[Senate Hearing 108-947]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-947

 
                            MEDIA OWNERSHIP

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 22, 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 22, 2003.....................................     1
Statement of Senator Allen.......................................     3
Statement of Senator Boxer.......................................     6
Statement of Senator Breaux......................................     4
Statement of Senator Dorgan......................................     5
Statement of Senator Ensign......................................     5
Statement of Senator Hollings....................................     1
    Prepared statement...........................................     2
Statement of Senator Lautenberg..................................    88
    Prepared statement...........................................    90
Statement of Senator Lott........................................    86
Statement of Senator McCain......................................     1
Statement of Senator Stevens.....................................     4
Statement of Senator Sununu......................................     6
Statement of Senator Wyden.......................................     3
    Prepared statement...........................................     4

                               Witnesses

Allard, Hon. Wayne, U.S. Senator from Colorado...................     7
    Prepared statement...........................................     9
Thomas Fontana, President, Fontana-Levinson on behalf of Writers 
  Guild of America, East, The Caucus for Television Writers & 
  Directors, American Federation of Television and Radio Artists.    65
    Prepared statement...........................................    67
Kimmelman, Gene, Senior Director of Advocacy and Public Policy, 
  Consumers Union, on behalf of Consumers Union and the Consumer 
  Federation of America..........................................    21
    Prepared statement...........................................    23
Mikkelsen, Dr. Kent W., Vice President, Economists, Inc..........    61
    Prepared statement...........................................    63
Murdoch, Rupert, Chairman and Chief Executive, The News 
  Corporation, Ltd...............................................    11
    Prepared statement...........................................    12


                            MEDIA OWNERSHIP

                              ----------                              


                         THURSDAY, MAY 22, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:10 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. Good morning. Today the Committee continues 
its series of hearings examining consolidation of ownership in 
the media marketplace. During each of the previous hearings we 
have heard concerns about horizontal concentration in various 
media markets. The FCC is in the final days of examining the 
rules that govern media ownership. We will hear from the 
Commission shortly after that decision. I intend to have a 
hearing immediately upon our return from our recess.
    We have also heard concerns about increased vertical 
integration in all media. The radio, cable, and network 
television industries have all seen increased levels of 
vertical ownership. Many people fear that this phenomenon 
threatens diversity and competition as vertically integrated 
industries squeeze out their rivals. Recently, News Corp. 
announced its agreement to purchase a significant interest in 
DIRECTV. If the deal is approved, News Corp. will own the 
studios where content is created and the means to deliver the 
content either through its national broadcast network, 
including 35 local broadcast stations, its 30-plus cable 
channels, including Fox News and Fox Sports Net, or its 
satellite system.
    I want to thank Mr. Murdoch for testifying today, and look 
forward to hearing more about this agreement. I also appreciate 
other witnesses for joining us today, and I will abbreviate my 
remarks, because I know all committee members are interested. I 
would appreciate if they would abbreviate theirs. We know we 
have a full day of votes, and we look forward to hearing from 
the witnesses.
    Senator Hollings.

             STATEMENT OF HON. ERNEST F. HOLLINGS, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator Hollings. Thank you, Mr. Chairman. I appreciate 
very much the hearing. I would ask consent that we include my 
statement, an editorial in Business Week, an editorial this 
morning by William Safire, an article, ``The U.S. Media 
Marketplace is Highly Competitive,'' a listing of holdings, and 
then, the author of that article, a listing of his holdings, 
that is, of the News Corporation, if we could include that all 
in the record here.
    The Chairman. Is that the article that has the ``shucks, we 
are no monopolists'' line that Rupert Murdoch will take today 
in testimony before the pussycats of John McCain's Senate 
Commerce Committee? Is that the one we want included in the 
record?
    [Laughter.]
    The Chairman. Without objection.
    Senator Hollings. As one pussycat to another, we ought to 
get that right in the record, I think, and I would include that 
statement, and thank you very much.
    [The prepared statement of Senator Hollings follows:]

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

    Thank you, Mr. Chairman. Today the Committee again turns its 
attention to media ownership, and to plans afoot at the FCC that could 
drastically change the American media marketplace. Since its very 
beginnings, our system of broadcasting has been designed to ensure that 
the public airwaves serve the public. In that regard, we have entrusted 
our regulators with a fundamental responsibility--to protect the public 
interest from economic self-interest, and to promote the core values of 
localism, diversity, and competition that are essential to a well-
functioning marketplace of ideas.
    Unfortunately, instead of fighting zealously for American citizens 
and these ideals, the FCC appears ready to unilaterally disarm. 
Chairman Powell has artificially set June 2 as ``D-Day'' for the 
current ownership rules, and a small, but well-connected ``coalition of 
the willing'' has spared no expense in its assault on these limits.
    Already the top 5 programmers--Viacom/CBS, Disney/ABC, NBC, Time 
Warner, and News Corp./Fox (and potentially, News Corp./Fox/DIRECTV) 
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. From every corner of the nation, there are 
examples where the interests of local communities are being sacrificed 
to the needs of network executives to find more eyeballs. But in 
response to claims that the future of broadcast television is in 
jeopardy, the FCC appears willing to respond--in an amazing act of 
corporate welfare--to raise the 35 percent national broadcast cap 
established by Congress to 45 percent.
    With matters so fundamental to the fabric of democracy at stake, it 
was my hope that these issues would be considered in a fair manner with 
every measure taken to inform the public of the options under 
consideration, and their potential effect on local media markets. 
Unfortunately, that has not occurred.
    Mr. Chairman, the American people deserve better. They deserve to 
know that merger reviews will be searching and thorough, and that 
regulators will demand proof of tangible public benefits. But if the 
FCC continues its course in allowing the self-interest of a few media 
titans to trump the public's interest in protecting a diverse 
marketplace of ideas, the effects may not be immediate, but they will 
be far reaching.
    We will see fewer creative outlets for independent TV and content 
producers; higher ad rates for large and small 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 community standards.
    While I welcome the testimony of the witnesses today and their 
responses to our questions, I am disappointed that we have not served 
our constituents by inviting the FCC Commissioners to testify on these 
issues in a public forum prior to their upcoming decision. While I 
understand it is the Chairman's intention to invite the Commissioners 
soon after their decision, I fear that a ``shoot-first, ask questions 
later'' strategy plays right into the hands of the media conglomerates 
and leaves the American people a day late and a dollar short.

    The Chairman. Thank you. Again, I would appreciate if my 
colleagues would be brief in their opening remarks. Senator 
Allen.

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

    Senator Allen. Thanks, Mr. Chairman. I will try to be 
brief, and I would like my statement to be in the record.
    The Chairman. Without objection, all statements will be 
made a part of the record.
    Senator Allen. Thank you. In the midst of all of this, one 
of the key factors that I think needs to be updated as far as 
the regulations, is that smaller markets ought to have the same 
sort of regulations that are enjoyed by larger markets, 
including the duopoly rules, which I think discriminate against 
small markets. I am also in favor of newspaper cross-ownership. 
The costs are increasing, and the more you look at all the 
facts, where you do have the cross-ownership, the programming, 
including local programming, has improved.
    Also, I would ask people to be cognizant of the big 
increase in the number of outlets and opportunities for media, 
news and information via cable, satellite, FM stations and, of 
course, the Internet as well. And insofar as the hearing today 
will examine Fox News' proposed acquisition of DIRECTV, I will 
note, and I am sure it will come out in the testimony, that in 
this effort to make sure there are no antitrust violations, 
which will be enforced by the Department of Justice, it seems 
to me that this programming appears to be available on a 
nonexclusive basis, and nondiscriminatory practices will be 
involved insofar as prices, terms, and conditions. I look 
forward to hearing our witnesses and their testimony, and also 
questioning them, and I thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Allen.
    Senator Wyden.

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

    Senator Wyden. Thank you, Mr. Chairman. I have a prepared 
statement for the record, if I could have that entered. I will 
just make a couple of comments.
    The first is that the country is now on the eve of the most 
important set of communications decisions in years, and I think 
it is important to understand what is really at issue before 
the Federal Communications Commission. It seems to me what is 
being debated now is that the media conglomerates are saying, 
trust us, we do not need ownership rules to do what is right. 
They are saying this despite the fact that the radio changes 
that are along the lines of these FCC changes have produced a 
wave of fake localism.
    They are saying this despite the needs that the cross-
ownership conflicts need to be policed, and they are saying 
this in spite of the fact that there are new studies that 
indicate that public interest programming goes down when you 
have more media concentration. I am going to submit that set of 
studies as a part of the record, so I think it is important we 
have these hearings. I still hope that we will have a chance to 
review what the Federal Communications Commission is doing, 
because I think that the country is standing on the edge of a 
cliff here. We ought to look at what lies ahead, and these 
changes are not going to be good for the country. I thank you.
    [The prepared statement of Senator Wyden follows:]

     Prepared Statement of Hon. Ron Wyden, U.S. Senator from Oregon

    Time on this issue is getting very short.
    The FCC has made it clear that it intends to march ahead on its 
predetermined schedule. It won't break stride, and it won't heed the 
calls for caution by members of Congress (including many on this 
Committee) or by two of the five FCC commissioners.
    The problem is, I think the country could be standing on the edge 
of a real cliff when it comes to media consolidation. The public ought 
to be given a clear look at what lies below, because it may not like it 
sees. And once the threshold is crossed, it may be nearly impossible to 
turn back.
    There is a lot at stake here. Media ownership is important for 
diversity of viewpoints. It is important for robust public debate. And 
it is important for ensuring the kind of independent and competitive 
media corps that underpins a healthy democracy.
    Given the importance, I think the FCC should go the extra mile in 
this proceeding, not focus on efficiency or artificial deadlines. It's 
really a matter of good government. At the very least, the agency 
should not be choosing this proceeding to cast aside its usual practice 
of allowing any Commissioner to request a one-month extension.
    There's already been a great deal of concentration in the media 
industry. So I think it's pretty ironic that the FCC seems to take the 
view that many media ownership rules are now obsolete. I think you 
could argue that they're more important than ever.
    Perhaps the core disagreement here is whether the ownership of 
media really matters much. Some may say that jointly owned media 
outlets can still offer diverse and independent viewpoints. That media 
outlets owned by a distant conglomerate can still provide localism. 
That media outlets that own their own programming can still be open to 
independent creative programming.
    Maybe. But I don't think the American public wants to bank on it. 
When the big media
    conglomerates say, ``trust us, we won't let our ownership influence 
our content,'' I think the public reply is--thanks, glad to hear you 
say that, but we want a guarantee. ``Trust us'' isn't good enough. 
That's why we've had the media ownership rules. And it's why they 
shouldn't be rolled back.

    The Chairman. Thank you.
    Senator Stevens.

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

    Senator Stevens. I apologize, I have no opening statement.
    The Chairman. Thank you.
    Senator Breaux.

               STATEMENT OF HON. JOHN B. BREAUX, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. Thank you, Mr. Chairman. Thank you for 
having the hearing. On the point of the 35 percent cap, whether 
it should be increased to 45 percent, I think the caps the way 
they have been set up is really a misnomer, because it goes 
back to the days when we basically watched our television from 
over-the-air transmissions, and if you lived in a city and had 
stations in cities that encompassed over 35 percent of the 
population, you could not own any more, but that is not the way 
people watch television today. They get their television 
through cable; they get their television through satellites. 
Very few, in fact, get it through over-the-air transmissions, 
and yet, we are still looking at the area size where the 
stations are located. If the population adds up to over 35 
percent, you cannot have any more stations. Well, that is 
ludicrous in the way things actually operate today.
    In those cities, in Los Angeles, for instance, you may have 
one NBC affiliate or CBS affiliate, and if they had a station 
in Chicago and Houston and Miami and Los Angeles and New York, 
it probably adds up to over 35 percent. That does not mean 35 
percent of the people are watching that one outlet. It may be 
less than 3 percent, because in Los Angeles or any one of those 
cities, the people have a choice between 150 stations, and just 
the fact that they are in a large area with the potential to 
have 35 percent viewership does not mean they really do, so it 
is really a misnomer. It is not the best way to judge whether 
people are watching more than one outlet. It is a throwback 
that is antiquated and should be replaced by a new and 
different standard.
    Thank you.
    The Chairman. Thank you.
    Senator Ensign.

                STATEMENT OF HON. JOHN ENSIGN, 
                    U.S. SENATOR FROM NEVADA

    Senator Ensign. Thank you, Mr. Chairman. I want to just 
echo, and I will keep it very brief, just echo some of the 
comments made by Senator Breaux. In just thinking when I used 
to visit my in-laws down in Southern California, and thinking 
of the large Hispanic population, I mean, that does not take 
into account the number of Hispanics that are watching purely 
Hispanic television when you are looking at the media percent 
ownership. We live in a completely different world today than 
when these rules were put into place, and to not recognize that 
I just think is not the right kind of public policy.
    Technology has radically changed the way the people get 
information. When looking at the purpose of the rules in the 
first place was to make sure that a small percentage of people 
was not dominating thought, was not dominating the information 
that came into your household. Today, that is virtually 
impossible to do even if the caps are lifted the way that they 
are being proposed by the FCC, so I think this whole thing 
needs to be looked at taking all the technologies into account: 
cable, satellite, over-the-air broadcasts, the Internet, radio, 
newspapers.
    Everything needs to be taken into account, because it is 
not just print newspapers anymore, there are newspapers on the 
Internet and the like, and so for us to have these antiquated 
rules governing such a completely different marketplace I think 
is outdated and needs to be changed.
    Thank you, Mr. Chairman.
    The Chairman. Senator Dorgan.

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

    Senator Dorgan. Mr. Chairman, I regret that which some feel 
is old-fashioned--competition, diversity, and localism--are 
considered antiquated. The fact is, the American people own the 
airwaves. We license them for people's use. If one company 
owned 100 different television channels and beamed it into your 
home, I suppose they could make the case what wonderful variety 
you have. You have much more variety than if you had four 
channels, 25 times more variety, all from the same source.
    Look, the fact is, in 1995 we had the largest 25 television 
companies owning 24 percent of the stations. In 6 years they 
doubled that, now owning 44 percent of the stations. Seven 
cable companies have 90 percent of the U.S. cable subscribers. 
Ninety percent of the top 50 cable channels are already owned 
by the top four television and cable networks, and if the FCC 
gets its way in the next couple of weeks, we could easily be 
headed for a day when it will be legal for one company to own 
the cable company, the newspaper, the biggest TV stations, and 
the dominant radio stations all in exactly the same town.
    In my judgment, it ought never be old-fashioned for us to 
cling to the notion of competition, diversity and localism. The 
fact is we have gone a long way from those basic principles. I 
think the FCC is poised to march to the rear, regrettably, in 
the next couple of days, and then we will be able to visit with 
them after they have done it. I think that will be very 
destructive to the interests of this country.
    The Chairman. Senator Sununu.

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

    Senator Sununu. Thank you, Mr. Chairman. I do not believe 
that the principles of competition, localism, or diversity are 
old-fashioned, and I would venture to say that I do not think 
anybody on this committee believes that the principles of 
competition, localism, and diversity are old-fashioned.
    The question, and the question probed by some of the 
previous speakers, is whether or not the rules needed to ensure 
those principles that were originally designed in 1955 or 1965 
are appropriate to ensure those principles in 2005 or 2015 or 
2025 for that matter. The principles are not necessarily old-
fashioned, but technology has changed, competition has changed, 
the nature that people get their information has changed, and 
what we are here to discuss today is whether or not in order to 
keep pace with those changes in technology, some modification 
of the rules or the regulations might be appropriate.
    Thank you, Mr. Chairman.
    The Chairman. Obviously, there is a diversity of opinion on 
this pussycat committee.
    [Laughter.]
    The Chairman. Senator Boxer.

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Mr. Chairman, I ask unanimous consent to put 
my statement in the record.
    The Chairman. Without objection.
    Senator Boxer. I am keeping track of who the pussycats are. 
It is interesting.
    [Laughter.]
    Senator Boxer. But let me say that people are calling 
certain rules antiquated when they were set in 1996, so let us 
get that squared away. The rules, the 35 percent rule went into 
effect in 1996. I would like to ask unanimous consent to place 
into the record an article entitled, ``Children's TV Shows Cut 
in Half After Media Mergers,'' and it says, as the FCC prepares 
to announce sweeping changes to regulations governing how many 
media outlets a single company can own. A new study shows 
dramatic decrease in children's TV programming following a rise 
in media consolidation, and this was against all the promises 
that were made. I would just cut to the heart of it.
    We are going to hear from the FCC. I think they are being 
very unresponsive to many letters that many of us have sent. 
They refuse to really be transparent about what they are doing. 
They will not move back the date. The bottom line is, I am 
surprised to hear so many voices here who seem to take the 
opposite view of what I would think they would, meaning that we 
should stand for competition, free speech and all the rest, and 
believe me, I am going to fight for that, and I think we may 
have to fight for that.
    Thank you.
    The Chairman. Senator Lott.
    Senator Lott. I believe since I have just arrived I will 
pass.
    The Chairman. Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman. Competition, 
diversity, and local coverage. Those are old-fashioned values 
that can be applied to the new age.
    The Chairman. We welcome before the Committee, our 
colleague and friend, Senator Allard, for a brief statement in 
preparation for this hearing. We thank you for your interest. 
We appreciate you appearing this morning, Senator Allard.

