of specific public policy 
goals. Among them is the duty to foster localism under Section 307(b) 
and the duty to encourage the provision of new technologies and service 
to the public under Section 157(a).
    Since the 1930s, localism has been one of the bedrock or core 
principles of our national communications policy. For nearly 70 years, 
the FCC has been carrying out this mandate by ensuring that licenses 
and frequencies are fairly, efficiently, and equitably distributed 
throughout the nation, so that citizens, no matter what the size of 
their communities, have access to broadcast stations and the local news 
they deliver.
    As noted above and as Media General has documented extensively in 
the FCC's record, the ever increasing cost of producing quality news as 
well as other financial pressures on broadcasters and the general 
downturn in the economy have resulted in over 40 stations in small and 
even some large markets curtailing or entirely eliminating their local 
news broadcasts. Common ownership will allow the infusion of news-
related resources into these failing local television operations. 
Refusing to allow common ownership in smaller markets will ensure that 
this negative trend in decreased local content will continue unabated, 
and the goal of localism will be poorly served.
    The policy in favor of innovation was added to the Communications 
Act much more recently. With equal force, however, it requires full 
repeal of the newspaper/broadcast cross-ownership rule. There is no 
rationale in the record before the FCC, nor is there any other legally 
sustainable reason, for denying small market operators and consumers 
the same innovations and benefits, such as the enhanced local news 
resulting from convergence, that are available to their counterparts in 
larger markets. If anything, the costs and difficulties faced by small 
market operators make such changes even more deserved and compelling. 
The record is replete with the journalistic and public interest 
benefits that can redound to the benefit of consumers in smaller 
markets through convergence.
    Media General has a strong interest in expanding its convergence 
efforts beyond the six markets where it currently offers such benefits. 
Like all other newspaper owners, however, Media General is hampered in 
doing so by the FCC's newspaper/broadcast cross-ownership ban.
          * * * * *
    For decades, communications policymakers have been struggling to 
find a way to foster the provision of diverse local news and 
informational programming in the smaller markets of the United States. 
Media General has demonstrated that it can be done and done profitably. 
The result is hundreds of journalistic awards, a quantifiable growth in 
news and public affairs programming, ratings and circulation increases, 
and job creation. There is nothing in the FCC's record, other than 
anecdotes and speculative musings, that demonstrates any public 
interest detriment from such convergence. The FCC should be strongly 
encouraged to allow the benefits of newspaper/broadcast cross-ownership 
to flourish in all American markets, large and small.
                                 ______
                                 
           Prepared Statement of Victoria Riskin, President, 
                     Writers Guild of America, west

    Thank you Senator McCain and Senator Hollings, and Members and 
staff of the Senate Commerce Committee, for conducting these hearings. 
I appreciate the opportunity to submit this testimony for the record on 
behalf of the Writers Guild of America, west.
    Senators, the Writers Guild is deeply concerned that the Federal 
Communications Commission is preparing to issue rules that will further 
deregulate the media and accelerate the negative effects of 
consolidation.
    The media are the modern-day American Town Square, the place where 
people from different backgrounds and points of view share their 
stories and the American public learns about the world. Here is where 
American democracy comes alive and the American identity is forged. But 
today, barriers have been erected to keep all but a handful of voices 
from being heard in our town square.
    The Federal Communications Commission and the Courts asked for data 
about diversity in entertainment programming. As president of the 
Writers Guild of America, west, which represents the great majority of 
writers and producers who create primetime entertainment programs, I 
can tell you that over the past decade, diversity of production sources 
in the marketplace has been eroded to the point of near extinction. In 
1992, only 15 percent of new series were produced for a network by a 
company it controlled. Last year, the percentage of shows produced by 
controlled companies more than quintupled to seventy-seven percent. In 
1992, 16 new series were produced independently of conglomerate 
control; last year there was one.
    The opportunity for access for a broad range of voices has been cut 
dramatically.
    The claim has been made that because we now have hundreds of 
channels on cable. ``choices abound.'' But more channels does not 
really mean more choices. In the past the FCC has defined a ``major'' 
network as one that reaches 16 million or more homes. By that 
definition there are ninety-one major networks. But of these ninety-
one, 73, or fully eighty percent, are owned or co-owned by 6 corporate 
entities. Five of these 6 are the same corporations that run the 
broadcast networks: Viacom, Disney, News Corporation, General Electric, 
and AOL Time Warner.
    Any doubt about the control exercised by these five companies was 
dispelled in a recent report by respected Wall Street media analyst Tom 
Wolzien, which I have attached to my comments. Wolzien points out that 
a ``strong programming oligopoly is beginning to reemerge.'' For 
December, 2002, he found that the five conglomerates ``controlled about 
a 75 percent share of prime-time viewing.'' Wolzien concludes that over 
the next few years, with the further consolidations he expects to 
occur, these five companies will control roughly ``the same percentage 
of TV households in prime time as the three networks did 40 years 
ago.''
    In other words, the control by a few conglomerates will be as 
absolute as ever in history.
    The data we submitted to the Federal Communications Commission as 
part of our official filing clearly documents the dominance of content 
by a handful of vertically integrated conglomerates; that is now 
corroborated by an independent analyst. No longer can anyone argue that 
the facts of such control or their potential impact are in doubt. The 
old programming oligopoly of media content is being rebuilt.
    The creative community has seen in recent years how increasingly 
difficult it is to bring innovative shows to the air. All too often--
indeed, virtually invariably--to get their work on television writers 
and producers must cede ownership and creative control to the network 
or cable companies. Most have no choice, none at all. They must accept 
the network or cable company as a partner and surrender their 
independence, with one result that if their show doesn't make the 
schedule, they are now prohibited from taking it elsewhere. Nearly one 
hundred small and medium-sized businesses--each with its unique point 
of view--have disappeared in the last 10 years. Why is the 
disappearance of the small independent producer and writer an issue for 
public concern? Because with them have gone stories from hundreds of 
writers and producers who care deeply about original drama and comedy, 
history, culture, and not just, for example, ratings, ratings, all the 
time ratings.
    Members of the Commerce Committee have recently received letters 
from some of the most respected and famous independent writers and 
producers in Hollywood, including Grant Tinker, Diane English, Allan 
Burns and others, expressing their concern about the chilling control 
media conglomerates now have over entertainment programming and how 
this is impacting quality television. In fact, all the creative Guilds 
of the Hollywood community including the Producers Guild, the Directors 
Guild and, the Screen Actors Guild have warned the FCC in the strongest 
terms possible about the negative impact of media concentration and 
have called upon the FCC to establish limits on how much programming 
the conglomerates can produce for their own networks. In a letter to 
the Commissioners, Senators Wyden and Collins this week called upon the 
FCC to consider a new access rule that would be vital to the protection 
of the diversity of voices on television.
    The Writers Guild urges the FCC to adopt rules governing media 
ownership that expand access and diversity, not limit it to these few 
gigantic companies. We ask you to encourage the FCC to take 
constructive action to remedy the serious imbalance that has taken root 
in the programming marketplace. We are asking that a few companies do 
not continue to have a stranglehold on free expression and robust open 
debate, and that independent voices are once again allowed to be heard 
in the land. Openness will help ensure program source diversity not for 
any given group of entrepreneurs or writers but for the marketplace of 
ideas and for Democracy itself. We ask that storytellers from all 
backgrounds be once again allowed independent access to America's town 
square. We ask these things because we believe that diverse programming 
from distinct and varied sources is the very definition of the public 
interest.
                               Attachment