                STATEMENT OF HON. WAYNE ALLARD, 
                   U.S. SENATOR FROM COLORADO

    Senator Allard. Well, I would like to thank you, Mr. 
Chairman and members of the Committee, for allowing me to speak 
here today, and I would like to especially thank you, Mr. 
Chairman and Ranking Member Hollings, for both of your 
commitment to examining media ownership this year, and I look 
forward to working with you on these important issues.
    On May 13, this committee heard testimony from Frank 
Blethen, publisher of the Seattle Times, and Mr. Blethen 
stated, ``the American newspaper, large and small and without 
exception, belongs to a town, a city, at the most, to a 
region.'' There is a certain pride and comfort to be taken from 
the notion that the media that so pervades our lives could be 
so rooted in focus and accountability.
    As my colleagues well know, the Federal Communications 
Commission is currently reviewing a series of historical, broad 
rule changes that would make it easier for large media 
corporations to gobble up a greater share of local media, 
including television stations in the same market. The 
Commission and those who already hold enormous control over the 
content of the press claim this will only enhance the ability 
of the media to meet the needs of the consumer. The world, they 
claim, has grown so large and so complex that only vast 
resources and centralized control can carry important stories 
across the globe, and I respectfully disagree, Mr. Chairman.
    Consumers benefit from technology more today than at any 
time in history. In an age of satellite television and the 
Internet, I am not as convinced as some that the greatest toll 
in news coverage is the world beyond our region. The Consumers 
Union has correctly pointed out, in fact, that the opposite is 
the case. Satellite provides no independent local news 
information and is struggling just to make local stations 
available to subscribers.
    Radio providers, another acute example, prior to 1996, 
there was a 40-station national ownership cap in the radio 
industry. Today, Clear Channel alone owns almost 1,240 
stations, and between one-third and one-half of all independent 
radio stations have been absorbed or run out of business, 
including many in Colorado. Suggesting allowing increased 
cross-ownership does not strike me as a policy in the greatest 
interest of the public, whom the FCC is chartered to serve.
    The current generation of Americans have seen the number of 
independently owned newspapers dwindle from 1,700 to 280. As 
Chairman McCain noted last week, this often equates to a loss 
of diversity of opinion in the pages of those newspapers with a 
common owner. I share the Chairman's opinion on this matter, 
and am profoundly concerned with the marginalization of 
information being funneled to the local communities by 
multimarket media corporations.
    As Mr. Blethen stated in his testimony, the secret of a 
free press and vibrant public discourse depends upon voices in 
the communities themselves. While the facts stand on their own, 
it is equally compelling to examine what we have witnessed in 
my home state of Colorado in recent years.
    Since the joint operating agreement, referred to in my 
testimony as JOA, between the Denver Post and the Rocky 
Mountain News, local businesses have reported an increase in 
advertising rates between 6 and 10 times pre-JOA levels charged 
by both papers when they were separately owned. This represents 
an enormous fiscal impact on large and small businesses as well 
as individuals, infringing on their ability to reach the 
consumers they relied upon for years. Those who can still 
afford to advertise are forced to pass these increased costs to 
consumers.
    The issue before the FCC and this committee is not whether 
we need to redebate the Telecommunications Act of 1996, or 
specific joint operating agreements. The issue today is whether 
the public will be well served by another round of 
consolidation, particularly the wisdom of enhancing the ability 
of a large corporation to purchase broadcast outlets and 
newspapers in the same market.
    On several occasions, I have contacted the FCC chairman, 
Michael Powell, to express my concern over the direction the 
FCC appears to be taking and the speed with which it is moving. 
In my opinion, the scheduled June 2 vote of the FCC does not 
give the public nor Congress an adequate chance to comment on 
changes of such enormous consequence.
    I have joined Senator Stevens, Senator Hollings and others 
on this committee in support of legislation concerning one of 
the rules being examined by the FCC, that of a media ownership 
cap and localism in television, and look forward to working on 
that issue with this committee. I have been impressed and 
encouraged by the broad coalition of organizations expressing 
similar concerns over the FCC's press for action. The 
Consumers' Union, National Rifle Association, Common Cause, the 
Traditional Values Coalition, Code Pink Women for Peace, the 
U.S. Conference of Catholic Bishops, and the Future of Music 
Coalition are just a few of the organizations that share my 
concern for independent and diverse media in the United States.
    The FCC must carefully consider the prudence of these rule 
changes and the overall public interest at stake. Reed Hundt, 
FCC chairman during the passage of the Telecommunications Act, 
stated well the intention of the Congress. The Commission's 
goal in this proceeding is to further competition, just as we 
seek to promote competition in other communications industries 
we regulate, but in our broadcast ownership rules, we also seek 
to promote diversity in programming and diversity in the 
viewpoints expressed on this powerful medium that so shapes our 
culture, close quote.
    Mr. Chairman, what we must encourage is locally driven news 
coverage, as opposed to national news that attempts to find a 
local perspective, but never gives local communities the in-
depth coverage they should have. Do we want top-down coverage 
or bottom-up coverage? I opt for local to national competition 
which in my view is the best way to go. It is my hope that the 
FCC will listen to the many voices that are coming forward, and 
ask them to take more time on these important issues before 
charting the course for media and consumers in the coming 
years.
    In conclusion, Mr. Chairman, the FCC would be wise to 
maintain the existing commitment made to the public, 
facilitating greater opportunity for Americans to do business, 
seek information, and enjoy entertainment from a vibrant, 
diverse, and healthy media. If the FCC fails in doing this, 
then we must be prepared to act again.
    I thank the Committee for their time and energy on these 
matters. I look forward to working with each of you as we 
address these most important issues.
    [The prepared statement of Senator Allard follows:]

  Prepared Statement of Hon. Wayne Allard, U.S. Senator from Colorado

    I'd like to thank the members of the Committee for allowing me to 
speak here today. I would especially like to thank Chairman McCain and 
Ranking Member Hollings for their commitment to examining media 
ownership this year and I look forward to working with you on these 
important issues.
    On May 13 this Committee heard testimony from Frank Blethen, 
Publisher of the Seattle Times. Mr. Blethen stated ``the American 
newspaper, large and small, and without exception, belongs to a town, a 
city, at the most to a region.'' There is a certain pride and comfort 
to be taken from the notion that the media that so pervades our lives 
could be so rooted in focus and accountability.
    As my colleagues well know the Federal Communications Commission is 
currently reviewing a series of historically broad rule changes that 
would make it easier for large media corporations to gobble up a 
greater share of local media, including television stations, in the 
same market. The Commission and those who already hold enormous control 
over the content of the press claim this will only enhance the ability 
of the media to meet the needs of the consumer.
    The world, they claim, has grown so large and so complex that only 
vast resources and centralized control can carry important stories 
across the globe. I respectfully disagree.
    Consumers benefit from technology more today than in any time in 
history. In an age of satellite television and the Internet I am not as 
convinced as some that the greatest hole in news coverage is the world 
beyond our region. The Consumers Union has correctly pointed out, in 
fact, that the opposite is the case: satellite provides no independent 
local news information and is struggling just to make local stations 
available to subscribers.
    Radio provides another acute example. Prior to 1996 there was a 40 
station national ownership cap in the radio industry. Today Clear 
Channel alone owns almost 1240 stations and between one third and one 
half of all independent radio stations have been absorbed or run out of 
business, including many in Colorado. Suggesting that allowing 
increased cross-ownership does not strike me as a policy in the 
greatest interest of the public whom the FCC is chartered to serve.
    The current generation of Americans has seen the number of 
independently owned newspapers dwindle from 1,700 to 280. As Chairman 
McCain noted last week, this often equates to a loss of diversity of 
opinion in the pages of those newspapers with a common owner. I share 
the Chairman's opinion on this matter and am profoundly concerned with 
the homogenization of information being funneled in to local 
communities by multi-market media corporations, As Mr. Blethen stated 
in his testimony, the secret of the free press and vibrant public 
discourse depends upon voices in the communities themselves.
    While the facts stand on their own, it is equally compelling to 
examine what we have witnessed in my home state of Colorado in recent 
years.
    Since the Joint Operating Agreement (JOA) between the Denver Post 
and the Rocky Mountain News local businesses have reported an increase 
in advertising rates between six and ten times pre-JOA levels charged 
by both papers when they were separately owned. This represents an 
enormous fiscal impact on large and small businesses as well as 
individuals, infringing on their ability to reach the consumers they 
relied upon for years. Those who can still afford to advertise are 
forced to pass these increased costs to consumers.
    The issue before the FCC and this Committee is not whether we need 
to re-debate the Telecommunications Act of 1996 or specific Joint 
Operating Agreements. The issue today is whether the public will be 
well served by another round of consolidation, particularly the wisdom 
of enhancing the ability of a large corporation to purchase broadcast 
outlets and newspapers in the same market. On several occasions I have 
contacted FCC Chairman Michael Powell to express my concern over the 
direction the FCC appears to be taking and the speed with which it is 
moving. In my opinion the scheduled June 2 vote at the FCC does not 
give the public nor Congress an adequate chance to comment on changes 
of such enormous consequence. I have joined Senator Stevens, Senator 
Hollings, and others on this Committee in support of legislation 
concerning one of the rules being examined by the FCC, that of a media 
ownership cap and localism in television, and look forward to working 
on that issue with this Committee.
    I have been impressed and encouraged by the broad coalition of 
organizations expressing similar concerns over the FCC's press for 
action.
    The Consumers Union, National Rifle Association, Common Cause, the 
Traditional Values Coalition, CodePink Women for Peace, the U.S. 
Conference of Catholic Bishops and the Future of Music Coalition are 
just a few of the organizations that share my concern for independent 
and diverse media in the United States. The FCC must carefully consider 
the prudence of these rule changes and the overall public interest at 
stake.
    Reed Hundt, FCC Chairman during the passage of the 
Telecommunications Act, stated well the intention of the Congress. 
``The Commission's goal in this proceeding is to further competition, 
just as we seek to promote competition in other communications 
industries we regulate. But in our broadcast ownership rules we also 
seek to promote diversity in programming and diversity in the 
viewpoints expressed on this powerful medium that so shapes our 
culture.'' What we must encourage is locally driven news coverage as 
opposed to national news that attempts to find a local perspective but 
never gives local communities the in-depth coverage they should have. 
Do we want top down coverage or bottom up coverage? I opt for local to 
national.
    It is my hope that the FCC will listen to the many voices that are 
coming forward and asking them to take more time on these important 
issues before charting the course for media and consumers in the coming 
years.
    The FCC would be wise to maintain the existing commitment made to 
the public, facilitating greater opportunity for Americans to do 
business, seek information, and enjoy entertainment from a vibrant, 
diverse, and healthy media. If the FCC fails in doing this then we must 
be prepared to act.
    Again, I thank the Committee for their time and energy on these 
matters. I look forward to working with each of you as we address these 
issues.

    The Chairman. Thank you very much, Senator Allard. We look 
forward to working with you. This issue will be with us for 
sometime.
    We now would like our panel to come forward, which is Mr. 
Rupert Murdoch, President and CEO of News Corporation, Mr. Gene 
Kimmelman, the Director of Consumers Union, Dr. Kent Mikkelsen, 
the Vice President of Economists, Incorporated, and Mr. Tom 
Fontana, who is the President of the Levinson-Fontana Company.
    Please take your seats, gentlemen. All of your complete 
statements will be made a part of the record without objection, 
and we will begin with Mr. Murdoch.
    Welcome before the Committee, Mr. Murdoch.

STATEMENT OF RUPERT MURDOCH, CHAIRMAN AND CHIEF EXECUTIVE, THE 
                     NEWS CORPORATION, LTD.

    Mr. Murdoch. Thank you, and good morning, Chairman McCain.
    The Chairman. Could you pull the microphone a little 
closer? Thank you.
    Mr. Murdoch. Good morning, Chairman McCain, Senator 
Hollings, and members of the Committee. Thank you for the 
invitation to testify this morning on News Corporation's 
proposed acquisition of a 34 percent interest in Hughes, owner 
of Direct Television, which is not a broadcaster, but a 
distributor.
    This transaction will infuse DIRECTV with the strategic 
vision, expertise and resources necessary to bring increased 
innovation and robust competition to the market. The resulting 
public interest benefits are manifold and substantial, and 
today I would like to tell you specifically why this deal will 
be good for consumers and good for competition. By combining 
the expertise and technologies of our two companies, consumers 
will benefit from better programming, more advanced 
technologies and services, and greater diversity.
    One of the first enhancements DIRECTV subscribers will 
enjoy is more local television stations. News was the first 
proponent of local service as a part of our satellite venture 6 
years ago, and it remains one of our top priorities. News is 
committed to dramatically increasing DIRECTV's present local 
into local commitment of 100 DMAs by providing local into local 
service in as many of the 210 DMAs as possible, and to do so as 
soon as economically and technologically feasible.
    In addition, News is exploring new technologies to expand 
HDTV content and aggressively build broadband services. News 
will also bring a wealth of new services to DIRECTV subscribers 
from Britain, including interactive news and sports and access 
to online shopping, games, E-mail, and information services, 
and we will infuse Hughes with our deep and proven commitment 
to equal opportunity and diversity, including more diverse 
programming and a variety of mentoring, executive development 
and internship programs. You can count on these enhancements 
because innovation and consumer focus is part of our company's 
DNA.
    We have a long and successful history of defining 
conventional wisdom and challenging market leaders, whether 
they be the Big Three broadcast networks, the previously 
dominant cable news channel, or the entrenched sports 
establishment. We started as a small newspaper company and grew 
by providing competition and innovation in stale, near-
monopolistic markets. It is our firm intention to continue that 
tradition with Direct Television.
    With these consumer benefits, DIRECTV will become a more 
formidable competitor to cable and thus enhance the competitive 
landscape of the entire multichannel industry. To that end, I 
should note there are no horizontal or vertical concerns 
arising from this transaction. The transaction does result in a 
vertical integration of assets because of the association of 
DIRECTV's distribution platform and users' programming 
interests, but this is not anticompetitive for two reasons.
    First, neither company has sufficient ties in the market in 
order to be able to act in an anticompetitive manner. Second, 
neither News nor DIRECTV has any incentive to engage in 
anticompetitive behavior. As a programmer, News' business model 
is predicated on achieving the widest possible distribution to 
maximize advertising revenue and subscriber fees.
    Similarly, DIRECTV has every incentive to draw from the 
wider spectrum of attractive programming regardless of its 
source. Nevertheless, we have agreed to a series of program 
access undertakings to eliminate any concerns over the 
competitive effects of this transaction. We have asked the FCC 
to adopt these program access commitments as a condition of our 
application.
    Viewed from another perspective, neither News nor Hughes is 
among the top five media companies in the United States. News 
is sixth, with 2.8 percent of total industry expenditures, and 
Hughes is eighth. Even combined, the companies would rank no 
higher than fifth, half the size, or less than half the size of 
the market leader.
    In closing, I believe this transaction represents an 
exciting association between two companies with the assets, 
experience and history of innovation to ensure DIRECTV can 
provide better service to consumers and become an even more 
effective competitor to cable.
    Thank you for your attention. I look forward to your 
questions.
    [The prepared statement of Mr. Murdoch follows:]

  Prepared Statement of Rupert Murdoch, Chairman and Chief Executive, 
                       The News Corporation, Ltd.

    Good Morning, Chairman McCain, Senator Hollings, and Members of the 
Committee. Thank you for the invitation to testify today regarding News 
Corporation's proposed acquisition of a 34 percent interest in Hughes 
Electronics Corporation.
    Let me say at the outset that we believe that this acquisition has 
the potential to profoundly change the multichannel video marketplace 
in the United States to the ultimate benefit of all pay-TV customers, 
whether they are direct-to-home satellite or cable subscribers. It is 
my hope, and my goal, that as a result of this acquisition, Hughes' 
DIRECTV operation will be infused with the strategic vision, expertise, 
and resources necessary for it to bring innovation and competition to 
the multichannel marketplace and, of course, to the televisions of tens 
of millions of American viewers.
    The public interest benefits of this transaction are manifold, but 
I would like to briefly touch on three key areas today:
    First, News Corporation's outstanding track record of providing 
innovative new products and services to consumers, a track record that 
it is determined to replicate at Hughes and DIRECTV;
    Second, the specific consumer benefits that will be realized from 
this transaction, including improvements in local-into-local service, 
new and improved interactive services, and the many new diversity 
programs News Corporation will bring to Hughes; and
    Third, the absence of any horizontal or vertical merger concerns 
about this transaction. This transaction will only increase the 
already-intense competition in the programming and distribution 
markets, and market realities will compel our companies to continue the 
open and non-discriminatory practices each company has lived by. 
Nonetheless, to eliminate any possible concerns over the competitive 
effects of vertical integration, the parties have agreed as a matter of 
contract to significant program access commitments, and have asked the 
FCC to make those commitments an enforceable condition of the transfer 
of Hughes' DBS license.
    News Corporation's track record of innovation as a content provider 
and as a satellite broadcaster is without parallel. Our company has a 
history of challenging the established--and often stagnant--media with 
new products and services for television viewers around the world. 
Perhaps our first and best-known effort to offer new choices to 
consumers in the broadcasting arena came with the establishment of the 
FOX network in 1986. FOX brought much-needed competition to the ``Big 
3'' broadcast networks at a time when conventional wisdom said it 
couldn't be done. Seventeen years later, we have proved unambiguously 
that it could be done, with FOX reigning as the number one network so 
far this calendar year in the highly valued ``adults 18-49'' 
demographic. Along the way, we redefined the TV genre with shows like 
The Simpsons, In Living Color, The X-Files, and America's Most Wanted, 
and more recently 24, Boston Public, Malcolm in the Middle, The Bernie 
Mac Show, and the biggest hit on American TV, American Idol.
    The FOX network was launched on the back of the Fox Television 
Stations group, an innovator in local news and informational 
programming since it was first formed. Today, Fox-owned stations air 
more than 800 hours of regularly scheduled local news each week--an 
average of 23 hours per station. We have increased the amount of news 
on these stations by 57 percent, on average, compared to the previous 
owners. Viewers demand more local news, and we provide it. Fox-owned 
stations were often the first--and in many markets are still the only--
stations to offer multiple hours of local news and informational 
programming each weekday morning. This commitment to local news extends 
well beyond the stations we own. Since 1994, Fox has assisted more than 
100 affiliates in launching local newscasts.
    In addition to providing greater choice and innovation in network 
entertainment and local news, we have also redefined the way Americans 
watch sports. With viewer-friendly innovations such as the ``FOX Box'' 
and the first ``Surround Sound'' stereo in NFL broadcasts, the catcher 
cam in baseball, the glowing puck in hockey, and the car-tracking 
graphic in NASCAR, FOX has made sports more accessible and exciting for 
the average fan. FOX Sports Net, launched in 1996, has provided the 
first and only competitive challenge to the incumbent sports channel, 
ESPN. Fox Sports Nets' 19 regional sports channels, reaching 79 million 
homes, regularly beat ESPN in several key head-to-head battles. In 
2002, Major League Baseball on ESPN averaged a 1.1 rating. On Fox 
Sports Net, baseball scored an average 3.5 rating in the markets it 
covers. The NBA on ESPN has averaged a 1.2 rating during the current 
season. In Fox Sports Net's markets, it has rated a 2.2. The key to Fox 
Sports Net's success is its delivery of what sports fans want most 
passionately: live, local games, whether at the professional, 
collegiate, or high school level, coupled with outstanding national 
sports events and programming.
    Perhaps News Corp.'s most stunning success against conventional 
wisdom--and our most innovative disruption of the status quo--is the 
Fox News Channel, launched in 1996. A chorus of doubters said CNN owned 
the cable news space and no one could possibly compete. A scant five 
years later, Fox News Channel overtook CNN, and since early 2002 has 
consistently finished first among the cable news channels in total day 
ratings. Growing from 17 million subscribers at launch to almost 82 
million subscribers this month, Fox News Channel boasts some of the 
most popular shows on cable and satellite. I think it is fair to say 
Fox transformed the cable news business, introducing innovative 
technology and programming, and bringing a fresh choice and perspective 
to American news viewers.
    Across the dial on American television are examples of where our 
challenges to the status quo have made a difference for viewers and 
proven we could be competitive against entrenched competition. We've 
launched and expanded FX, a general entertainment channel; we've 
launched the movie channel FXM; and we've re-launched and expanded the 
Speed Channel, a channel devoted to auto racing enthusiasts. And in 
January 2001, we launched National Geographic Channel with our partner, 
the National Geographic Society, into nine million homes. Today, Nat 
Geo is the fastest-growing cable network in the Nation with 43 million 
subscribers and is making steady progress in the ratings against the 
established industry leader, The Discovery Channel.
    News Corp.'s track record of innovation is not limited to the 
United States. News Corp. will bring a wealth of innovation to Hughes 
and DIRECTV from its British DTH platform, BSkyB. We launched BSkyB in 
1989 with only four channels of programming. In 1998, frustrated by the 
limitations of analog technology and determined to give viewers even 
wider choices, BSkyB launched a digital service that boasted 140 
channels. In 1999, in order to speed the conversion to digital and to 
drive penetration, BSkyB offered free set-top boxes and dishes. The 
conversion to digital took three years and cost BSkyB nearly one 
billion dollars, but by 2001, when the transition to digital was 
complete, BSkyB's subscriber base had grown to 5 million homes. Through 
BSkyB's digital offering, BSkyB viewers may choose from 389 channels 
delivering programming 24 hours each day. They also have a vast array 
of new services, including world-first interactive innovations such as 
a TV news service that allows viewers to choose from multiple segments 
being broadcast simultaneously on a news channel, multiple camera 
angles during sporting events, or multiple screens of programming 
within a certain genre. In addition, BSkyB viewers have access to 
online shopping, banking, games, e-mail, travel, tourism and 
information services. With the launch of Europe's first fully 
integrated digital video recorder in 2001, BSkyB customers won access 
to even more interactive capabilities and viewing choices.
    Upon completion of this transaction, News Corp. will bring the same 
spirit of innovation to the DBS business in the U.S., in the process 
redefining the choices Americans have when they watch television. This 
spirit of never-say-die competition and News Corp.'s demonstrated 
determination to provide ever-expanding services to the public have the 
potential to re-energize the entire American multichannel video 
marketplace.
    To my second point about this transaction: its benefits to 
consumers. Apart from a history of bringing new competition and 
innovation to the television industry, News Corp. has been tremendously 
successful in bringing tangible benefits to consumers over nearly two 
decades of operating both here in the United States and abroad. This 
transaction will be no exception, enabling us to share our best 
practices across our platforms and across geographical boundaries to 
the benefit of consumers. These benefits will be very real, and often 
easily quantifiable.
    One of the first enhancements to DIRECTV's service that News 
Corp.'s investment in Hughes will bring will be more local television 
stations for subscribers, offering consumers a more compelling 
alternative to cable. News Corp., as a leading U.S. broadcaster, was 
the first proponent of local-into-local service as part of our American 
Sky Broadcasting (``ASkyB'') satellite DTH venture six years ago. In 
fact, I testified before Congress on this very topic, urging passage of 
copyright legislation to allow the retransmission of local signals by 
DBS. ASkyB conceived and designed a DBS spot beam satellite to 
implement this previously unheard of idea. As a broadcast company, News 
Corp. was convinced then--as it is now--that DBS will be the strongest 
possible competitor to cable only if it can provide consumers with the 
local broadcast channels they have come to rely on for local news, 
weather, traffic and sports.
    With that in mind, News Corp. is committed to dramatically 
increasing DIRECTV's present local-into-local commitment of 100 DMAs by 
providing local-into-local service in as many of the 210 DMAs as 
possible, and to do so as soon as economically and technologically 
feasible. To that end, we are already actively considering a number of 
alternative technologies, including using some of the Ka-band satellite 
capacity on Hughes Network Systems' SPACEWAY system; seamlessly 
incorporating digital signals from local DTV stations into DIRECTV set-
top boxes equipped with DTV tuners; and by exploring and developing 
other emerging technologies that could be used to deliver local 
signals, either alone or in combination with one of the above 
alternatives.
    In addition, News Corp. is exploring new technologies that promise 
to improve spectrum efficiency or otherwise increase available capacity 
so that DIRECTV can expand the amount of HDTV content. Options include 
use of Ka-band capacity, higher order modulation schemes, such as the 
8PSK technology FOX uses for its broadcast distribution to affiliated 
stations, and further improvements in compression technology. News 
Corp. will urge DIRECTV to carry many more than the four HDTV channels 
it currently carries and the five channels that some cable operators 
carry. In this way, we hope to help drive the transition to digital 
television by providing compelling programming in a format that will 
encourage consumers to invest in digital television sets.
    As to broadband, News Corp. will work aggressively to build on the 
services already provided by Hughes to make broadband available 
throughout the U.S., particularly in rural areas. Broadband solutions 
for all Americans could come from partnering with other satellite 
broadband providers, DSL providers, or new potential broadband 
providers using broadband over power line systems, or from other 
emerging technologies. News Corp. believes it is critical that 
consumers have vibrant broadband choices that compete with cable's 
video and broadband services on capability, quality and price.
    The public will also benefit from the efficiencies and economies of 
scope and scale that News Corporation will bring to DIRECTV. We believe 
by sharing ``best practices,'' and by using management and expertise 
from our worldwide satellite operations, we will be able to 
substantially reduce DIRECTV's annual expenses by $65 to $135 million 
annually. Other efficiencies include sharing facilities of the various 
subsidiaries of News Corp. and Hughes in the U.S., and developing and 
efficiently deploying innovations, such as next-generation set-top 
boxes with upgraded interactive television and digital video recorder 
capabilities and state-of-the-art anti-piracy techniques. When Hughes 
becomes part of News Corp.'s global family of DTH affiliates, it will 
benefit from a number of scale economies that will more efficiently 
defray the enormous research and development costs associated with 
bringing new features and services to market. Moreover, common 
technology standards for both hardware and software across the News 
Corp. DTH platforms should help to drive down consumer equipment and 
software costs. Through these various cost savings, DIRECTV will be 
able to finance more innovations in programming and technology to 
ensure that it achieves and maintains the highest level of service for 
its customers at competitive prices.
    News Corp. also plans to bring to DIRECTV the ``best practices'' it 
has developed at its satellite operations in other countries. DIRECTV's 
``churn rate''--that is, the rate at which customers discontinue use of 
the service--is around 18 percent, whereas BSkyB's annual churn rate is 
currently 9.4 percent. By using BSkyB's ``best practices'' and 
accelerating the pace of innovation, we predict that DIRECTV should 
experience a 2 to 3 percent decline in its annual churn rate. We 
calculate that every percentage point reduction in churn will add 
approximately $33 million to Hughes' earnings. With these additional 
financial resources, DIRECTV will be able to finance additional 
initiatives in research, development and marketing.
    Another important element that News Corp. will bring to Hughes and 
DIRECTV is its deep and proven commitment to equal opportunity and 
diversity. Specifically, the diversity initiatives we will implement 
include:

   A commitment to carry more programming on DIRECTV targeted 
        at culturally, ethnically and linguistically diverse audiences;

   An extensive training program for minority entrepreneurs 
        seeking to develop program channels for carriage by 
        multichannel video systems;

   A program for actively hiring and promoting minorities for 
        management positions;

   An extensive internship programming for high school and 
        college students;

   Improved procurement practices that ensure outreach and 
        opportunities for minority vendors; and

   Upgraded internal and external communications, including the 
        Hughes website, to assist implementation of the above 
        initiatives.

    Finally, to my third point: there are no horizontal or vertical 
merger concerns arising from this transaction. Because this transaction 
involves an investment in DIRECTV, a multichannel video programming 
distributor with no programming interests, by News Corp., a programmer 
with no multichannel distribution interests, no ``horizontal'' 
competition issues arise. There will be no decrease in the number of 
U.S. competitors in either the multichannel video distribution market 
or the programming market. To the contrary, because of News Corp.'s 
plans to bring ``best practices'' and innovations to DIRECTV, 
competition in these markets will intensify and consumers will be 
presented with more and better choices.
    The transaction does result in a ``vertical'' integration of assets 
because of the association of DIRECTV's distribution platform and News 
Corp.'s programming assets. But this ``vertical'' integration is not 
anti-competitive for two reasons. First, neither News Corp. nor DIRECTV 
has sufficient power in its relevant market to be able to act in an 
anti-competitive manner. DIRECTV has a modest 12 percent of the 
national multichannel market, compared to as much as 29 percent of the 
market held by the largest cable operator. News Corp. has a modest 3.9 
percent of the national programming channels, compared to the largest 
cable programmer at 15.2 percent of the channels.
    Second, rational business behavior will prevent News Corp. and 
DIRECTV from engaging in anti-competitive behavior. As a programmer, 
News Corp.'s business model is predicated on achieving the widest 
possible distribution for our programming in order to maximize 
advertising revenue and subscriber fees. Any diminution in distribution 
reduces our ability to maximize profit from that programming. Even if 
we were voluntarily willing to lower our earnings potential by 
withholding our programming from competing distributors, we would be 
precluded from doing so by the FCC's program access rules. Similarly, 
DIRECTV has every economic incentive to draw from the widest spectrum 
of attractive programming, regardless of source, in order to maximize 
subscriber revenue. In short, it makes no business sense for either 
party to do anything to limit our potential customer base or our 
programming possibilities.
    Notwithstanding these strong economic and business incentives, News 
Corp. and Hughes have agreed--as a matter of contract--to a series of 
program access undertakings to eliminate any concerns over the 
competitive effects of the proposed transaction. We have asked the FCC 
to adopt these program access commitments, which are attached to my 
written testimony, as a condition of the approval of our Application 
for Transfer of Control that was filed at the FCC on May 2. These 
program access commitments are largely the same as those required of 
cable operators, but in some respects go further. These commitments 
will:

   Prevent DIRECTV from discriminating against unaffiliated 
        programmers;

   Prevent DIRECTV from entering into an exclusive arrangement 
        with any affiliated programmer, including News Corp.; and

   Prevent News Corp. from offering any national or regional 
        cable programming channels it controls on an exclusive basis to 
        any distributor and from discriminating among distributors in 
        price, terms or conditions.

    These extensive commitments apply for as long as the FCC's program 
access rules remain in effect and News Corp. owns an interest in 
DIRECTV. They make it clear that News Corp. and Hughes are committed to 
fair, open and non-discriminatory program access practices that go well 
beyond what the law requires of DBS operators, cable programmers, and 
even cable operators.
    In any event, neither News Corp. nor Hughes is among the top five 
media companies, by expenditure, in the United States. As you can see 
in the chart attached to my testimony, News Corp. is sixth with 2.8 
percent of total industry expenditures, and Hughes is eighth with 2.2 
percent. Even combining the expenditures of News Corp. and Hughes would 
place the company fifth in expenditures behind AOL Time Warner with 
10.1 percent, Viacom with 6.4 percent, Comcast with 6.3 percent, and 
Sony at 5.3 percent. If the expenditures from Disney's theme parks were 
included in its total, the combination of News Corp. and Hughes would 
rank sixth in total ``entertainment'' revenues.
    In closing, I believe this transaction represents an exciting 
association between two companies with the assets, experience and 
history of innovation that will ensure DIRECTV can become an even more 
effective competitor in the multichannel market. There will be 
significant public interest benefits for consumers as a result of this 
transaction, including bringing more local channels to more markets, 
innovations such as set-top boxes with next generation interactive 
television and digital video recorder capabilities, and a diversity 
program that will set the standard for the rest of the entertainment 
industry.
    Thank you for your attention, and I look forward to your questions.

                               Exhibit F

Program Access Requirements: News Corp. and DIRECTV Commitments
    News Corp. and DIRECTV will be bound by the FCC's program access 
rules (otherwise applicable to vertically-integrated satellite cable 
programming services) regardless of whether News Corp., DIRECTV or any 
of their program services is deemed to be a vertically integrated 
satellite cable programming vendor under such rules.
    In addition, News Corp. and DIRECTV will make the following 
commitments, above and beyond those contained in the FCC's program 
access rules.

   News Corp. will not offer any of its existing or future 
        national and regional programming services on an exclusive 
        basis to any MVPD and will continue to make such services 
        available to all MVPDs on a non-exclusive basis and non-
        discriminatory terms and conditions.

   Neither News Corp. nor DIRECTV will discriminate against 
        unaffiliated programming services in the selection, price, 
        terms or conditions of carriage.

   DIRECTV will not enter into an exclusive distribution 
        arrangement with any Affiliated Program Rights Holder. 
        ``Affiliated Program Rights Holder'' includes (i) a program 
        rights holder in which News Corp. or DIRECTV holds a non-
        controlling ``Attributable Interest'' (as determined by the 
        FCC's program access attribution rules); and (ii) a program 
        rights holder in which an entity holding an non-controlling 
        Attributable Interest in News Corp. or DIRECTV holds an 
        Attributable Interest, provided that News Corp. or DIRECTV has 
        actual knowledge of such entity's Attributable Interest in such 
        program rights holder.

    Liberty Media owns approximately 18 percent of the non-voting 
        equity of News Corp. Liberty Media currently is considered a 
        vertically integrated programmer under the FCC's program access 
        rules and, as such, is restricted in its ability to enter into 
        exclusive or discriminatory agreements with respect to 
        satellite-delivered cable programming services in which it has 
        an Attributable Interest. In the event Liberty Media is no 
        longer deemed a vertically integrated programmer (including by 
        reason of the sale of its Puerto Rican cable interests) and so 
        long as Liberty Media holds an Attributable Interest in News 
        Corp., DIRECTV will deal with Liberty Media with respect to 
        programming services it controls as if it continued as a 
        vertically integrated programmer subject to the program access 
        rules.

    DIRECTV may continue to compete for programming that is lawfully 
        offered on an exclusive basis by an unaffiliated program rights 
        holder (e.g., NFL Sunday Ticket).

    Neither News Corp. nor DIRECTV (including any entity over 
        which either exercises control) shall unduly or improperly 
        influence: (i) the decision of any Affiliated Program Rights 
        Holder to sell programming to an unaffiliated MVPD; or (ii) the 
        prices, terms and conditions of sale of programming by any 
        Affiliated Program Rights Holder to an unaffiliated MVPD.

    These commitments will apply to News Corp. and DIRECTV for the 
later of (1) as long as the FCC deems News Corp. to have an 
Attributable Interest in DIRECTV and the FCC's program access rules are 
in effect (provided that if the program access rules are modified these 
commitments shall be modified to conform to any revised rules adopted 
by the FCC) or (2) if these commitments are embodied in a consent 
decree or other appropriate order issued by or agreement with the DOJ, 
FTC or FCC, for the term specified by such consent decree, order or 
agreement.







Securities Laws Information
    In connection with the proposed transactions, General Motors 
Corporation (``GM''), Hughes Electronics Corporation (``Hughes'') and 
The News Corporation Limited (``News'') intend to file relevant 
materials with the Securities and Exchange Commission (``SEC''), 
including one or more registration statement(s) that contain a 
prospectus and proxy/consent solicitation statement. Because those 
documents will contain important information, investors and security 
holders are urged to read them, if and when they become available. When 
filed with the SEC, they will be available for free (along with any 
other documents and reports filed by GM, Hughes or News with the SEC) 
at the SEC's website, www.sec.gov. GM stockholders will also receive 
information at an appropriate time on how to obtain transaction-related 
documents for free from GM. When these documents become available, News 
stockholders may obtain these documents free of charge by directing 
such request to: News America Incorporated, 1211 Avenue of the 
Americas, 7th Floor, New York, New York 10036, attention: Investor 
Relations.
    GM and its directors and executive officers and Hughes and certain 
of its executive officers may be deemed to be participants in the 
solicitation of proxies or consents from the holders of GM $1-2/3 
common stock and GM Class H common stock in connection with the 
proposed transactions. Information about the directors and executive 
officers of GM and their ownership of GM stock is set forth in the 
proxy statement for GM's 2003 annual meeting of shareholders. 
Participants in GM's solicitation may also be deemed to include those 
persons whose interests in GM or Hughes are not described in the proxy 
statement for GM's 2003 annual meeting. Information regarding these 
persons and their interests in GM and/or Hughes was filed pursuant to 
Rule 425 with the SEC by each of GM and Hughes on April 10, 2003. 
Investors may obtain additional information regarding the interests of 
such participants by reading the prospectus and proxy/consent 
solicitation statement if and when it becomes available.
    This communication shall not constitute an offer to sell or the 
solicitation of an offer to buy any securities, nor shall there be any 
sale of securities in any jurisdiction in which such offer, 
solicitation or sale would be unlawful prior to registration or 
qualification under the securities laws of any such jurisdiction. No 
offering of securities shall be made except by means of a prospectus 
meeting the requirements of Section 10 of the Securities Act of 1933, 
as amended.
    Materials included in this document contain ``forward-looking 
statements'' within the meaning of the Private Securities Litigation 
Reform Act of 1995. Such forward-looking statements involve known and 
unknown risks, uncertainties and other factors that could cause actual 
results to be materially different from historical results or from any 
future results expressed or implied by such forward-looking statements. 
The factors that could cause actual results of GM, Hughes and News to 
differ materially, many of which are beyond the control of GM, Hughes 
or News include, but are not limited to, the following: (1) operating 
costs, customer loss and business disruption, including, without 
limitation, difficulties in maintaining relationships with employees, 
customers, clients or suppliers, may be greater than expected following 
the transaction; (2) the regulatory approvals required for the 
transaction may not be obtained on the terms expected or on the 
anticipated schedule; (3) the effects of legislative and regulatory 
changes; (4) an inability to retain necessary authorizations from the 
FCC; (5) an increase in competition from cable as a result of digital 
cable or otherwise, direct broadcast satellite, other satellite system 
operators, and other providers of subscription television services; (6) 
the introduction of new technologies and competitors into the 
subscription television business; (7) changes in labor, programming, 
equipment and capital costs; (8) future acquisitions, strategic 
partnerships and divestitures; (9) general business and economic 
conditions; and (10) other risks described from time to time in 
periodic reports filed by GM, Hughes or News with the SEC. You are 
urged to consider statements that include the words ``may,'' ``will,'' 
``would,'' ``could,'' ``should,'' ``believes,'' ``estimates,'' 
``projects,'' ``potential,'' ``expects,'' ``plans,'' ``anticipates,'' 
``intends,'' ``continues,'' ``forecast,'' ``designed,'' ``goal,'' or 
the negative of those words or other comparable words to be uncertain 
and forward-looking. This cautionary statement applies to all forward-
looking statements included in this document.

    The Chairman. Thank you, Mr. Murdoch.
    Mr. Kimmelman.