           Bernstein Research--Weekly Notes--February 7, 2003

      Returning Oligopoly of Media Content Threatens Cable's Power

                   by Tom Wolzien and Mark Mackenzie

The Long View
Returning Oligopoly of Media Content Threatens Cable's Power
Overview
    Common wisdom these days has the consolidated cable companies, 
particularly Comcast, taking a commanding lead in the age-old leverage 
battle with programmers. Supposedly this will give cable free rein to 
drive down prices paid for content. On the contrary, a strong 
programming oligopoly is beginning to re-emerge. This is permitting a 
three-pronged pincer movement that combines a surprising growth in 
control of national content with consolidated cable's unintentional 
increase in its exposure to powerful local retransmission consent 
requirements. The growth in content power will be additionally enabled 
by new consumer hardware and high-speed networks to the home. Comcast 
($25) now must gain retransmission agreements covering 55 stations 
owned and operated by the largest programmers, who, together with AOL, 
controlled more than 70 percent of the prime-time viewing in December. 
This number would increase to 85 percent if independent and joint-
venture services are consolidated with the big five--a likely event 
over the next few years as weaker cable networks are hammered on price. 
At that point, five programming giants would split roughly the same 
number of rating points controlled by ABC, CBS and NBC during 
television's ``golden age.'' Additionally, the introduction of in-home 
networks and servers, coupled with the evolution of unbundled routes 
for content into the home, suggest that the implication of these 
changes may go far beyond the price paid to programmers. Going forward, 
the programmers' power threatens cable's ability to maintain the value 
of its ``bundle'' and eventually may shift it to ``dumb pipe'' status, 
devoid of the upside from intellectual property.

Part I: Programming Power Grows
    The subject of this Long View is leverage--whether content or 
distribution can get an edge on one another going forward and, if 
content can get an edge, does that threaten cable's historic ability to 
bundle content and transport at a high-margin markup. Our view is that 
big-content is slowly gaining an edge, even as cable consolidates. That 
edge comes from a combination of local and national distribution and 
from evolution in the consumer electronics area.
    Programming Oligopoly Reforming: A study of the December ratings 
from Nielsen Media suggests that we are beginning to see a rebuilding 
of the old programming oligopoly when cable and broadcast network and 
station viewing are considered. In December, Viacom ($37) controlled 
about 22 percent of prime-time viewing through its broadcast and cable 
networks. Disney ($17) controlled 18 percent, while News Corp. ($25), 
NBC and AOL ($10) were each in the 10-12 percent range. Together, the 
five companies controlled about a 75 percent share of prime-time 
viewing, not including their nonconsolidated partnerships like A&E, 
Court TV and Comedy Central.
    Exhibit 1 shows what we found to be a major disconnect, at least 
for us, in perception and reality. Column (a) shows classic prime-time 
viewership during television's ``golden age,'' when three networks 
split an average of 57 percent of the television households (ratings). 
Last season ABC, CBS and NBC split about 23 percent, as seen in column 
(b). But if the viewing of all properties owned by the parent 
companies--Disney, NBC and Viacom--is totaled, those companies now 
directly control television sets in over a third of the TV households. 
Add AOL, Fox and networks likely to see consolidation over the next few 
years (Discovery, A&E, EW Scripps, etc.), and five companies or fewer 
would control roughly the same percentage of TV households in prime 
time as the three nets did 40 years ago. The programming oligopoly 
appears to be in a process of rebirth.



    Increased Retrans Exposure: In another surprising twist, the 
consolidation of the cable industry has actually left the largest cable 
company, Comcast, more exposed to the leverage of the largest 
programmers, as their local television stations can further exploit the 
need for the cable company to gain permission to retransmit the local 
signals. The math resulting from consolidation is working against 
Comcast. In 23 of the top 26 television markets covering half the 
population of the United States, Comcast now must gain retransmission 
consent for some 62 separate television stations owned by four of the 
top five program companies. Of the top 26 markets, only Houston, 
Phoenix and Portland, Oregon, currently don't have an overlap of 
Comcast with ABC/Disney, CBS/Viacom, Fox/News Corp. and/or NBC/GE. 
Exhibit 2 shows the programmers' big market leverage against Comcast.
    Comcast's historic approach has been to avoid high-profile 
conflicts. Just how high-profile retransmission consent conflicts can 
be is recalled from 2000 when then Time Warner Cable took the ABC 
stations off in New York and other major markets for a day before the 
company was crucified in Washington and other media. The lesson: the 
more exposed cable companies are to high-quality local television 
stations owned by the major programmers, the more leverage those 
programmers have against cable. And Comcast is now the most exposed of 
all, even before taking into account what News Corp. might do with 
retransmission permission for its Fox stations should it enter the 
satellite business.
    This overlap means that the programmers other than AOL probably now 
have sufficient control over Comcast through retransmission consent 
requirements for major stations to: (a) neutralize Comcast's scale 
threat to reverse program cost increases, and (b) parry cable attempts 
to place limits on data transmissions.



Part II: Convergence (Finally) Is Real
    Revelation at the Kitchen Counter: Christmas day at my brother and 
sister-in-law's place in central New Jersey seemed like many others----
toys and electronics for the teenage sons, the latest digital camera 
for their dad, Howard; but it was their mother Linda's present that was 
stunning in its simplicity, and, perhaps, for what it said about 
convergence and the coming threat to what is becoming to be seen as an 
all-powerful cable industry.
    There on the kitchen counter, between the Kitchen Aid mixer and the 
Christmas cookies, was a new screen. It was a flat screen made by View-
Sonic. The computer sat over the edge of the counter in a corner on the 
floor. Computers in kitchens aren't all that unique these days, but 
this screen had a couple of buttons on the front. Push one and get the 
Web. Push another and there was cable television. Right there on the 
display unit. No separate TV. No All-in-Wonder cards jammed into the 
computer. Just a cable wire and a computer wire into the back of the 
flat screen.
    Just buttons. Just like AM-FM. TV-Internet. One device regardless 
of band. Simple. Threatening because it reminds that the consumer 
doesn't care how programming gets into the home . . . just that it is 
available.