        STATEMENT OF GENE KIMMELMAN, SENIOR DIRECTOR OF 
        ADVOCACY AND PUBLIC POLICY, CONSUMERS UNION, ON 
          BEHALF OF CONSUMERS UNION AND THE CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Kimmelman. Thank you, Mr. Chairman. On behalf of 
Consumers' Union, the print and online publisher of Consumer 
Reports, and the Consumer Federation of America, I appreciate 
the invitation, and Mr. Chairman, I am particularly grateful 
you are willing to have me back to testify on these important 
media ownership issues.
    Six years ago, I appeared at this very same table next to 
Mr. Murdoch and supported a satellite venture he was proposing 
because it appeared quite likely to bring more competition to 
cable monopolies who were raising their rates three times 
faster than inflation. Unfortunately, this morning I do not 
believe the News Corp./DIRECTV deal would lead to that result.
    Mr. Murdoch owns a programming juggernaut, a national 
television network, 35 local stations, 20 regional sports 
channels with rights to 67 professional teams that everyone in 
their community would like to see on television, Fox News, FX, 
a load of other production through its own studios, programming 
for its own networks, ownership of professional sports teams 
themselves, and to sustain this programming empire, Mr. 
Murdoch's incentives, according to Wall Street analysts, and we 
believe they are accurate, are to raise the price of his 
programming.
    He offers access. That is laudable. But he will make it 
accessible at a high price to every cable operator in the 
country, to his own satellite subscribers and to his one 
satellite competitor. Prices go up for everyone in the 
industry. Prices go up for consumers nationwide. Cable rates 
are now up 50 percent since you passed the Telecom Act of 1996. 
There is not enough competition. I suggest this is not the 
correct direction to go.
    We will seek conditions on this merger to prevent this from 
happening to consumers nationwide, and hope the Department of 
Justice and the FCC will take heed. Now, normally I would go on 
for 5 minutes about the problems with this deal, but I believe 
this morning, Mr. Chairman, there is a much more important 
issue before the Committee.
    I have had the honor to testify dozens of times before this 
committee under your leadership, under Senator Hollings' 
leadership. I do not believe I have ever testified on an issue 
more important than who owns the media in America, and on June 
2, the FCC will abolish most of the important ownership rules 
that help make our markets competitive.
    Now, why do we have ownership limits in the first place? 
What is this all about? Almost all of the FCC's rules are 
really about local markets. Let us accept that the national 
news market is pretty competitive. There are lots of stations, 
there are lots of technologies, lots of transmission. These 
rules are about local markets, not national, and while 
entertainment matters a lot, and Mr. Fontana will address that, 
the rules are really most importantly about local news.
    How do we get news in our communities? How do we find ways 
to make sure our citizens are informed in their home towns 
about what matters to them in a local community? Let us look at 
just the facts. Where do consumers get their news? There are 
mile-high data filings at the FCC that clearly demonstrate that 
consumers get it--almost 80 percent of consumers use newspaper 
and their local TV stations as their major source of local news 
and information.
    And yes, there has been an enormous technology explosion, 
agreed, satellite, cable, and the Internet, but what on 
satellite is local? Only your local broadcast channels. What on 
cable is local? Only your local broadcast channels, and maybe, 
maybe one local cable news channel. In this community, it is 
owned by a local broadcast station, as it is in many other 
communities.
    So what the FCC is doing, according to press leaks, is 
allowing mergers of the two major sources of news and 
information about the community in more than 150 markets 
covering more than 90 percent of the population of our country, 
allowing a dominant newspaper, one with 80 to 100 percent of 
the market share of print news in that local community to 
combine with the largest local broadcast station news 
department in the community, the station with the largest local 
news audience combining with the dominant newspaper.
    In more than 90 communities, this would yield one company 
that controls more than 50 percent of the news produced for the 
community, more than 50 percent of the employees providing news 
coverage.
    Why should we care about these two sources coming together? 
Because I believe everybody in America knows the media is 
biased. Let us just look at it head on. The media has a point 
of view, every owner, every editor, every writer, every news 
anchor, and we protect that with the First Amendment. They have 
the right.
    But we need different owners and different points of view 
in order to have competition, and I believe these rules are 
about making sure there are as many different owners, different 
points of view as possible in the most important sources of 
news in our local markets, and it is most important also to 
make sure the media companies are there to keep an eye on each 
other, to make sure that no one company is breaking the rules.
    The FCC is about to substantially reduce the level of 
competition in the local news markets in our country. You may 
like the owner of that dominant newspaper/broadcast company 
today. They may be admirable individuals, someone like Mr. 
Murdoch, good entrepreneurs, good citizens. What about 
tomorrow? What about when they sell, the next day and the next 
owner?
    I believe that is why the National Rifle Association and 
Consumers' Union believe that what the FCC is doing is just 
simply dangerous to a free marketplace of news in our society. 
We should not have to rely upon a benevolent media dictator for 
quality news. That is not what our society is about. Our 
democracy requires competition between media owners in order to 
function. I ask you please not to let the FCC move forward and 
destroy that competition.
    Thank you.
    [The prepared statement of Mr. Kimmelman follows:]

 Prepared Statement of Gene Kimmelman, Senior Director of Advocacy and 
 Public Policy, Consumers Union, on behalf of Consumers Union and the 
                     Consumer Federation of America

Summary
    Today consumers are not receiving the fruits that a competitive 
cable and satellite marketplace should deliver. Since passage of the 
1996 Telecommunications Act, cable rates have risen over 50 percent,\1\ 
and according to the Federal Communications Commission's (FCC), 
satellite competition is not helping to keep those rates down. Despite 
the promise for more source and viewpoint diversity from new 
technologies such as the Internet and satellite, a mere five media 
companies control nearly the same prime time audience shares as the Big 
Three networks did 40 years ago.\2\ Unfortunately, the market for news 
production and distribution is even more concentrated.
---------------------------------------------------------------------------
    \1\ Bureau of Labor Statistics, Consumer Price Index (March 2003). 
From 1996 until March 2003, CPI increased 19.3 percent while cable 
prices rose 50.3 percent, 2.6 times faster than inflation.
    \2\ Tom Wolzien, ``Returning Oligopoly of Media Content Threatens 
Cable's Power.'' The Long View, Bernstein Research (Feb. 7, 2003).
---------------------------------------------------------------------------
    And a troubling situation is about to get much worse.
    The recently announced proposed merger between News Corporation 
(``News Corp./Fox'') and Hughes Electronics Corporation's satellite 
television unit DIRECTV (``DIRECTV''), combined with the FCC's current 
efforts to relax or eliminate media ownership rules, threaten to 
seriously harm meaningful competition between media companies in this 
Nation. This lack of competition will mean that control of media that 
Americans rely upon most for news, information and entertainment could 
eventually be placed in the hands of a few powerful media giants.
    Yesterday, Consumers Union \3\ and Consumer Federation of America 
\4\ released a report \5\ critiquing the FCC's plans to relax the 
ownership rules, particularly as they apply to the FCC's plan to lift 
the cross-ownership ban on mergers between television broadcast 
stations and newspapers.
---------------------------------------------------------------------------
    \3\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to provide 
consumers with information, education and counsel about good, services, 
health and personal finance, and to initiate and cooperate with 
individual and group efforts to maintain and enhance the quality of 
life for consumers. Consumers Union's income is solely derived from the 
sale of Consumer Reports, its other publications and from noncommercial 
contributions, grants and fees. In addition to reports on Consumers 
Union's own product testing, Consumer Reports with more than 4 million 
paid circulation, regularly, carries articles on health, product 
safety, marketplace economics and legislative, judicial and regulatory 
actions which affect consumer welfare. Consumers Union's publications 
carry no advertising and receive no commercial support.
    \4\ The Consumer Federation of America is the Nation's largest 
consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior, citizen, low-income, labor, 
farm, public power an cooperative organizations, with more than 50 
million individual members.
    \5\ See Appendix, ``Promoting the Public Interest through Media 
Ownership Limits: A Critique of the FCC's Draft Order Based on Rigorous 
Market Analysis and First Amendment Principles'' (May 21, 2003).
---------------------------------------------------------------------------
    Using the standard antitrust market definitions, we found that lax 
First Amendment policy implementation and weak antitrust enforcement 
has resulted in media markets that are already shockingly concentrated. 
For instance:

   Every local television and newspaper market in the country 
        is already concentrated.

   Every local newspaper market in the country is already 
        highly concentrated.

   Over 95 percent of the TV and radio markets are highly 
        concentrated.

    Ignoring this already concentrated media landscape, the FCC is set 
to undo media ownership limits by June 2. If a majority of the FCC 
Commissioners have their way, a wave of mergers in 150 of the top media 
markets could occur. This will reduce competition between media 
companies, decrease the diversity of news, information, and 
entertainment programming available to Americans, undermine media 
coverage of local issues and concerns, and raise advertising rates for 
small businesses.
    Consider the powerful interaction between the FCC's rush to lift 
media ownership rules and the proposed merger between News Corp./Fox 
and DIRECTV, the largest direct broadcast satellite (DBS) network. The 
FCC is considering:

    Relaxing the ban on news/broadcast cross-ownership would 
        allow broadcasters to buy newspapers in the same communities 
        they own local stations (even when there is only one dominant 
        newspaper in that community). News Corp./Fox already has 
        broadcast/newspaper cross-owned properties.

    Raising or eliminating the cap on how many television 
        stations national TV networks may own (which was set at 35 
        percent by Congress in 1996) would extend national network 
        control over local stations. News Corp./Fox already far exceeds 
        the cap, as does Viacom/CBS.

    Letting a single TV broadcaster own more than 2 stations in 
        a single market. News Corp./Fox already owns 2 broadcast 
        stations in New York, Los Angeles, Dallas, Washington, D.C., 
        Houston, Minneapolis, Phoenix, and Orlando.

    While the antitrust laws can and should be used to limit potential 
competitive abuses resulting from the News Corp./DIRECTV merger,\6\ 
these laws are not enough to prevent the excessive consolidation in the 
marketplace of ideas that would result from any combination of 
transactions under relaxed ownership rules. Antitrust has never been 
used effectively to promote competition in and across media where there 
is no clear way--like advertising prices--to measure competition/
diversity in news sources, information and points of view presented 
through the media.
---------------------------------------------------------------------------
    \6\ ``As part of the acquisition, News Corp. and DIRECTV has agreed 
to abide by FCC program access regulations, for as long as those 
regulations are in place and for as long as News Corp. and Fox hold an 
interest in DIRECTV . . . Specifically, News Corp. will continue to 
make all of its national and regional programming available to all 
multi-channel distributors on a non-exclusive basis and on non-
discriminatory prices, terms and conditions. Neither News Corp. nor 
DIRECTV will discriminate against unaffiliated programming services 
with respect to the price, terms or conditions of carriage on the 
DIRECTV platform.'' News Corporation Press Release, ``News Corp. Agrees 
to Acquire 34% of Hughes Electronics for $6.6 Billion in Cash and 
Stock.'' Apr. 9, 2003.
---------------------------------------------------------------------------
    Consumers Union and the Consumer Federation of America believe the 
Department of Justice should impose significant conditions on the News 
Corp./DIRECTV deal, and Congress should review and alter the laws that 
enabled industry consolidation spurred by excessive deregulation to 
weaken or undermine competitive conditions in media markets. The News 
Corp./DIRECTV merger is likely to lead to higher prices for both 
satellite TV and cable TV, since the combined company can maximize its 
earnings by inflating the prices it charges for its broad array of 
popular programming that all cable and satellite customers purchase.
    We are pleased to see that the combined News Corp./DIRECTV has 
agreed to offer access to their programming as part of the 
acquisition.\7\ However this promise must be expanded to prevent other 
forms of anti-competitive discrimination, and must be enforceable 
through appropriate Department of Justice oversight mechanisms.
---------------------------------------------------------------------------
    \7\ ``As part of the acquisition, News Corp. and DIRECTV has agreed 
to abide by FCC program access regulations, for as long as those 
regulations are in place and for as long as News Corp. and Fox hold an 
interest in DIRECTV . . . Specifically, News Corp. will continue to 
make all of its national and regional programming available to all 
multi-channel distributors on a non-exclusive basis and on non-
discriminatory prices, terms and conditions. Neither News Corp. nor 
DIRECTV will discriminate against unaffiliated programming services 
with respect to the price, terms or conditions of carriage on the 
DIRECTV platform.'' News Corporation Press Release, ``News Corp. Agrees 
to Acquire 34 percent of Hughes Electronics for $6.6 Billion in Cash 
and Stock.'' Apr. 9, 2003.
---------------------------------------------------------------------------
    Even given the terms of what News Corp. is willing to concede by 
way of program access, substantial danger remains. First, there is no 
mechanism that can prevent News Corp. from discriminating against non-
affiliated programmers in determining what programming to offer on its 
DIRECTV satellite system. News Corp. could also pressure cable 
operators to do the same in return for more favorable carriage terms 
for News Corp. owned programming.
    Second, the agreement preserves the right to a variety of exclusive 
carriage arrangements, including distribution of Liberty Media 
programming, as well as sports programming where News Corp. enjoys 
substantial market power. Liberty Media owns approximately 18 percent 
of News Corp., and News Corp. has interests in several Liberty 
properties, indicating a close relationship between the two. It is hard 
to understand how such exclusive arrangements involving a company with 
such massive market power would not have a detrimental impact on 
competition in video programming. Antitrust officials must prevent 
these types of behavior.
    Once again, this transaction, in conjunction with relaxed media 
ownership rules, will spur a wave of mergers among the remaining 
national broadcast networks, satellite and cable giants.
    We believe it is time for Congress to intervene and finally deliver 
more choices and lower prices for the media services consumers want, 
and to prevent excessive relaxation of media ownership which threatens 
the critical watchdog function media companies play in our Nation's 
democracy. It is time for Congress to drop the rhetoric and look at the 
reality of deregulated video markets. Congress should:

    Reconsider its grant of retransmission rights to 
        broadcasters, where a broadcaster also owns a second means of 
        video distribution.

    Let consumers pick the TV channels they want for a fair 
        price.

    Prevent all forms of discrimination by those who control 
        digital TV distribution systems and those who control the most 
        popular programming in a manner which prevents competition in 
        the video marketplace.

    Strengthen, rather than weaken, media ownership rules, to 
        prevent companies from owning the most popular sources of news 
        and information in both the local and the national markets.

The News Corporation/DIRECTV Merger
    If competition in the multichannel video market had performed up to 
its hope and hype, the NewsCorp./Fox/DIRECTV merger might not be so 
threatening. But in light of the failure of deregulation, it presents a 
problem for public policy that cannot be ignored. There are two points 
of power in the marketplace--distribution and program production. The 
problem with a combination of News Corp./Fox and DIRECTV is that it 
combines the two.
    The reach of News Corp./Fox's media empire is truly staggering. The 
following are highlights of some News Corp./Fox properties in the U.S.:

    Broadcast Television Stations (35 stations, including two 
        broadcast stations in New York, Los Angeles, Dallas, Washington 
        DC, Houston, Minneapolis, Phoenix and Orlando)

    Filmed Entertainment (20th Century Fox Film Corp., Fox 2000 
        Pictures, Fox Searchlight Pictures, Fox Music, 20th Century Fox 
        Home Entertainment, Fox Interactive, 20th Century Fox 
        Television, Fox Television Studios, 20th Television, Regency 
        Television and Blue Sky Studios)

    Cable Network Programming (Fox News Channel--the most 
        watched cable news channel, Fox Kids Channel, FX, Fox Movie 
        Channel, Fox Sports Networks, Fox Regional Sports Networks, Fox 
        Sports World, Speed Channel, Golf Channel, Fox Pan American 
        Sports, National Geographic Channel, and the Heath Network)

    Publishing (New York Post, the Weekly Standard, 
        HarperCollins Publishers, Regan Books, Amistad Press, William 
        Morrow & Co., Avon Books, and Gemstar--TV Guide International)

    Sports Teams and Stadiums (Los Angeles Dodgers, and partial 
        ownership in the New York Knicks, New York Rangers, LA Kings, 
        LA Lakers, Dodger Stadium, Staples Center, and Madison Square 
        Garden)

    News Corp./Fox's merger with DIRECTV adds a new, nationwide 
television distribution system to News Corp./Fox's programming/
production arsenal. DIRECTV is the Nation's largest satellite 
television distribution system, with more than 11 million customers and 
the ability to serve all communities in the United States.
    News Corp./Fox's vast holdings provide it with leverage in several 
ways. ``The biggest, most powerful weapon News Corp./Fox has is `a 
four-way leverage against cable operators, competing with satellite and 
using the requirement that cable get retransmission consent to carry 
Fox-owned TV stations, while potentially leveraging price for Fox-owned 
regional sports networks and its national cable and broadcast networks. 
. .' ''\8\
---------------------------------------------------------------------------
    \8\ Diane Mermigas, ``News Corp.'s DIRECTV Monolith.'' Mermigas on 
Media Newsletter, (Apr. 16, 2003), quoting Tom Wolzien, a Sanford 
Bernstein Media Analyst.
---------------------------------------------------------------------------
    One of News Corp./Fox's most important weapons is significant 
control over regional and national sports programming. Mr. Murdoch 
often describes sports programming as his ``battering ram'' \9\ to 
attack pay television markets around the world. As David D. Kirkpatrick 
noted in an April 14, 2003 New York Times article regarding Mr. 
Murdoch's control over sports programming:
---------------------------------------------------------------------------
    \9\ David D. Kirkpatrick, ``Murdoch's First Step: Make Sports Fans 
Pay.'' The New York Times, Apr. 14, 2003.

        In the United States, News Corp./Fox's Entertainment subsidiary 
        now also controls the national broadcast rights to Major League 
        Baseball, half the Nascar racing season and every third Super 
        Bowl. On cable, Fox controls the regional rights to 67 of 80 
        teams in the basketball, hockey and baseball leagues as well as 
        several major packages of college basketball and football 
        games, which it broadcasts on more than 20 Fox regional sports 
        cable networks around the country. By acquiring DIRECTV, Mr. 
        Murdoch gains the exclusive right to broadcast the entire slate 
---------------------------------------------------------------------------
        of Sunday NFL games as well.

        With DIRECTV, Mr. Murdoch can start a new channel with 
        immediate access to its subscribers, currently 11 million. He 
        has other leverage in Fox News, now the most popular cable news 
        channel, and essential local stations in most major markets 
        around the country.\10\
---------------------------------------------------------------------------
    \10\ Id., Emphasis added.

    It is important to consider the ramifications of Mr. Murdoch's 
control of over 40 percent of Fox broadcast stations nationwide, 
control of 11.2 million satellite subscribers, and his stranglehold 
over regional sports programming. With those extensive holdings, News 
Corp./Fox is in a position to determine what new programming comes to 
market, and to undercut competitive programming. The company will be 
able to decide what programming it does not want to carry and may be 
able to indirectly pressure cable operators (by offering a lower price 
for Fox programming as an inducement) not to carry programming that 
competes with Fox offerings. We believe Mr. Murdoch has a right as an 
owner to put whatever he wants on his system, but with the FCC moving 
to relax media ownership rules, companies like News Corp./Fox will have 
the ability to control key sources of news and information in an 
unprecedented manner.
    The merger between News Corp./Fox and DIRECTV is extremely unlikely 
to stop skyrocketing cable rates and could very well exacerbate the 
problem. According to David Kirkpatrick's New York Times article:\11\
---------------------------------------------------------------------------
    \11\ David Kirkpatrick, ``By Acquiring DIRECTV, Murdoch Gets Upper 
Hand.'' The New York Times, Apr. 10, 2003.

        [S]ome analysts said the structure of the deal suggested Mr. 
        Murdoch hoped to use DIRECTV mainly to punish other pay 
        television companies and benefit his programming businesses. 
        The Fox Entertainment Group, an 80 percent-owned subsidiary of 
        News Corporation, will own a 34 percent stake in DIRECTV's 
        parent, creating the potential for programming deals that favor 
---------------------------------------------------------------------------
        Fox over DIRECTV.

        ``My sense is that the major purpose for News Corporation 
        controlling DIRECTV is to use it as a tactical weapon against 
        the cable companies to get them to pay up for its proprietary 
        programming,'' said Robert Kaimowitz, chief executive of the 
        investment fund Bull Path Capital Management.

    While News Corp./Fox has agreed to abide by the FCC's program 
access requirements, this pledge could end up being nothing more than a 
tool for pumping up cable prices. That is, while News Corp./Fox agrees 
to make its programming available on non-discriminatory terms and 
conditions, there is absolutely nothing that would prevent News Corp./
Fox from raising the price that it charges itself on its satellite 
system, in return for increased revenues from the other 70 million 
cable households. If a cable system refuses to pay the increased price, 
then News Corp./Fox will be able to threaten cable operators to use its 
newly acquired satellite system to capture market share away from cable 
in those communities.
    An article in the Washington Post \12\ recently detailed the way 
this might work:
---------------------------------------------------------------------------
    \12\ Frank Ahrens, ``Murdoch's DIRECTV Deal Scares Rivals.'' 
Washington Post, Apr. 11, 2003.

        For instance, News Corp./Fox raised the cost of his Fox Sports 
        content to some cable systems by more than 30 percent this 
        year, according to one cable operator. Like most officials 
        interviewed yesterday, he refused to be identified, saying he 
---------------------------------------------------------------------------
        had to continue dealing with News Corp./Fox.

        Most recently, in Florida, News Corp./Fox pulled its Fox Sports 
        regional sports programming off of competitor Time Warner 
        Cable's system over a rate dispute. News Corp./Fox wanted to 
        charge more than Time Warner was willing to pay, but the 
        conflict was resolved and service restored. ``If this happens 
        when Rupert owns DIRECTV, you can assume DIRECTV will go into 
        the market and just pound away at the cable system,'' said one 
        cable channel executive.

    And price is only the beginning of the problems in this industry. 
Even in the 500-channel cable universe, control of prime time 
programming rests in the hands of a very few media companies. Given the 
enormous power that will be concentrated in News Corp./Fox as a result 
of the DIRECTV transaction, not only will the combined entity be able 
to insist on top dollar for its programming, it will be able to 
determine who makes it and who fails in the programming marketplace.

Cable Rates Have Escalated and Satellite Competition Has Not Kept Them 
        Under Control
    Despite the growth of satellite TV, the promise of meaningful 
competition to cable TV monopolies remains unfulfilled. Cable rates are 
up 50 percent since Congress passed the 1996 Telecommunications Act, 
nearly three times as fast as inflation.\13\ We welcome the possibility 
that satellite would aggressively cut its price and compete with cable, 
thereby keeping cable rates in check, but for several reasons that is 
unlikely to happen.
---------------------------------------------------------------------------
    \13\ Bureau of Labor Statistics, Consumer Price Index (March 2003). 
From 1996 until March 2003, CPI increased 19.3 percent while cable 
prices rose 50.3 percent, 2.6 times faster than inflation.
---------------------------------------------------------------------------
    Satellite competition has failed to prevent price increases on 
cable because cable and satellite occupy somewhat different product 
spaces. First and foremost, the lack of local channels on satellite 
systems in many communities prevents satellite from being a substitute 
for cable; in fact, many satellite subscribers also purchase cable 
service for the express purpose of receiving local channels. And while 
many larger communities now receive local broadcast channels from 
satellite, service is not as attractive as cable in several respects 
and many consumers simply cannot subscribe. Many urban consumers cannot 
receive satellite services because of line of sight problems, or 
because they live in a multi-tenant dwelling unit where only one side 
of the building faces south.
    Restrictions on multiple TV set hookups also make satellite more 
costly. The most recent data on the average price for monthly satellite 
service indicates that consumers pay between $44 and $80 a month to 
receive programming comparable to basic cable programming. This monthly 
fee often includes two separate charges above the monthly fee for basic 
satellite programming--one fee to hook a receiver up to more than one 
television in the household, and another fee so consumers are able to 
receive their local broadcast channels.
    Satellite customers often subscribe to receive high-end services 
not provided (until the recent advent of digital cable) on cable 
systems, such as high-end sports packages, out of region programming, 
and foreign language channels. In essence, it is an expensive--but 
valuable--product for consumers that want to receive hundreds of 
channels.
    If satellite were a close substitute for cable, one would expect 
that it would have a large effect on cable. In fact, the FCC's own 
findings and data have contradicted the cable industry claims for 
years. The FCC found that satellite only ``exerts a small (shown by the 
small magnitude of DBS coefficient) but statistically significant 
influence on the demand for cable service.'' \14\ In the same 
econometric estimation, the FCC concluded that the ``the demand for 
cable service is somewhat price elastic (i.e., has a price elasticity 
of minus 1.45) and suggests that there are substitutes for cable.'' 
\15\ This elasticity is not very large and the FCC recognizes that in 
using the adjective ``somewhat.'' The FCC also attempted to estimate a 
price effect between satellite and cable. If cable and satellite were 
close substitutes providing stiff competition, one would also expect to 
see a price effect. Most discussions of in economics texts state that 
substitutes exhibit a positive cross elasticity.\16\ The FCC can find 
none. In fact, it found quite the opposite. The higher the penetration 
of satellite, the higher the price of cable.\17\
---------------------------------------------------------------------------
    \14\ Report on Cable Industry Prices, February 14, 2002, p. 36.
    \15\ Report on Cable Industry Prices, February 14, 2001, p. 36.
    \16\ Pearce, George, The Dictionary of Modern Economics (MIT Press, 
Cambridge, 1984), p. 94. Cross Elasticity of Demand. The responsiveness 
of quantity demanded of one good to a change in the price of another 
good. Where goods i and j are substitutes the cross elasticity will be 
positive-i.e., a fall in the price of good j will result in a fall in 
the demand for good i as j is substituted for i. If the goods are 
complements the cross elasticity will be negative. Where i and j are 
not related, the cross elasticity will be zero. Taylor, John, B., 
Economics (Houghton Mifflin, Boston, 1998), p. 59.
    A sharp decrease in the price of motor scooters or rollerblades 
will decrease the demand for bicycles. Why? Because buying these 
related goods becomes relatively more attractive than buying bicycles. 
Motor scooters or rollerblades are examples of substitutes for 
bicycles. A substitute is a good that provides some of the same uses or 
enjoyment as another good. Butter and margarine are substitutes. In 
general, the demand for a good will increase if the price of a 
substitute for the good rises, and the demand for a good will decrease 
if the price of a substitute falls. Bannock, Graham, R.E. Banock and 
Evan Davis, Dictionary of Economics (Penguin, London, 1987).
    Substitutes. Products that at least partly satisfy the same needs 
of consumers. Products are defined as substitutes in terms of cross-
price effects between them. If, when the price of records goes up, 
sales of compact discs rise, compact discs are said to be a substitute 
for records, because consumers can to some extent satisfy the need 
served by records with compact discs. This account is complicated by 
the fact that, when the price of an item changes, it affects both the 
REAL INCOME 01 consumers and the relative prices of different 
commodities. Strictly, one product is a substitute for another if it 
enjoys increased demand when the other's prices rises and the 
consumer's income is raised just enough to compensate for the drop in 
living standards caused (pp. 390-391).
    Cross-price elasticity of demand. The proportionate change in the 
quantity demanded of one good divided by the proportionate change in 
the price of another good. If the two goods are SUBSTITUTES (e.g., 
butter and margarine), this ELASTICITY is positive. For instance, if 
the price of margarine increases, the demand for butter will increase 
(p. 99).
    \17\ Report on Cable Prices, p. 11.
---------------------------------------------------------------------------
    The most recent annual report on cable prices shows that the 
presence of DBS has no statistically significant or substantial effect 
on cable prices, penetration or quality.\18\ This is true when measured 
as the level of penetration of satellite across all cable systems, or 
when isolating only areas where satellite has achieved a relatively 
high penetration.\19\ At the same time, ownership of multiple systems 
by a single entity, large size and clustering of cable systems results 
in higher prices.\20\ Vertical integration with programming results in 
fewer channels being offered (which restricts competition for 
affiliated programs).\21\
---------------------------------------------------------------------------
    \18\ Federal Communications Commission, 2002b.
    \19\ Federal Communications Commission, 2001b, describes the DBS 
variable as the level of subscription. Federal Communications 
Commission, 2002b, uses the DBS dummy variable.
    \20\ The cluster variable was included in the Federal 
Communications Commission 2000a and 2001b Price reports. Its behavior 
contradicted the FCC theory. It has been dropped from the 2002 report. 
The MSO size was included in the 2002 report. System size has been 
included in all three reports.
    \21\ Vertical integration was included in Federal Communications 
Commission, 2002b.
---------------------------------------------------------------------------
    In other words, one could not imagine a more negative finding for 
intermodal competition or industry competition from the FCC's own data. 
All of the concerns expressed about concentrated, vertically integrated 
distribution networks are observed and the presence of intermodal 
competition has little or no power to correct these problems. The 
claims that the cable industry makes about the benefits of clustering 
and large size--measured as price effects--are contradicted by the 
data. In fact, only intramodal, head-to-head competition appears to 
have the expected effects. The presence of wireline cable competitors 
lowers price and increases the quality of service.
    While we hope that satellite will ultimately have a price 
disciplining effect in those communities where satellite offers local 
broadcast stations it is clear that the single most important variable 
in cable prices is whether there is a cable overbuilder in a particular 
community. Wire-to-wire competition does hold down cable rates and 
satellite does not seem to do the trick. The U.S. General Accounting 
office describes this phenomenon:

        Our model results do not indicate that the provision of local 
        broadcast channels by DBS companies is associated with lower 
        cable prices. In contrast, the presence of a second cable 
        franchise (known as an overbuilder) does appear to constrain 
        cable prices. In franchise areas with a second cable provider, 
        cable prices are approximately 17 percent lower than in 
        comparable areas without a second cable provider.\22\
---------------------------------------------------------------------------
    \22\ U.S. General Accounting Office, ``Report to the Subcommittee 
on Antitrust, Competition, and Business and Consumer Rights, Committee 
on the Judiciary, U.S. Senate: Issues in Providing Cable and Satellite 
Television Services.'' October 2002. In an important clarifying 
footnote, the report finds that:

    ``This was a larger effect than that found by FCC in its 2002 
Report on Cable Industry Prices (FCC 02-107). Using an econometric 
model, FCC found that cable prices were about 7 percent lower in 
franchise areas when there was an overbuilder. One possible explanation 
for the difference in results is that we conducted further analysis of 
the competitive status of franchises that were reported by FCC to have 
an overbuilder. We found several instances where overbuilding may not 
have existed although FCC reported the presence of an overbuilder, and 
we found a few cases where overbuilders appeared to exist although FCC 
had not reported them. We adjusted our measurement of overbuilder 
status accordingly.

    In other words, where there are two satellite and one cable company 
in a market, prices are 17 percent higher than where there are two 
cable companies and two satellite providers in a market. If we had this 
type of competition nationwide, consumers could save more than $5 
billion a year on their cable bills.

Program Production
    The failure of competition in the cable and satellite distribution 
market is matched by the failure of competition in the TV production 
market. In the 1980s, as channel capacity grew, there was enormous 
expansion and development of new content from numerous studios. 
Policymakers attributed the lack of concentration in the production 
industry to market forces and pushed for the elimination of the 
Financial Interest in Syndication rules (Fin-Syn) that limited network 
ownership and syndication rights over programming. The policymakers 
were wrong.
    Following the elimination of the Fin-Syn rules in the early 1990s, 
the major networks have consolidated their hold over popular 
programming. The market no longer looks as promisingly competitive or 
diverse as it once did. Tom Wolzien, Senior Media Analyst for Bernstein 
Research, paints the picture vividly--he details the return of the 
``old programming oligopoly'':

        Last season ABC, CBS and NBC split about 23 percent [of 
        television ratings] . . . 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 net[work]s did 40 years ago. The programming 
        oligopoly appears to be in a process of rebirth.\23\
---------------------------------------------------------------------------
    \23\ Tom Wolzien, ``Returning Oligopoly of Media Content Threatens 
Cable's Power.'' The Long View, Bernstein Research (Feb. 7, 2003). 
Emphasis added.

    In addition, the number of independent studios in existence has 
dwindled dramatically since the mid-1980s. In 1985, there were 25 
independent television production studios; there was little drop-off in 
that number between 1985 and 1992. In 2002, however, only 5 independent 
television studios remained. In addition, in the ten-year period 
between 1992 and 2002, the number of prime time television hours per 
week produced by network studios increased over 200 percent, whereas 
the number of prime time television hours per week produced by 
independent studios decreased 63 percent.\24\
---------------------------------------------------------------------------
    \24\ Coalition for Program Diversity, Jan. 28, 2003.
---------------------------------------------------------------------------
    Diversity of production sources has ``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 77 percent. In 
1992, 16 new series were produced independently of conglomerate 
control, last year there was one.'' \25\
---------------------------------------------------------------------------
    \25\ Victoria Riskin, President of Writers Guild of America, West. 
Remarks at FCC EnBanc Hearing, Richmond, VA (Feb. 27, 2003).
---------------------------------------------------------------------------
    The ease with which broadcasters blew away the independent 
programmers should sound a strong cautionary alarm for Congress. The 
alarm can only become louder when we look at the development of 
programming in the cable market. One simple message comes through: 
those with rights to distribution systems win.
    Of the 26 top cable channels in subscribers' and prime time 
ratings, all but one of them (the Weather Channel) has ownership 
interest of either a cable MSO or a broadcast network. In other words, 
it appears that you must either own a wire or have transmission rights 
to be in the top tier of cable networks. Four entities--News Corp./Fox 
(including cross ownership interests in and from Liberty) AOL Time 
Warner, ABC/Disney and CBS/Viacom--account for 20 of these channels.
    Of the 39 new cable networks created since 1992, only 6 do not 
involve ownership by a cable operator or a national TV broadcaster. 
Sixteen of these networks have ownership by the top four programmers. 
Eight involve other MSOs and 10 involve other TV broadcasters. 
Similarly, a recent cable analysis identified eleven networks that have 
achieved substantial success since the passage of the 1992 Act. Every 
one of these is affiliated with an entity that has guaranteed carriage 
on cable systems.\26\
---------------------------------------------------------------------------
    \26\ Federal Communications Commission, Ninth Annual Report, In the 
Matter of Annual Assessment of the Status of Competition in the Market 
for the Delivery of Video Programming, MB docket No. 02-145 (Dec. 31, 
2002).
---------------------------------------------------------------------------
    Moreover, each of the dominant programmers has guaranteed access to 
carriage on cable systems--either by ownership of the wires (cable 
operators) or by carriage rights conferred by Congress (broadcasters).

    AOL Time Warner has ownership in cable systems reaching 
        over 12 million subscribers and cable networks with over 550 
        million subscribers.

    Liberty Media owns some cable systems and has rights on 
        Comcast systems and owns cable networks with approximately 880 
        million subscribers. Liberty owns almost 20 percent of News 
        Corp./Fox.

    Disney/ABC has must carry-retransmission rights and 
        ownership in cable networks reaching almost 700 million 
        subscribers.

    Viacom/CBS has must carry-retransmission rights and 
        ownership in cable networks reaching approximately 625 million 
        subscribers.

    Fox (has must carry-retransmission and ownership in cable 
        networks reaching approximately 370 million subscribers and a 
        substantial cross ownership interest with Liberty).

    These five entities have ownership rights in 21 of the top 25 cable 
networks based on subscribers and prime time ratings. They account for 
over 60 percent of subscribers to cable networks, rendering this market 
a tight oligopoly. Other entities with ownership or carriage rights 
account for four of the five remaining most popular cable networks. The 
only network in the top 25 without such a connection is the Weather 
Channel. It certainly provides a great public service, but is hardly a 
hotbed for development of original programming or civic discourse. 
Entities with guaranteed access to distribution over cable account for 
80 percent of the top networks and about 80 percent of all subscribers' 
viewing choices on cable systems.
    In the world of broadcast and cable networks, almost three-quarters 
of them are owned by six corporate entities.\27\ The four major TV 
networks, NBC, CBS, ABC, Fox, and the two dominant cable providers, AOL 
Time Warner (which also owns a broadcast network) and Liberty (with an 
ownership and carriage relationship with Comcast and Fox), completely 
dominate the tuner. Moreover, these entities are thoroughly 
interconnected through joint ventures.
---------------------------------------------------------------------------
    \27\ One of the more ironic arguments offered by the cable 
operators feeds off of the observation that broadcast networks have 
carriage rights. They argue that even if cable operators foreclosed 
their channels to independent programmers, these programmers could sell 
to the broadcast networks. This ignores the fact that cable operators 
control the vast majority of video distribution capacity. There are 
approximately 60 channels per cable operator on a national average 
basis (Federal Communications Commission, 2002b, p. 10). There are 
approximately 8 broadcast stations per DMA on a national average basis 
(BIA Financial, 2002). Each broadcast station has must carry rights for 
one station. They can bargain for more, particularly in the digital 
space, but the cable operators control more stations there as well. In 
other words, if we foreclose 85 percent of the channels, the 
programmers will be able to compete to sell to the remaining 15 percent 
of the channels. Needless to say, this prospect does not excite 
independent programmers.
---------------------------------------------------------------------------
    If distribution rights win then an entity like News Corp./Fox/
DIRECTV would create a powerhouse with guaranteed transmission rights 
on all three of the technologies used to distribute TV to the home. It 
will own broadcast stations, have must carry/retransmission rights on 
cable and satellite because of the broadcast licenses it holds, and own 
the largest satellite network. This is an immense power of distribution 
for a company that is vertically integrated into both broadcast and 
cable programming.
    In the 1992 Cable Act, Congress recognized that the Federal 
government ``has a substantial interest in having cable systems carry 
the signals of local commercial television stations because the 
carriage of such signals is necessary to serve the goals . . . of 
providing a fair, efficient, and equitable distribution of broadcast 
services.'' \28\ Congress also recognized that ``[t]here is a 
substantial government interest in promoting the continued availability 
of such free television programming, especially for viewers who are 
unable to afford other means of receiving programming.'' \29\
---------------------------------------------------------------------------
    \28\ Public Law 102-385, Section 2(a)(9).
    \29\ Public Law 102-385, Section 2(a)(12).
---------------------------------------------------------------------------
    These governmental interests, as well as a finding that ``[c]able 
television systems often are the single most efficient distribution 
system for television programming,'' formed the original rationale 
behind Retransmission Consent. Because a majority of the country was 
receiving broadcast television service through cable, it was necessary 
to require that cable systems carry local broadcast signals. However, a 
merger between News Corp./Fox and DIRECTV would change the landscape 
against which Retransmission Consent was created. Given that this 
transaction will provide News Corp./Fox with assets that no local 
broadcaster had in 1992 when Retransmission Consent was originally put 
in place--it will have a satellite distribution system capable of 
reaching a majority of the country--it seems that the original logic 
behind the rule is strained in the present circumstances. Not only will 
News Corp./Fox own its own transmission system, but it also owns other 
programming that it bundles with its network programming, which may 
give it too much market power in negotiating cable and other carriage 
agreements. Congress should revisit the necessity of Retransmission 
Consent as it pertains to stations owned and operated by News Corp./
Fox.

Conclusion
    Consumers Union and Consumer Federation of America believe that the 
Dept. of Justice should impose substantial conditions on this deal 
which will otherwise be harmful to competition in the video programming 
market--harm that will be borne on the backs of consumers.
    Congress should impose a new set of nondiscrimination requirements 
that would enable all media distributors and consumers to purchase 
video programming and related services on an individual--as opposed to 
bundled--basis under terms that maximize competition and choice in the 
marketplace. Congress must reexamine the enormous market power and 
leverage that Retransmission Consent provides broadcast programmers--
particularly one like News Corp. which, as a result of the merger with 
DIRECTV, will own a new nationwide video distribution system (in 
addition to its over-the-air broadcast distribution system). And 
Congress should require cable and satellite operators to offer 
consumers the right to select the channels they want to receive at a 
fair price--in other words, require an a la carte program offering from 
all video distributors. Since the average household watches only about 
a dozen channels of video programming, this requirement could empower 
consumers to help discipline excesses in cable (or satellite) pricing, 
and could possibly spur more competition.
    Congress must also carefully consider all the ramifications 
associated with the rulemakings on media ownership. Specifically, given 
that the FCC has announced an intended June 2nd decision date on media 
ownership rules, Congress should insist on seeing the FCC's proposal 
before any decision is finalized.
    If media ownership limits are significantly relaxed or eliminated 
by the FCC then the News Corp./DIRECTV deal may look almost harmless in 
comparison to an avalanche of media mergers that ensue. It is 
completely unfair to force American consumers to accept inflated cable 
rates and inadequate TV competition. But excess consolidation in the 
news media is even worse: the mass media provides Americans the 
information and news they need to participate fully in our democratic 
society. Without ownership rules that effectively limit consolidation 
in media markets, one company or individual in a town could control the 
most popular newspaper, TV and radio stations, and possibly even a 
cable system, giving it dominant influence and power over the content 
and slant of news. This could reduce the diversity of cultural and 
political discussion in that community.
    The cost of excessive media consolidation and further media 
deregulation is very high. The cost of market failure in media markets 
is the price we pay when stories are not told, when sleazy business 
deals and bad accounting practices do not surface, when the watchdog 
decides that it would rather gnaw on the bone of softer news than chase 
down the more complicated realities that must be uncovered to make 
democracy function.