    Today when you buy cable television service, it is a bundle--
transport and content. The reason the top cable companies are able to 
get away with charging such high margins is that they are selling that 
transport/content bundle. We consumers are unable to separate the 
bundle. We analysts have a difficult time even figuring out what the 
parts actually cost.
    Data service is different. With their move into high-speed data, 
cable companies have, for the first time, unbundled their service. We 
consumers buy the data transport service for $40 or $50 a month, but, 
unlike video, we don't buy online content from the cable company. And 
this may be the beginning of the demise of cable's margins, not for 
what they make on data, but for what they may lose in conventional 
bundled services. Now, this isn't going to happen right away, but it 
should be considered in strategic discussions.
    The coming threat is most easily illustrated by the difference 
between cable video-on-demand and the new Movielink--Web-delivered 
movie downloads on demand. The economics of a video-ondemand movie 
purchased from and delivered by the cable company are distinctly 
different for the cable company from a movie purchased via the studio's 
Web proxy, Movielink. To keep it simple, assume that both movies cost 
$4, assume that the revenue is split equally between the studio and the 
distributor. For the cable VOD purchase, half of the consumer's $4 goes 
to the studio and half goes to the cable company. For the Movielink 
purchase, half the consumer's $4 goes to the studio, and the remainder 
goes to Movielink. The cable company gets nothing above and beyond what 
it is already receiving for the data connection. It is providing 
transport just like the phone company.
    Cable operators have been thinking that they will be able to make 
out very well in this environment if they just begin to ratchet up 
price for those who transfer large files. But, as we just saw, they 
were missing the intellectual property upside that they get from 
bundling transport and content. Two analogies: you and your associates 
work all night putting together a deal that creates $10 million in 
value. The lights burn late, but the electric company only gets in 
additional $0.13 cents for the extra kilowatt-hours. It doesn't get any 
of the value created under its lights. The same applies to a long 
distance phone company when you make a call on which value is created. 
The thought that a linear ratcheting of transport price can offset the 
intellectual property upside denies cable's basic bundling premise.
    It is easy to deny any problem with the cable approach today. After 
all, Movielink is in its infancy and based on downloads of less than 
DVD quality for viewing on a computer screen. You can't watch it on 
your TV. And there is no other streaming product, much less pay-per-
view streaming product, that we care about. If you're a consumer, just 
wait. If you're a longer-term cable investor, watch out. As the 
consumer electronics industry accepts the better MPEG-4 compression 
standard and couples it with in-home storage and these new hybrid 
computer-television flat panel displays, the combination could begin to 
threaten cable's wired monopoly.
    Real Networks now claims some 800,000 customers paying for 
streaming video content via the Web--content which often rides the 
high-speed cable pipe without allowing cable to take any intellectual 
property upside. In the next few months, Major League Baseball games 
will begin to be sold by Real, and ride the cable pipe. Cable won't get 
an extra cent.
    But the threat to cable goes much further than just the fledglings 
of Real and Movielink. It would have been easy to miss the small print 
on one of the ESPN slides at Disney's presentation to the UBS 
conference in December. Under the future business heading were listed 
``streaming video'' and ``payper-view.'' There was no indication that 
these would be provided in cooperation with the cable operator, and 
streaming could help give Disney its long-sought-after alternate 
distribution system. If Disney develops an alternative distribution 
system to the home, it wouldn't attack cable outright, but rather begin 
to offer bits and pieces of content that would steadily increase in 
length and quality over time.
    Likewise, the troubled AOL is trying to reposition its ``bring your 
own access'' approach to delivering high-speed content. BYOA opens the 
door for going around the cable operators, who have had more than 
enough time to cut deals with AOL to control long-term streaming. 
Whatever the reasons--most likely ``stereo hubris'' from both sides--
not only are there no streaming controls on AOL in the current deals 
with Time Warner Cable and Comcast, but even the old 10-minute 
limitation on streaming from the original @Home and Roadrunner 
contracts, seems to have gone away. While AOL made a big deal at its 
December analysts' meeting of planning to provide only small chunks of 
video by high speed, one mid-level AOL executive later told me that it 
wasn't whether they could stream much more than small chunks of video, 
but whether they had the guts to do so.
    Cable companies may think they can control Movielink and Real and 
Disney and AOL by refusing to pass their data bits without being given 
a cut. This would be the old cable way. But to do so would initiate a 
radical change in the now well-established ``open-ness'' of the 
Internet--the ability of any consumer to get to any place in the world. 
Such a change by the largest cable companies likely would once again 
raise the profile of cable as gatekeeping monopolists. Such an attempt 
would pay hell in Washington and, depending on the content available, 
push users toward DSL or, in the future, wireless.
    Cable had its chance to develop original high-speed content at the 
outset, but failed. The original concept for @Home lent itself to 
providing preferred positions to certain content providers who would 
make content available on an exclusive or priority basis to @Home 
subscribers. That potential died when @Home decided to merge with 
Excite, was pushed into AT&T, and subsequently became embroiled in the 
internecine warfare of that now dismembered company.