                                Appendix

    Promoting the Public Interest Through Media Ownership Limits: A 
 Critique of the FCC's Draft Order Based on Rigorous Market Structure 
           Analysis and First Amendment Principles--May 2003

   Dr. Mark N. Cooper, Director of Research, Consumer Federation of 
                                America

                           Table of Contents
    Executive Summary

    I. Legal and Analytic Framework

        The Evidence Supports Limits on Media Ownership

        The Courts Support Congressionally Mandated Public Interest 
        Standards To Promote Diversity In Media Markets; They Want 
        Coherent Policy Analysis

        A High Standard Is Necessary To Serve The Public Interest

        Promoting The Public Interest Through Unconcentrated Media 
        Markets

    III. Rigorous Analysis of Media Markets

        Market Structure Analysis Must Recognize Differences Between 
        Media In Function, Reach, Impact and Audience

        Television and Newspapers Should Be The Focal Point Of Analysis

        The Analysis Of News and Information, As Opposed To 
        Entertainment Or Ad Markets, Should Be The Primary Basis Of 
        Market Structure Analysis

        Cable, Satellite And The Internet Provide Little, If Any, Local 
        News and Information

        Media Markets Are Already Concentrated

    IV. Proposed FCC Rules Have No Analytic Or Legal Basis

        Flaws In The FCC Rules

        The FCC Proposal Guts The Public Interest Standard For Media 
        Ownership Under The Communications Act

    V. A Responsible Approach To Ownership Limits

        Counting Voices In A Total Media Market

        Reasonable Adjustments To Counting Of Voices

        Establishing Thresholds And Market Screens

        Conclusion

    Endnotes
                            List of Exhibits

    Exhibit 1: TV and Newspapers are the Public's Most Important Source 
of All News

    Exhibit 2: TV and Newspapers Dominate as Local News Sources

    Exhibit 3: Comparing News Capabilities: Newspapers Produce the Bulk 
of Local News

    Exhibit 4: Few Cable Viewers Get Their Local News From Local Cable 
Channels

    Exhibit 5: Most Internet Users Visit Websites of the Major TV News 
Outlets and Newspapers

    Exhibit 6: Broadcast TV Voice Count

    Exhibit 7: Newspaper Voice Count

    Exhibit 8: Radio Voice Count

    Exhibit 9: Concentration of National Programming Markets

    Exhibit 10: Graphic Representation of Concentrated Markets

    Exhibit 11: Impact of Newspaper-TV Mergers in One-Paper Cities

    Exhibit 12: Impact of Newspaper-TV Mergers in Two-Paper Cities

    Exhibit 13: Increase in HHI Caused by Leading Paper-TV Station 
Mergers

    Exhibit 13: Increase in HHI Caused by Leading Paper-TV Station 
Mergers

    Exhibit 14: Most Concentrated News Markets Open to Cross-Ownership 
Under the FCC Draft Order

    Exhibit 15: Impact of Newspaper-TV Mergers in Cities with Three 
Papers and Three or Fewer TV Stations Providing News

    Exhibit 16: Media Market Categorization for Merger Review

    Exhibit 17: Total Media Voices

    Exhibit 18: Two-Pronged Market Standard for Cross-Ownership

    Exhibit 19: Simple News Voice Count Vs. Market-Share Based, 
Adjusted Voice Count [(TV+Newspaper)/.8]

    Exhibit 20: Market Eligible For Cross-Ownership Mergers
                                 ______
                                 
Executive Summary
Courts Support Public Interest Standards to Promote Diversity in Media 
        Markets; They Want Coherent Policy Analysis
    While the Federal Appeals Court for the District of Columbia has 
issued decisions instructing the FCC to provide better justification 
for its rules, it has clearly stated that public policies to promote a 
more diverse media landscape are constitutional, even if they reduce 
economic efficiency. The notion that the courts have demanded that the 
FCC get rid of or substantially relax media ownership rules is simply 
wrong. The fact that the Court of Appeals has demanded a coherent 
analytic framework based on empirical facts does not necessarily 
indicate a relaxation of the limits on ownership is warranted. To the 
contrary, the court recognized that the limits could go be loosened or 
tightened.
    In Fox v. FCC, for example, the court noted that ``it is not 
unreasonable--and therefore not unconstitutional--for the Congress to 
prefer having in the aggregate more voices heard,'' even though ``an 
industry with a larger number of owner may well be less efficient than 
a more concentrated industry.'' In Sinclair v. FCC the court thoroughly 
rejected Sinclair's claim that its First Amendment rights had been 
harmed by the duopoly rule and reminded the parties that the Supreme 
Court ``saw nothing in the First Amendment to prevent the Commission 
from allocating licenses so as to promote the `public interest' in 
diversification of the mass communications media.''
    Yet, to the public's great detriment, we find that the FCC is not 
doing the one thing the court demanded--i.e., careful analysis of media 
markets keeping with longstanding principles of economic analysis. For 
example, one of the most important media ownership rules, the 
newspaper-broadcast cross-ownership prohibition, the FCC is:

    Looking at the wrong product (entertainment),

    Analyzing the wrong market (national news),

    Doing the market structure analysis incorrectly (not 
        considering market shares), and

    Choosing a dangerously low standard.

    The Supreme Court has repeatedly defined the public interest for 
electronic mass media by expressing a bold aspiration for the First 
Amendment declaring the widest possible dissemination of information 
from diverse and antagonistic sources is essential to the welfare of 
the public.

Applying High Standards in Rigorous Market Structure Analysis
    While the goal of promoting diversity under the Communications Act 
is broader than the goal of protecting competition under the antitrust 
laws, the Merger Guidelines of the Department of Justice and the 
Federal Trade Commission are a useful starting point for analysis of 
media markets. For two decades the antitrust authorities have used 
these Guidelines--which are based on extensive theoretical and 
empirical evidence--to categorize markets for purposes of merger 
analysis.

    A market with the equivalent of 10 or more equal-sized 
        firms is defined as unconcentrated.

    Markets with fewer than the equivalent of 10 but more than 
        6 equal-sized firms are considered moderately concentrated.

    Markets with the fewer than 6 equal-sized firms are highly 
        concentrated.

    Concentrated markets like these ``raise significant competitive 
concerns'' for antitrust authorities because they create market power 
that can be used to raise prices, reduce quality, or retard innovation. 
Those charged with promoting the public interest under the 
Communications Act should be more than concerned if media markets 
become this concentrated because of the broader goals of First 
Amendment policy.
    To the extent the Commission chooses to rely on the analysis of 
commercial media markets, especially if different types of media are 
combined, caution is necessary and should be expressed in the form of 
rigorous analysis and high standards. Public policy should err in favor 
of more competition, which translates into greater diversity, to 
reflect the unique importance and role of media in promoting the robust 
exchange of views on which democratic dialogue and debate depends.

Media Markets Are Already Concentrated
    The evidentiary record before the FCC shows that the mass media 
have not experienced an Internet or broadband revolution. Most people 
still get their news and information from TV and newspapers. Further, 
there is no simple common ``currency'' by which TV viewing and 
newspaper reading can be measured. In other words, is a half hour of TV 
worth an inch of newspaper space? Citizens do not easily substitute 
between these media, making it even more difficult to compare them. 
Different media are used in different ways, have different impacts, and 
play different roles in civic discourse. Rigorous analysis must 
recognize the distinct product markets and the importance of newspapers 
and television.
    Using the standard antitrust market definitions, we find that lax 
First Amendment policy implementation and weak antitrust enforcement 
has resulted in American media markets that are shockingly 
concentrated, especially in light of the bold aspiration for the First 
Amendment.

    Every local television and newspaper market in the country 
        is already concentrated.

    Every local newspaper market in the country is already 
        highly concentrated.

    Over 95 percent of the TV and radio markets are highly 
        concentrated.

    Local TV news markets are much more concentrated than 
        entertainment markets.

    Even adding together television and newspaper outlets, we 
        find that virtually every local market is concentrated.

    National markets for prime time entertainment programming 
        are concentrated and national TV news markets are highly 
        concentrated.

    The evidence provides strong support to those who feel the analysis 
of the media under the First Amendment jurisdiction of the 
Communications Act cannot be reduced to simple economic terms and that 
further relaxation of the rules on media ownership will lead to much 
more concentrated markets and decreased diversity of news and 
information sources.

The FCC Proposal Effectively Repeals the Public Interest Standard, 
        Affording Less Protection for Media Mergers than the Antitrust 
        Laws
    Unfortunately, the proposed rules circulated by the Commission are 
driven by political deals, not rigorous analysis or high standards.

    The Commission has failed to define the product market 
        properly, ignoring the fact that almost half of all broadcast 
        stations do not provide news.

    It has ignored the local market, by counting stations and 
        outlets that do little, if any local news.

    It has failed to conduct proper market structure analysis, 
        by failing to consider the audience (markets shares) of the 
        media outlets.

    The FCC has set a dangerously low standard for competition 
        in local media markets allowing the count of major media voices 
        to decline as low as three or four in many markets.

    The result will be to allow markets to become extremely 
concentrated and the local news markets to be dominated by one huge 
media giant. There is no chance for effective competition between TV-
newspaper combinations in as many as three-quarters of the markets in 
which such mergers would be allowed because there is only one dominant 
newspaper. Exhibits ES-1 and ES-2 graphically depict these markets.

    In one-paper cities, the local media giant would have a 90 
        percent share of the newspaper circulation, one-third of the TV 
        audience, and one-third of the radio audience. No second entity 
        could come close to matching this media power.

    In the typical two-paper town, the dominant firm would have 
        four-fifth of newspaper market, and one-third of the TV and 
        radio markets. The second firm would have a paper with only 
        one-seventh of the circulation. In most of these markets, the 
        TV market is also highly concentrated.
Exhibit ES-1: Impact of Newspaper-TV Mergers In One-Paper Cities (Based 
        on TV Entertainment HHI and Newspaper Circulation HHI)
Pre-Merger Market



Post-Merger Market



Exhibit ES-2: Impact Of Newspaper-TV Mergers In Two-Paper Cities (Based 
        on TV Entertainment HHI and Newspaper Circulation HHI)
Pre-Merger Market



Post-Merger Market



    We believe that the FCC would inappropriately allow mergers in 140 
of the top 150 markets. Of those 140 markets, approximately 90 are one 
or two newspaper towns. Approximately 45 million households reside in 
these types of markets. In approximately 50 markets that have three or 
more papers, a merger between a newspaper and a TV station would render 
the local news media market concentrated. Exhibit ES-3 characterizes 
the 150 largest markets in which the draft order would allow cross-
ownership mergers. Almost one half are one or two paper cities in which 
the TV news market is highly concentrated. One-sixth are one or two 
paper markets in which the TV market is moderately concentrated. One-
quarter have three or more newspapers, but the TV market is highly 
concentrated. In only one-fifteenth of these markets is the TV market 
not highly concentrated and the total local news market unconcentrated.
    The absurdity of the FCC's approach is readily apparent when the 
mergers it would allow are viewed in terms of the Merger Guidelines. 
Based on the record, we count newspapers and TV stations as equal 
voices and set radios equal to one-tenth of the market.
    In one-paper cities, the pre-merger market is highly concentrated 
and the merger would raise the HHI by approximately 1,200 points. The 
antitrust authorities believe mergers that raise the HHI by merely 50 
points in a market such as this ``are likely to create or enhance 
market power or facilitate its exercise.'' The increase in 
concentration that would pass the FCC's scrutiny is over twenty times 
the level that triggers antitrust concerns.
    Two-newspaper markets would be somewhat less concentrated, but the 
FCC would still allow excessively high levels of concentration that 
would not support vigorous competition. This pre-merger market would 
fall just below the highly concentrated threshold and the merger would 
raise the HHI by over 900 points. This is over nine times the level 
that triggers antitrust concerns.

A Responsible Approach
    We believe that a set of rules based on rigorous analysis of the 
current structure in contemporary media, using careful geographic and 
product definitions and audience market shares, that adopts a high 
standard is consistent with the record in this proceeding. It would 
restrict merger activity to a small number of markets. Preventing the 
overall media market from becoming concentrated and individual product 
markets from becoming highly concentrated is a reasonably cautious 
standard.

    No mergers between TV stations and newspapers should 
        allowed if the overall media market in a locality is or would 
        become concentrated as a result of the merger.

    No mergers involving TV stations should be allowed if the 
        TV market in a locality is or would become highly concentrated 
        as a result of the merger.

    This approach would allow cross-ownership mergers in ten of the 
largest markets.

Exhibit ES-3: Concentration of Top 150 Markets



I. Legal and Analytic Framework
The Evidence Supports Limits on Media Ownership
    This paper presents the case for a rigorous, unified framework for 
media ownership analysis under the Communications Act of 1934. It 
demonstrates that the current limits on media ownership should not be 
substantially relaxed. It shows that, consistent with the empirical 
record, the Federal Communications Commission (FCC) can adopt a rule 
based on market structural analysis--which has a long history in the 
industrial organization literature--that promotes the public interest 
by limiting mergers. Such a rule should build on economic fundamentals 
but it must be driven by the First Amendment policy articulated by 
Congress and endorsed by the courts for the electronic mass media.
    The policy aspiration for the First Amendment is embodied in the 
principle that ``the widest possible dissemination of information from 
diverse and antagonistic sources is essential to the welfare of the 
public.''\1\ The Supreme Court has repeatedly supported this principle 
for more than half a century. Modern First Amendment jurisprudence has 
also clearly recognized that ``Freedom of the press from governmental 
interference under the First Amendment does not sanction repression of 
that freedom by private interests.''\2\
    The empirical evidence demonstrates that traditional mass media 
still dominate the dissemination of news and information. Lax 
implementation of First Amendment policy and weak enforcement of 
antitrust policy have allowed media markets to become concentrated. 
Further relaxation of the limits on media ownership will allow more 
concentrated ownership of media conglomerates to be consolidated in 
national chains and result in a severe loss of diversity of news and 
information sources and local news content.
    At a practical level, the paper answers each of the main questions 
raised in the court cases and the omnibus media ownership proceeding 
initiated by the FCC.
    For example, in the case of Sinclair v. Federal Communications 
Commission, the D.C. Appeals Court held ``that the Commission had 
failed to demonstrate that its exclusion of non-broadcast media from 
the eight voices exception `is necessary in the public interest'.''\3\ 
Why didn't the FCC include newspapers and radios in its voice count for 
the rule that limited the number of markets in which one owner could 
hold licenses to more than one TV station (the duopoly rule)? The 
answer it could have given is now clear and supported overwhelmingly by 
the empirical evidence in the record:

    TV is the dominant source of news and information, while 
        radio, newspapers and the Internet are not good substitutes for 
        TV.

    These other products do not belong in a TV voice count 
        analysis and TV markets are already highly concentrated.

    The limits on TV mergers are well justified.

    Similarly, the question posed by the review of the newspaper 
broadcast cross-ownership ban can be answered with a strong empirical 
statement. The Commission ``seeks comments on whether and to what 
extent we should revise our cross-ownership rule that bars common 
ownership of a broadcast station and daily newspaper in the same 
market.''

    Newspapers are the second most important source of 
        information and play a unique watchdog role, providing in-depth 
        and investigative reporting.

    All newspaper markets are highly concentrated and virtually 
        all newspaper-TV markets are already concentrated.

    Newspaper-TV combinations should not be allowed in all but 
        a handful of media markets because they would drive media 
        concentration above already unacceptably high levels and allow 
        excessive control over the production of news content in local 
        media markets.

    The empirical evidence on radio markets not only confirms that 
there is a problem, but it underscores the point that antitrust 
authorities cannot be relied upon to prevent excessive concentration in 
media markets.

    No additional radio mergers should be allowed because 
        virtually every radio market in the country is highly 
        concentrated.

The Courts Support Congressionally Mandated Public Interest Standards 
        To 
        Promote Diversity In Media Markets; They Want Coherent Policy 
        Analysis

The Fox and Sinclair Circuit Court decisions affirm First Amendment 
        principles
    Over the past two years the Federal Appeals Court for the District 
of Columbia has issued decisions instructing the FCC to reexamine 
several of its rules governing structural limitations on media 
ownership.\4\ The Appeals Court has been careful to point out that it 
is not challenging the constitutional or even policy basis on which the 
rules rest; it is demanding that the FCC give better justifications for 
its rules.
    In fact, while the D.C. Appeals Court was stinging in its criticism 
of the FCC for not doing its homework, it also chided media companies 
for ignoring the importance of noneconomic considerations in policies 
to promote civic discourse.\5\ It clearly stated that public policies 
to promote a more diverse media landscape are constitutional, even if 
they reduce economic efficiency.

        An industry with a larger number of owners may well be less 
        efficient than a more concentrated industry. Both consumer 
        satisfaction and potential operating cost savings may be 
        sacrificed as a result of the Rule. But that is not to say the 
        Rule is unreasonable because the Congress may, in the 
        regulation of broadcasting, constitutionally pursue values 
        other than efficiency--including in particular diversity in 
        programming, for which diversity of ownership is perhaps an 
        aspirational but surely not an irrational proxy. Simply put, it 
        is not unreasonable--and therefore not unconstitutional--for 
        the Congress to prefer having in the aggregate more voices 
        heard, each in roughly one-third of the nation, even if the 
        number of voices heard in any given market remains the same.\6\

    In the Fox case, a rule that increases the number of voices in the 
Nation without increasing the number of voices in a local market can 
pass constitutional muster if it is properly justified. Rules that are 
aimed at increasing local voices, as are many currently under review by 
the FCC, stand on even firmer ground. In fact, in the Sinclair 
decision, which dealt with local media markets, the Court went to 
considerable lengths to reject Sinclair's claim that it's First 
Amendment rights had been harmed by the duopoly rule.

        [B]ecause there is no unabridgeable First Amendment right 
        comparable to the right of every individual to speak, write or 
        publish, to hold a broadcast license, Sinclair does not have a 
        First Amendment right to hold a broadcast license where it 
        would not, under the Local Ownership Order, satisfy the public 
        interest. In NCCB the Supreme Court upheld an ownership 
        restriction analogous to the Local Ownership Order, based on 
        the same reasons of diversity and competition, in recognition 
        that such an ownership limitation significantly furthers the 
        First Amendment interest in a robust exchange of viewpoints. 
        The Court states in NCCB that it ``saw nothing in the First 
        Amendment to prevent the Commission from allocating licenses so 
        as to promote the `public interest' in diversification of the 
        mass communications media.'' \7\

    The conclusion that broadcasters do not have ``unabridgeable 
rights'' in their licenses is typically linked to a specific concept of 
scarcity that looks at citizens not simply as listeners, but also as 
speakers. Thus, in Red Lion the court notes that

        where there are substantially more individuals who want to 
        broadcast than there are frequencies to allocate, it is idle to 
        posit an unabridgeable First Amendment right to broadcast 
        comparable to the right of every individual to speak, write, or 
        publish.\8\

    While the number of networks and TV channels has certainly 
increased, the total available comes nowhere close to the number of 
potential speakers. Thus the key underpinning for the public interest 
policies to promote diversity of ownership, the scarcity of the 
opportunity to speak with an electronic voice, persists.
    Furthermore, the Court did not challenge the specific threshold the 
FCC had chosen, noting in Sinclair that ``We leave for another day any 
conclusion regarding the Commission's choice of eight'' and adding that 
``[o]n remand the Commission conceivably may determine to adjust not 
only the definition of `voices' but also the numerical limit.''\9\

The public interest is still the master of the biennial review standard
    While some of the structural limits on media ownership are being 
reviewed at the direction of the Appeals Court, others are being 
evaluated as part of a biennial review process mandated by the 
Telecommunications Act of 1996 under the standard in section 
202(h).\10\ There the FCC must ``determine whether any of such rules 
are necessary in the public interest as the result of competition. The 
Commission shall repeal or modify any regulation it determines to be no 
longer in the public interest.'' \11\
    Simply put, the public interest still prevails in the 1996 Act.\12\ 
The Act does not embrace competition for competition's sake, nor did it 
change the definition of the public interest when it comes to media 
ownership policy. The public interest is the master that competition 
must serve; the FCC must find that competition is sufficient to promote 
the public interest before it repeals or modifies these rules. It can 
certainly find that stronger rules are necessary to promote 
competition--under the first prong of 202(h)--or the public interest--
under the second prong of 202(h).
    Notwithstanding some concerns about preconceived notions,\13\ the 
court's rulings and the biennial review are the starting point for 
debate, not the end point. There is nothing in the court ruling that 
would preclude the preservation or even strengthening of the rules if 
the evidentiary record supports such action.

A High Standard is Necessary to Serve the Public Interest
    For reasons of both public policy and economic fundamentals, market 
structure analysis, as the basis for determining merger policy and 
ownership limits in broadcast media markets, requires a high threshold 
or standard for competition. Preventing the overall media market from 
becoming concentrated and submarkets from becoming highly concentrated 
is a reasonably cautious standard.

First Amendment policy is broader than antitrust
    The goal of First Amendment policy under the Communications Act is 
broader than the goal of competition under the antitrust laws. In 
merger review, the antitrust laws seek to prevent the accumulation of 
market power while merger review under the Communications Act seeks to 
promote the public interest,\14\ defined by the courts as the ``widest 
possible dissemination of information from diverse and antagonistic 
sources.''
    In both cases, these standards are prophylactic, asking the 
authorities to make predictive judgments about the effect of the merger 
and take actions to prevent negative outcomes (in the case of 
antitrust) or ensure positive outcomes (in the case of the 
Communications Act). Media mergers must pass both reviews because 
Congress and the courts recognize that media and communications 
industries play a special dual role in society. They are critical 
commercial activities and deeply affect civic discourse. They affect 
both consumers and citizens.
    While economic competition is one way of promoting the public 
interest, the Communications Act and the Courts identify several 
others. Under the Act, the needs of citizens and democracy take 
precedence.

Economic analysis under the Merger Guidelines restricts mergers
    Antitrust authorities have adopted guidelines that indicate when 
mergers are likely to be challenged. The Guidelines consider the state 
of competition and the extent to which concentration of a market would 
increase as a result of a merger. They use market shares to create an 
index known as the HHI, which describes the level of concentration in a 
market.\15\ They define highly concentrated markets as markets with an 
HHI of 1800. This is the equivalent of fewer than (roughly) six equal-
sized competitors.\16\ They define unconcentrated markets as markets 
with an HHI of 1000, which is the equivalent of ten or more equal-sized 
competitors. Moderately concentrated markets have the equivalent of 
between 6 and 10 equal-sized competitors.
    The guidelines identify the types of mergers that will raise 
competitive concerns as follows:

        Mergers producing an increase in the HHI of more than 100 
        points in moderately concentrated markets post-merger 
        potentially raise significant competitive concerns . . . 
        Mergers producing an increase in the HHI of more than 50 points 
        in highly concentrated markets post-merger potentially raise 
        significant competitive concerns.\17\

    To appreciate the nature of these thresholds, a firm with a 15 
percent market share that sought to buy another with a two percent 
market share would violate the 50-point threshold. If the firm being 
acquired had a market share of just over three percent, it would 
violate the 100-point threshold.
    The competitive concern for antitrust authorities is the potential 
for the exercise of market power. The Guidelines define market power as 
``the ability profitably to maintain prices above competitive levels 
for a significant period of time'' or to ``lessen competition on 
dimensions other than price, such as product quality, service or 
innovation.''\18\ While concerns exist in all concentrated markets, the 
Guidelines note that in highly concentrated markets, mergers ``are 
likely to create or enhance market power or facilitate its exercise.''
    Although the antitrust authorities frequently allow mergers to go 
forward after considering other factors, we believe that for media 
markets these should be firm thresholds. The Sinclair decision notes 
that in 1995 the Commission had already argued ``the merger guidelines 
of the Justice Department and the Federal Trade Commission might be too 
low as their purpose lay in defining the point at which antitrust 
scrutiny is required, and not in encouraging a wide array of voices and 
viewpoints.'' \19\ Whereas antitrust authorities become concerned about 
these levels of concentration, Communications Act authorities should 
become alarmed about concentrated markets like these because of the 
broader goals of First Amendment policy.

Promoting the Public Interest Through Unconcentrated Media Markets
Local Media Markets Should not be Concentrated
    The evidentiary record makes it clear that the Commission must 
proceed cautiously in relaxing limits on media ownership. It shows that 
the mass media have not experienced an Internet or broadband 
revolution. The dominant sources of information are still TV and 
newspapers. Further, there is no simple common ``currency'' by which TV 
viewing and newspaper reading can be measured. Different media are used 
in different ways, have different impacts, and play different roles in 
civic discourse. The evidence provides strong support to those who feel 
the analysis of the media under the First Amendment jurisdiction of the 
Communications Act cannot be reduced to simple economic terms and that 
the rules should not be relaxed.
    At the same time, the record sends a strong warning to those who 
would rely on economic analysis, especially if different types of media 
are combined, that great caution is necessary and should be expressed 
in the form of rigorous market analysis and high competitive standards. 
Public policy should err in favor of more owners, which translates to 
greater diversity, to reflect the unique importance and role of media 
in civic discourse.
    Based upon the above legal framework and observations, we propose a 
two pronged market structure standard that builds on economic 
fundamentals but is driven by First Amendment jurisprudence. Preventing 
the overall media market from becoming concentrated and broadcast 
markets from becoming highly concentrated is a reasonably cautious 
standard.
    The Federal Communications Commission should not tolerate or 
encourage concentrated media markets. The standard definition of 
unconcentrated markets, well grounded in economic theory and practice, 
is a market with the equivalent of ten or more equal-sized producers. 
Civic discourse demands even more vigilance.
    The Commission must approach the market structure analysis in a 
rigorous manner that reflects the current empirical reality of media 
markets. Since the Merger Guidelines have been a part of market 
structure policy for two decades, these simple rules are transparent. 
The data needed to categorize media markets are available.
    Furthermore, as a matter of economic fundamentals, caution is 
called for. Media markets are difficult to define and most data 
available is limited to very large markets. Using concepts like the 
Designated Market Area (DMA) for TV or the Arbitron rating area for 
radio, creates market areas that are generally larger than and 
certainly do not fit precisely with each other, or with newspaper 
markets. Including the Internet and cable in the local market 
definition, when the FCC's own expert declared these to be national, 
not local, media, further confounds market analysis.
    Given these difficulties in product and geographic market 
definitions, the FCC should be extremely cautious about thresholds. By 
combining products that are not good substitutes and do not compete 
head-to-head in the market we are likely to overestimate the extent of 
actual competition. Therefore, based on strict economic grounds we 
should be cautious in the thresholds.
    Thus, a rule that takes unconcentrated local markets as the minimum 
standard is justified in both the antitrust and First Amendment 
contexts.

Broadcast Markets Should Not Be Highly Concentrated or The Source of 
        Excessive Leverage Across Sub-Markets
    Many TV markets are highly concentrated because they have never had 
a large number of stations, even though frequencies are available. For 
these, unconcentrated markets are a goal, but the existence of such 
markets does not mean that where markets are not concentrated we should 
abandon that goal or allow mergers to frustrate it. At a minimum, FCC 
policy should encourage or allow individual TV broadcast product 
markets to become highly concentrated.
    Excessive market concentration in electronic media cannot be 
compensated for by cross media competition. Each product market should 
be no worse than moderately concentrated. The FCC should not allow 
horizontal mergers in properly defined TV media markets that are highly 
concentrated, post-merger. That is, if the merger proposed is in a 
market that is highly concentrated or would result in a market that is 
highly concentrated it should not be allowed.
    TV broadcast should not be a source of excessive leverage in the 
overall media market. The FCC should not allow dominant firms in highly 
concentrated broadcast markets to merge. The FCC should have a waiver 
policy to allow horizontal mergers in properly defined media markets 
that are moderately concentrated (post-merger). The merging parties 
should be required to show that the merger would promote the public 
interest. The FCC should require the preservation of functionally 
separate news and editorial departments in the subsidiaries of the 
merged entity.

III. Rigorous Analysis of Media Markets
Market Structure Analysis Must Recognize Differences Between Media in 
        Function, Reach, Impact And Audience
    The empirical record does not support the conclusion that the 
various media products (broadcast video, cable TV, newspaper, radio, 
Internet) are substitutes. On the contrary, the overwhelming evidence 
indicates that they are complements. Allowing mergers between them may 
undermine the ability of each media type to fill the distinct needs 
that it addresses. Therefore, the Commission must proceed with great 
caution if it combines media for purposes of market structure analysis. 
Market structure analysis should recognize the function, reach, and 
impact of different media products.
    Market structure analysis must start with the audience that each of 
the media outlets has. Just as market power is grounded in the size of 
the market an individual firm gains, so too media influence and impact, 
the ability to be heard, is a function of the audience. It is absurd to 
ignore the audience of a media outlet in assessing its influence and 
impact on civic discourse, as it would be absurd to ignore the market 
share of a firm in assessing its economic market power.

Television and Newspapers Should Be The Focal Point of Analysis
    Television and newspapers dominate the news media market (see 
Exhibits 1 and 2). Television provides the announcement function. 
Newspapers provide in-depth coverage. Other sources of news are dwarfed 
by the two dominant sources. Approximately 80 percent of respondents 
say they get most of their news and information from TV or newspapers. 
The percentage of local news is similar, with newspapers playing a role 
closer to TV. That percentage has been stable since the advent of the 
Internet. It is even higher for election information. Clearly, market 
analysis must focus on TV and newspapers. The number of voices could be 
adjusted to take account of the lesser voices available on radio, the 
Internet, and other sources.

The Analysis of News and Information, As Opposed To Entertainment or Ad 
        Markets, Should Be The Primary Basis of Market Structure 
        Analysis
    Much of the FCC's previous analysis has focused on entertainment 
and advertising markets. The evidence before the Commission now shows 
that news and information is a distinct product market. Many broadcast 
stations do not provide news whatsoever. Radio has all but abandoned 
news (see Exhibit 3). As a consequence, news media markets are much 
more concentrated than broadcast and video TV markets.

Exhibit 1: TV and Newspapers Are The Public's Most Important Source of 
        All News

        
        
    Source: Federal Communications Commission, Study 8, Consumer Survey 
on Media Usage, prepared by Nielsen Media Research, September 2002, 
Question 10.

Exhibit 2: TV and Newspapers Dominate as Local News Sources



    Source: Federal Communications Commission, Study 8, Consumer Survey 
on Media Usage, prepared by Nielsen Media Research, September 2002, 
Question 1. Multiple responses allowed, percentage of total responses.

Exhibit 3: Comparing News Capabilities: Newspapers Produce the Bulk of 
        Local News

        
        
    Sources: Vernon Stone, News Operations at U.S. Radio Stations, News 
Operations at TV Stations; U.S. Bureau of the Census, Statistical 
Abstract of The United States: 2000 Tables 2, 37, 932; Lisa George, 
What's Fit To Print: The Effect Of Ownership Concentration On Product 
Variety In Daily Newspaper Markets (2001); Editor And Publisher, 
International Yearbook, Various Issues.

    Newspapers dominate the production of local news content. They are 
devoted to news, whereas most other media are primarily devoted to 
entertainment. Newspapers also have large staffs. As Downie and Kaiser 
point out

        Television, like radio, is a relatively inefficient conveyor of 
        information. The text of Cronkite's evening news, after 
        eliminating the commercials, would fill just over half the 
        front page of a full-sized newspaper. A typical network evening 
        news show now mentions just over fifteen or so different 
        subjects, some in a sentence, whereas a good newspaper has 
        scores of different news items every day. A big story on 
        television might get two minutes, or about 400 words. The Los 
        Angeles Times coverage of the same big story could easily total 
        2,000 words.\20\

    The Commission should examine the difference between entertainment 
HHIs and news HHIs. News markets are much more concentrated than 
entertainment markets. National aggregate data suggests that TV news 
markets are twice as concentrated as TV entertainment markets.

Cable, Satellite and the Internet Provide Little, If Any, Local News 
        and Information
    The Commission has considered cable TV as a single additional 
voice. However, the data before the commission shows that cable is not 
an independent source of local news and information. At present, 
satellite provides no independent local news or information. Indeed, it 
is struggling just to make all local stations available. It is most 
interesting to note in this context that the Commission's task force 
study on media substitutability assumed that cable and the Internet are 
national, not local, sources of news.
    Cable plays only a small role as a source of local news and 
information. Only eleven percent of those who rely on cable cite a 
local cable channel (see Exhibit 4). Few cable operators provide news, 
and when they do, it frequently replicates one of the broadcast 
networks.
    The Internet's role as an independent source of news is even 
smaller. The websites of the dominant TV outlets and newspapers 
dominate as sources on the Internet (see Exhibit 5). Even the 6 percent 
of respondents who say it is their primary source of news are more 
likely to say they use the websites of major TV networks or newspapers 
than other sites. The Internet should not be counted as an additional 
local voice.

Exhibit 4: Few Cable Viewers Get Their Local News From Local Cable 
        Channels

        
        
    Source: Federal Communications Commission, Study 8, Consumer Survey 
on Media Usage, prepared by Nielsen Media Research, September 2002, 
Question 7. Multiple responses allowed, percentage of total responses.

Exhibit 5: Most Internet Users Visit Websites of the Major TV News 
        Outlets and Newspapers

        
        
    Source: Federal Communications Commission, Study 8, Consumer Survey 
on Media Usage, prepared by Nielsen Media Research, September 2002, 
Question 9. Multiple responses allowed, percentage of total responses.

Media Markets are Already Concentrated
    Applying the above methods to the analysis of media markets, we 
find that they are concentrated at present. Exhibits 6 thru 8 show the 
level of concentration in each specific media product in local media 
markets using the standard market definition and analytic approach 
applied by the Department of Justice and the Federal Trade Commission. 
We find that every television and newspaper market in the country is 
already concentrated. In fact, every newspaper market in the country is 
already highly concentrated, as are over 95 percent of the TV and radio 
markets. We use television markets as the geographic basis for defining 
markets because television is the primary news source.
    While most of the rules apply to local markets, the national 
broadcast cap applies to a national market. The national TV market 
greatly affects the ability of program developers to gain access to a 
sufficient market to launch programs or channels. For example, one of 
the FCC studies examined the owners of programming aired in the 
national prime time market. Exhibit 9 shows three important indicators 
of concentration in national programming markets, network prime time 
producers, total prime time viewing and news programming. The prime 
time market is concentrated and the news market is highly concentrated.

IV. Proposed FCC Rules Have No Analytic Or Legal Basis
Flaws in the FCC Rules
    According to press accounts, the FCC appears to be headed in a very 
different direction than the above approach. The analytic framework 
adopted by the FCC is not rigorous. It is apparently based on a simple 
voice count of all TV stations. Thus, it addresses neither the product 
market in question, nor the market shares. To make matters worse, the 
simple TV voice count appears to include PBS stations, although few do 
local news and all have a very small market share.
    Furthermore, the FCC has failed to set a high standard for the most 
important rule--TV/newspaper cross-ownership. It will apparently allow 
the count of independent newspapers and TV stations to decline to as 
low as four. That is, it will allow a TV station to buy a newspaper in 
a market where there are only a total of four TV stations.
    In short, the FCC is

    looking at the wrong product (entertainment),

    analyzing the wrong market (national news),

    doing the market structure analysis incorrectly (not 
        considering market shares), and

    choosing a dangerously low standard.

Exhibit 6: Broadcast TV Voice Count



    Source: BIA Financial, Television Market Report: 2000. Year 2000 
broadcast TV viewing data for all 211 DMAs.

Exhibit 7: Newspaper Voice Count



    Source: Market profiles from Editor and Publisher and Media Week, 
various issues; ``Initial Comments of the NAA,'' and Initial Comments 
of Hearst Argyle, Exhibit 1, ``Selected Media `Voices' by Designated 
Market Areas,'' In the Matter of Cross-Ownership of Broadcast Stations 
and Newspapers; Newspaper-Radio Cross-Ownership Waiver Policy: Order 
and Notice of Proposed Rulemaking, MM Docket No. 01-235, 96-197, Table 
3. Year 2000 newspaper circulation for 68 markets. Missing data 
estimated by regression of DMA size.

Exhibit 8: Radio Voice Count



    Source: Keith Brown and George Williams, Consolidation and 
Advertising Prices in Local Radio Markets (Federal Communications 
Commission, Media Bureau Staff Research Paper, September 2002). HHIs 
based on top 4 firms only, assuming firms 3 and 4 have equal shares.

Exhibit 9: Concentration of National Programming Markets



    Source: Mara Epstein, Program Diversity and the Program Selection 
Process on Broadcast Network Television (Federal Communications 
Commission, Media Ownership Working Group, September 2002); ``Comments 
of Sinclair Broadcasting,'' Exhibit 15; Bill Carter, ``Nightly News 
Feels Pinch of 23-Hour News'' New York Times, April 14, 2003, p. C-1.

    The result will be to allow markets to become extremely 
concentrated.
    The FCC's analysis also appears to be applying logically 
inconsistent approaches across media markets, an analytic flaw that was 
particularly offensive to the D.C. Circuit.

    UHF stations appear to be counted as one-half for the 
        purposes of the national cap, but a full station for purposes 
        of the cross-ownership and the duopoly rule. This inconsistent 
        treatment biases the rules toward greater concentration and 
        less diversity.

    Similarly, the FCC recognizes the importance of major TV 
        voices by banning a duopoly merger between two TV stations 
        ranked in the top four in any market. However, the FCC does not 
        recognize the importance of newspapers for broadcast newspaper 
        cross-ownership. It fails to impose a similar restriction on a 
        top four TV station combining by a newspaper.

The FCC Proposal Guts the Public Interest Standard for Media Ownership 
        Under The Communications Act
    The impact on media market structure will be devastating. The FCC 
approach would allow newspaper-TV combinations in 150 markets. These 
markets cover approximately 90 percent of the total population. The 
media market structure in many of these localities would become greatly 
distorted because of a lack of competition.
    We believe that the FCC has misclassified at least 140 of these 
markets and would incorrectly allow mergers. These 140 markets cover 
approximately 70 percent of the population in the Nation.
    Of the 140 misclassified markets, 36 are one-newspaper towns. That 
is, the second newspaper has a market share of less than five percent. 
Another 55 are two newspaper towns. Thus approximately two-thirds of 
these markets would have one or two newspaper-TV combinations.
    Moreover, even in multiple newspaper towns, most newspaper markets 
are dominated by a single paper. We have data on 17 of the 55 two paper 
towns in which the FCC would inappropriately allow mergers. This sample 
of markets is representative of all two-paper towns, with an average 
DMA ranking of 38 compared to 39 for all two-paper cities. We find that 
the number one newspaper has a market share of 80 percent compared to 
15 percent for the number two newspaper.
    This very lax rule holds the prospect of having many markets 
dominated by a single newspaper-TV combination, with few TV stations 
and no prospect of an equal combination being formed in the market. 
Exhibit 10 presents a graphic representation of moderately concentrated 
and highly concentrated markets as a point of reference. Exhibit 11 
presents a graphic picture of the impact that this lax rule would have 
on single paper markets.