Part III: Hardware and Routes Benefit Content
    High-Density Storage Alternative: Making this all the more 
complicated is the rise of in-home storage and networking. These new 
technologies open cable to competition from stored content as well as 
that streaming in real time. At this year's consumer electronics show, 
high-density storage was a major attraction. TiVo and Replay continued 
with their TV storage devices, but they were joined by the Sonys, 
Panasonics and Phillips' and others which were converting television 
storage into in-home servers for just about any type of material, 
including video. These devices, some of which can plug directly into 
the Internet, potentially provide the ability to put material on the 
television screen from any source, including material that has been 
streamed or downloaded.
    Competitive Principles: Capacity to deliver video content to the 
consumer is determined by a combination of: (a) the ability to compress 
the content into smaller total packages using continuing advances in 
digital compression, (b) the capacity in the circuit to transport that 
data, (c) the ability to separate a piece of content into more-easily 
transportable components, and (d) the capability to store and 
reassemble the content before or at the home display device. Different 
types of content require different thresholds of capacity to reach the 
consumer.
    The highest threshold of capacity is required by something that is 
happening live, in real time. Of course, a live concert, sporting, or 
news event only happens live once. After that it is prerecorded 
someplace--centrally, at the edge, or in the home. At minimum, a live 
transmission demands all of the bandwidth required by the currently 
best compression system, and direct access to the consumer without 
intervening storage.
    Once content is preproduced or delayed, there become many more 
opportunities for delivery beyond a continuous stream. In theory, the 
content can also be transmitted: (a) in short bursts for reassembly, 
(b) not in real time (slowly), (c) by multiple routes and reassembled, 
or (d) splatted at super high speed. The only end requirement is that 
the data all wind up on a storage device in the home and in a form that 
can be reassembled by that device to make a coherent program. How it 
gets there and how long it takes to get there is not material, so long 
as it is available when the consumer wants it. At this point the 
aggregation of data potentially becomes more important than one single 
path, thereby suggesting the potential for a new generation of would-be 
gatekeepers who try to control the servers in the home.
    Routes into the Home: When considering the potential routes into 
the home, we began by thinking how few there were 25 to 30 years ago. 
Back then, there was broadcast radio and television and the telephone. 
And you couldn't carry content in because hardware was too expensive. 
Video was recorded on huge reels of two-inch wide tape that played on 
sofa-sized machines costing hundreds of thousands of dollars. Today the 
number of routes into the home have exploded and may continue to expand 
with wireless data. And in-home storage is coming of age not only with 
the high-density storage of TV devices and the new consumer electronics 
servers, but also with PCs and video game consoles.
    It is not difficult to imagine one of these storage devices 
offering the option of receiving content by any combination of: (a) 
cable modem, (b) cable, (c) satellite, (d) DSL, (e) over-the-air 
digital television, and (f) by wireless (WiFi) running at 2.4 GHz, 
another frequency, or using bits and pieces of the entire spectrum.

Part IV: Cable's Alternatives
    Investing in High-Speed Content: To avoid ``dumb pipe'' status, the 
cable industry can try to return to what made it great in the video 
realm--the combination of transport and exclusive content. In addition 
to offering high-speed Internet transport, a cable company might also 
elect to offer another high-speed data option that includes content not 
available elsewhere. Of course, this would require the cable industry, 
once again, to fund the development of exclusive content, as it did 
during the 1980s. Back then, this effort was hugely successful because 
there weren't any alternatives--no Discovery, no TNT, etc. It was also 
an effort that was successful before the alternative distribution 
system of satellite.
    To date, cable development of a premium alternative to data has not 
been successful in the marketplace, to great extent because of the 
@Home fiasco discussed earlier. But there may be another reason. Cable 
operators have taken to high-speed modem service and its 50 percent+ 
margins like drugs. Of course they love it. The content is free, and 
the profit ramp is steep. The problem is that in selling a commodity 
they may be setting themselves up for a fall by selling nonexclusive 
content that is not only free to them--but also free to any competitor 
that may emerge. It should be remembered that the key to satellite's 
emergence in the United States was Congressional action that required 
cable companies to sell to the satellite companies content that had 
previously been exclusive to cable.
    Cable vs. Programmer Leverage in Contracts: If the cable operators 
don't want to invest in high-speed content, and if they don't want to 
have their commodity-data pipe compete with the intellectual property 
upside of their classic cable-video bundle, then their only other 
alternative is to attempt to prohibit competition through contracts 
with programmers. On the surface, it would seem to be easy to require 
cable programmers to refrain from providing any digital services over 
the Web that might compete with the cable operator's bundled 
businesses. The simple deal would be, ``if you want your network on our 
cable, you must agree not to compete on the Web.'' Or, at least, cut 
the cable operator in on any broadband content action. Certainly that 
is possible with the likes of Movielink, Real or independent networks 
with little negotiating leverage.
    However, what would seem to be easy for a powerful cable company, 
may not be in the future when it has to deal with the big content 
companies. As noted earlier, the growing leverage of the programmers 
through both national distribution and local stations will provide 
significant leverage to maintain price and develop new services.

Investment Conclusion
    While it is currently popular to view cable as having ``won'' in 
the leverage battle against content (if not against satellite), such a 
view is both momentary and premature. The growing power of the content 
providers in viewership across their multiple network and local 
platforms threatens cable's short-term abilities to gain program 
pricing leverage, and its longer-term ability to protect its 
``intellectual property'' upside within its content bundle. When 
coupled with the possibility of price-warfare from a reconstituted 
satellite industry seeking market share, cable's response will likely 
be to improve the offering in its ``bundle,'' probably by offering very 
low-cost telephone service using the scale economics of Internet 
Protocol telephony.
    Should this occur, then we would view the revenues of video from 
cable and satellite, data from cable and RBOC, and phone from cable and 
RBOC as all sloshing around the same bathtub. If satellite removes 
revenues from cable, then cable will try to remove revenues from the 
RBOCs. In the end, the economic realities of overcapacity will prevail 
to the detriment of both cable and the RBOCs, with principal 
distribution benefit accruing to the low-cost provider for any service.
    If the scenario plays out as we expect, cable operators will 
neither invest in high-speed content in the near term, nor succeed in 
blocking programmers who want their content to ride the high-speed 
pathways. Having failed to differentiate themselves, cable operators 
will likely return to the idea of developing their own content. While 
the cable operators may think this approach will be successful, as it 
was for video in the 1980s, they run a high risk because, by then, the 
programmers will be far down the road in establishing their own 
services to the detriment of cable. Simply put, cable will be too late 
if it waits.
    Programmers will continue to consolidate their cable networks, 
exploit the Internet and other distribution methods, and, barring heavy 
investment from the distribution players, move rapidly to strengthen 
what is already beginning to appear as a return to content oligopoly. 
Right now, the balance may appear to have tipped to cable, but over the 
longer term, the programmers hold the power.

Disclosures
    Bernstein analysts are compensated based on aggregate contributions 
to the research franchise as measured by account penetration, 
productivity and proactivity of investment ideas. No analysts are 
compensated based on performance in, or contributions to, generating 
investment banking revenues.
    Bernstein rates stocks based on forecasts of relative performance 
for the next 6-12 months versus the S&P 500 for U.S. listed stocks and 
versus the MSCI Pan Europe Index for stocks listed on the European 
exchanges--unless otherwise specified. We have three categories of 
ratings:

        Outperform: Stock will outpace the market index by more than 15 
        pp in the year ahead.

        Market-Perform: Stock will perform in line with the market 
        index to within +/-15 pp in the year ahead. Underperform: Stock 
        will trail the performance of the market index by more than 15 
        pp in the year ahead.

    Bernstein currently makes or plans to make a market in every NASDAQ 
security contained within our coverage universe.
    Tom Wolzien, Bernstein's Senior Media Analyst, holds an interest in 
a public company,ACTV, Inc., and is a director of a subsidiary to 
exploit his patents linking mass media with online services. ACTV may 
be involved in business dealings or legal actions with companies 
covered by Wolzien. Currently ACTV has business arrangements with 
Viacom, Comcast (which Mr. Wolzien also maintains a position in) and is 
involved in legal action against Disney. ACTV is in the process of 
being acquired by Liberty Media.
    Accounts over which Sanford C. Bernstein & Co., LLC, Sanford C. 
Bernstein Limited, and/or their affiliates exercise investment 
discretion own more than one percent of the outstanding common stock of 
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Alliance Capital Management.