Exhibit 10: Graphic Representation Of Concentrated Markets
Moderately Concentrated Market (Nine Equal Sized Competitors)



Highly Concentrated Market (Five Equal Sized Competitors)



Exhibit 11: Impact Of Newspaper-TV Mergers In One-Paper Cities (Based 
        on TV Entertainment HHI and Newspaper Circulation HHI)

Pre-Merger Market



Post-Merger Market



    In a typical one-paper city, the local media giant would have a 90 
percent share of the newspaper circulation, one-third of the TV 
audience, and one-third of the radio audience. No second entity could 
come close to matching this media power. The 36 markets include just 
under 20 million households, or one-fifth of the country. There are 
some very large cities on the list, like Atlanta, Baltimore and New 
Orleans, as well as small cities.
    Applying the framework developed above (treating newspapers and TV 
as equal sources, and weighting radio at 10 percent of the total 
market). The FCC would approve mergers that fracture the Merger 
Guidelines. In one-paper cities, the pre-merger market is highly 
concentrated and the merger would raise the HHI by approximately 1100 
points. Recall that the antitrust authorities believe mergers that 
raise the HHI by 50 points in a market such as this ``are likely to 
create or enhance market power or facilitate its exercise.'' One entity 
would thoroughly dominate the media landscape in these markets, 
accounting for over one-half of the local market. The increase in 
concentration is over twenty times the level that triggers antitrust 
concerns.
    Two-newspaper markets would be somewhat less concentrated, but the 
FCC would still allow excessively high levels of concentration that 
would not support vigorous competition (see Exhibit 12). In the typical 
two-paper town, the dominant firm would have two-thirds of newspaper 
market, and one-third of the TV and radio markets. The second firm 
would be a paper with only one-fifth of the circulation. These cities 
include approximately 25 million households, or about one-quarter of 
the national population.
    This pre-merger market would fall in the just below the highly 
concentrated threshold. The merger would raise the HHI by about 1000 
points. This is over nine times the level that triggers antitrust 
concerns.
    The problems that these mergers pose are obviously not close calls, 
but the difficulty runs deeper (see Exhibit 13). Even if the number 2 
TV stations in either of these types of markets were, which typically 
has a market share of 24 percent, were to combine with the dominant 
newspaper, the increase in concentration would far exceed the threshold 
that triggers concern. In fact, even if the fourth largest station, 
which typically has a market share of 10 percent, were to combine with 
the leading newspaper, the resulting increase in concentration far 
exceeds the antitrust threshold. This supports the observation that it 
is inconsistent to preclude mergers between the top four TV outlets 
under the duopoly rule but not between top four TV stations and 
newspaper for the cross ownership rule.
    Exhibit 14 characterizes the 150 largest markets in which the draft 
order would allow cross-ownership mergers. Almost one half are one or 
two paper cities in which the TV news market is highly concentrated. 
One-sixth are one or two paper markets in which the TV market is 
moderately concentrated. One-quarter has three or more newspapers, but 
the TV market is highly concentrated. In only one-fifteenth of these 
markets is the TV market not highly concentrated and the total local 
news market unconcentrated.

Exhibit 12: Impact of Newspaper-TV Mergers in Two-Paper Cities (Based 
        on TV Entertainment HHI and Newspaper Circulation HHI)

Pre-Merger Market



Post-Merger Market



Exhibit 13: Increase in HHI Caused by Leading Paper-TV Station Mergers 
        (Based on TV Entertainment HHI and Newspaper Circulation HHI)

        
        
Exhibit 14: Most Concentrated News Markets For to Cross-Ownership Under 
        the FCC Draft Order
One or Two Paper Markets Where TV News Market is Highly Concentrated



    Of the 91 one and two paper markets, 71 would have six or fewer 
news voices before a cross ownership merger. In those markets, 
newspapers already can be considered dominant or leading firms. Thus 
the FCC is allowing mergers involving dominant firms in highly 
concentrated markets.
    Moreover, there are many other combinations that should be a source 
of concern. In one-third of the three newspaper cities, there are very 
few TV stations. These markets would become very tight oligopolies (see 
Exhibit 15). These markets represent almost another 3 million 
households.
    In the broader perspective, the FCC approach would allow mergers in 
a total of 79 markets that have six or fewer major media firms. Of the 
140 markets inappropriately opened to mergers, over 100 have either six 
or fewer major local news voices or two or fewer newspapers.
    While the discussion of individual market situation shows the 
problem, it can be complex. We believe that a systematic approach to 
market structure analysis and a rule based on a high competitive 
standard is called for. The next section outlines such an approach.

V. A Responsible Approach To Ownership Limits
    It is clear that the FCC's proposed rules are extremely. We believe 
the record supports a principled approach to market structure analysis 
and a much higher standard. The high standards described above for 
merger policy under the Communications Act can be summarized in two 
principles.

    No mergers between TV stations and newspapers should be 
        allowed if the overall media market in a locality is or would 
        become concentrated as a result of the merger.

    No mergers involving TV stations should be allowed if the 
        TV market in a locality is or would become highly concentrated 
        as a result of the merger.

    Exhibit 16 demonstrates how markets would be categorized for First 
Amendment ownership limits. Implementing the principles requires care.

Exhibit 15: Impact of Newspaper-TV Mergers in Cities with Three Papers 
        and Three or Fewer TV Stations Providing News

Pre-Merger Market



Post-Merger Market



Exhibit 16: Media Market Categorization for Merger Review



Counting Voices in a Total Media Market
    The Courts have suggested that the FCC should adopt a consistent 
methodology for voice counts for all of the rules. The empirical 
evidence supports the proposition that each of the media constitutes a 
separate product. Rules about mergers within those markets can be 
written in terms of the number of voices within the individual product 
and geographic markets, as long as a consistent methodology and 
analytic framework is utilized across all markets.
    However, the cross ownership rule poses more of a challenge. The 
case can be made that TV and newspapers play such important and unique 
roles in civic discourse that they should be kept separate. This paper 
has suggested that if the two are to be allowed to combine, a cautious 
market structure approach should be taken.
    These rules must reflect the reality of the marketplace and should 
promote unconcentrated markets, when all voices are being counted. The 
following formula is consistent with the record before the Commission.
     Voice Count = (Broadcast + Newspaper)/.8)-jointly owned voices
    The important role of newspapers and the closeness of usage in 
local markets lead us to equate TV and newspapers. Market share data 
must be used as the basis for voice counts and can be readily 
translated into voice count equivalents. As an example, consider the 
following calculation, which is actually close to the national average.
    A broadcast HHI of 2000 converts to equal-sized voice equivalents 
of five equal-sized voices (10,000/2000)]. Newspaper HHIs would be 
similarly converted to equal-sized voice equivalents (e.g., an HHI of 
5000 converts to two equal-sized voice equivalents). Thus, treating TV 
and newspapers equally, we start with seven major voices.
    As a first approximation, the Commission could assume the major TV 
and newspaper voices represent 80 percent of the market (based on the 
Nielsen study). Radio is the primary source of news for only ten 
percent of the people. The Internet is given as the most frequent 
source by only six percent of the respondents, but the most frequent 
sites mentioned are the websites of the major broadcasters and 
newspapers. Another four percent of respondents identify other sources 
as their primary means of getting news or refused to answer. To 
continue the previous example, the TV plus newspaper voice count of 7 
voice equivalents represents 80 percent of the market. Therefore, we 
can divide that voice count by .8 to adjust for the lesser voices. This 
increases the voice count to 8.75 (7/.8=8.75).
    This is a generous estimate of the voice count for three reasons. 
First, in many markets there is at least some cross-ownership of radio 
stations by newspapers and TV broadcasters. This should be taken into 
account by increasing the adjustment factor. In the above example, the 
adjustment was .8, based on .1 for radio and .1 for Internet and other. 
If the radio holdings of broadcasters and newspapers have a market 
share of 40 percent of the radio market, then the adjustment for radio 
would be decreased to .06. The voice count would be (7/.84=8.33). 
Second, as noted above, the typical geographic market definitions used 
are too broad. Third, the Internet and other categories do not 
represent independent sources of local news.
    Exhibit 17 shows the estimation of market voices based on this 
approach. There are about one dozen that are unconcentrated. A large 
number falls into the moderately concentrated region.

Reasonable Adjustments To Counting Of Voices
Existing cross-ownership and duopoly situations should be taken into 
        account in the final market-wide voice count
    Ownership of multiple outlets must be taken into account. For 
example, the television HHI would attribute viewers of both stations in 
a duopoly to the parent firm. Similarly, where a newspaper is cross-
owned with a television station, both the TV and newspaper audience 
should be attributed to one owner.

A diminimus exception should be allowed to promote civic discourse
    Relatively small newspaper or television outlets (less than five 
percent market share) should be exempted from the above rules. To the 
extent that larger media outlets seek to obtain cross technology 
partners, this should be allowed as it can increase the availability of 
important voices.
    Similarly, the Commission should keep the traditional failing firm 
exception. Under the principle that it is better to keep a media voice 
that is bankrupt in the market through a merger than to lose it, 
failing firms have been allowed to merge, even where such a merger 
would not otherwise be approved.

The empirical estimate of market structure analysis can be altered if 
        empirical evidence indicates changes are justified
    The above principles are well supported in the record before the 
Commission. They are based on data that can be reviewed and updated on 
a regular basis, as required by the Telecommunications Act of 1996. The 
biennial review process affords the Commission the opportunity to 
systematically and routinely examine the assumptions used in 
constructing the market screens used to determine the markets in which 
mergers will be allowed mergers.

Exhibit 17: Total Media Voices



    Source: See previous Exhibits.

Establishing Thresholds and Market Screens
    Having counted voices, it is important to keep in mind that 
thresholds and market screens apply to the post-merger market. That is, 
if we establish a rule that total local media markets should not be 
allowed to become concentrated, we mean that the total number of voices 
should not be less than ten after the merger. This means that we must 
start scrutinizing mergers when the number of voices reaches eleven, 
since a merger could lower the voice count below the threshold. 
Similarly, in the case of specific product markets, if we adopt a 
policy that prevents markets from becoming highly concentrated, we 
would not want fewer than six voices and we would begin scrutinizing 
mergers when the voice count reached seven.

Market-share based analysis
    The adoption of this approach would make a small number of cross-
ownership mergers possible (see Exhibit 18). Based on the 
unconcentrated total market requirement, about a dozen markets would be 
candidates. Factoring in the requirement that TV markets not be highly 
concentrated, the number of market in which cross-ownership mergers 
would be allowed would fall to fewer than half a dozen.
    The market share based approach would have an impact on the number 
of markets in which TV mergers would be allowed. There are just over 
two dozen such markets. Almost all of these are markets in which 
duopoly mergers would be allowed today. There are just over another two 
dozen markets that pass the current voice count test, but would fail 
the market share based test.

Simple Voice Counts vs. Market Share Weighted Voice Counts
    The above analysis is based on market shares for entertainment. 
Market shares for news are not widely publicly available (although they 
are routinely collected for proprietary purposes). However, a simple 
count of local stations that program news is available. If the FCC were 
to count only those broadcast stations that produce news, the results 
would be similar to the results based on the entertainment market share 
based approach, as Exhibit 19 shows. The reason is that the stations 
with smaller audiences do not contribute much to the HHI. They are also 
the stations that are least likely to provide news.
    If the unconcentrated total market thresholds/moderately 
concentrated thresholds are applied to the simple news voice count 
markets, where both important newspapers and TV stations are counted on 
a simple basis (not market share based), the number of markets where 
cross-ownership mergers would be allowed is similar to the market share 
based analysis, although somewhat different markets could witness 
mergers (see Exhibit 20). In about 20 markets TV mergers would be 
allowed.

Exhibit 18: Two-Pronged Market Standard for Cross-Ownership



Exhibit 19: Simple News Voice Count vs. Market-Share Based, Adjusted 
        Voice Count [(TV+Newspaper)/.8]

        
        
    Source: Newspaper voice count, ``Initial Comments of the Media,'' 
In the Matter of Cross-Ownership of Broadcast Stations and Newspapers; 
Newspaper-Radio Cross-Ownership Waiver Policy: Order and Notice of 
Proposed Rulemaking, MM Docket No. 01-235, 96-197. Television voice 
count, Bruce Owen, Michael Baumann and Allison Ivory, ``News and Public 
Affairs Programming Offered by the Four Top-Ranked Versus Lower Ranked 
Television Stations,'' Comments of Fox, Economic Study A.
Exhibit 20: Market Eligible For Cross-Ownership Mergers
(Cities Surpassing Threshold on Two or More Screens)



Conclusion
    When the FCC abandoned a principled analysis of media market 
structure in favor of political deals, the media ownership proceedings 
lost any hint of intellectual or public policy integrity. The number 
and types of markets in which TV-newspaper mergers would be allowed are 
completely out of line with First Amendment jurisprudence and even 
antitrust principles.
    In order to eliminate or dramatically relax the limits on 
newspaper-TV cross-ownership and TV stations ownership, the FCC must 
take the position that concentrated media markets defined loosely in 
terms of products and broadly in terms of geographic scope are 
acceptable First Amendment policy. It must ignore audience size (market 
shares), ignore actual patterns of media use, and ignore the dramatic 
difference between entertainment and the dissemination of news and 
information. We do not think that this is consistent with the 
Communications Act or the recent court remands of ownership rules.
    We conclude that the ``empirical gap,'' to which D.C. Appeals Court 
referred in the Sinclair decision has been closed.\21\ The hard data 
and evidence on the record does not support the rules the FCC has 
proposed. A set of rules that restricts merger activity to a small 
number of markets is well justified on the basis of the empirical data. 
If the empirical record shows anything, it shows that lax antitrust 
enforcement and First Amendment policy have allowed media markets to 
become far too concentrated. Democratic discourse demands many more 
media voices.

Endnotes
    \1\ Associated Press v. United States, 326 U.S. 1, 20 (1945).
    \2\ Associated Press v. United States, 326 U.S. 1, 20 (1945).
    \3\ Sinclair Broadcasting, Inc. v. FCC, 284 F.3d 148 (D.C. Circ. 
2002) (hereafter Sinclair).
    \4\ Fox Television Stations, Inc. v. FCC, 280 F.3d 1027 (D.C. Circ. 
2002) (hereafter Fox v. FCC); Sinclair.
    \5\ Fox v. FCC, pp. 12-13.

        The networks . . . argue that the Rule fails even rationality 
        review because ``[P]ermitting one entity to own many stations 
        can offer . . . more programming preferred by consumers''. . . 
        but for the Rule ``buyers with superior skills [could] purchase 
        stations where they may be able to do a better job'' of meeting 
        local needs even as they realize economies of scale.

        This paean to the undoubted virtues of a free market in 
        television stations is not, however, responsive to the question 
        whether the Congress could reasonably determine that a more 
        diversified ownership of television stations would likely lead 
        to the presentation of more diverse points of view.

    \6\ Fox v. FCC, p. 13.
    \7\ Sinclair, p. 15.
    \8\ 395 U.S. 388 (1969).
    \9\ Sinclair, p. 11.
    \10\ The ongoing proceedings include Cross-Ownership of Broadcast 
Stations and Newspapers, MM Docket No. 01-235; Newspaper/Radio Cross 
Ownership Waiver Policy, MM No. 98-82; Rules and Policies Concerning 
Multiple Ownership of Radio Broadcast Stations in Local Markets, MM 
Docket No. 01-317.
    \11\ Telecommunications Act of 1996, Pub. LA. No. 104-104, 110 
Stat. 56 (1996), 202(h).
    \12\ Fox erroneously establishes a far more stringent legal test 
than actually contemplated by Congress in enacting Section 202(h). 
First, Fox improperly treated the 2000 Biennial Review Report as 
reviewable agency action. Second, Fox treated Section 202(h) as 
creating a different review standard than would otherwise be required 
under the Administrative Procedure Act (APA) for review of an agency 
decision not to repeal a rule. Third, the Fox decision ignored the 
clearly defined framework of the statute in vacating the Commission's 
cable-broadcast cross-ownership rule. The only remedy contemplated by 
Section 202(h) upon a finding that a regulation no longer serves the 
public interest is a rulemaking to determine what rule, if any, would 
be appropriate. The net effect of the Fox decision is to undermine the 
public's rights under the APA by denying the opportunity to create a 
record to justify a particular rule in response to a targeted Notice of 
Proposed Rulemaking. The D.C. Circuit Court in Fox found that 
protecting diversity and safeguarding competition can be the proper 
basis for promulgating and preserving media ownership rules, but 
insisted that the Commission must present better evidence for those 
rules if the burden of Sec. 202(h) is to be met. We agree with the 
FCC's interpretation of the statute set forth in its Petition for 
Rehearing or Rehearing En Banc in Fox: the D.C. Circuit court has 
misapplied Sec. 202(h), creating a counter-intuitive and nonsensical 
situation where there is a higher standard to retain an existing rule 
than to adopt it in the first instance. As the FCC correctly notes, 
this misguided interpretation would impose a ``substantial and 
continuing burden on the agency that threatens administrative 
paralysis. This result is not compelled by the language of the statute 
or by its legislative history.'' Id. at 2.
    \13\ Judge Sentelle,'' Concurring and Dissenting in Part,'' 
Sinclair Broadcast Group, Inc. v. Federal Communications Commission, 
April 2, 2002. The Washington Post echoed this concern, offering the 
following observation on things to come under the headline Narrowing 
the Lines of Communications, February 24, 2002.

        The decisions will give added support to FCC Chairman Michael 
        K. Powell, who views such restrictions as anachronisms in an 
        era of Internet, broadband and satellite technology . . . Any 
        excess concentration, Powell argues, can be handled by the 
        Justice Department in its traditional role as enforcer of the 
        antitrust laws.

    \14\ The difference between simple economics under the antitrust 
law and civic discourse under the Communications Act is woven into the 
fabric of the statutes. Under the antitrust laws, mergers may be 
``prohibited if their effect may be substantially to lessen competition 
or to tend to create a monopoly,'' or ``if they constitute a contract, 
combination . . ., or conspiracy in restraint of trade,'' or 
``constitute an unfair method of competition'' (U.S. Department of 
Justice and the Federal Trade Commission, Horizontal Merger Guidelines, 
1997, section 0); The standard under the Communications Act is higher, 
reflecting the special role of communications and mass media in our 
democracy. The Federal Communications Commission is charged to transfer 
cable, broadcast and telecommunications licenses only upon a ``finding 
by the Commission that the public interest, convenience and necessity 
will be served.'' (U.S.C., 47, 310(b)).
    \15\ William G. Shepherd, The Economics of Industrial Organization 
(Englewood Cliffs, NJ: Prentice Hall, 1985), p. 389, gives the 
following formula for the Herfindahl-Hirschman Index (HHI):



        where

        n = the number of firms

        m= the market share of the largest firms (4 for the four firm 
        concentration ratio)

        Si = the share of the ith firm.

    \16\ The HHI can be converted to equal-sized equivalents as follows

        Equal-sized voice equivalents = (1/HHI)*10,000.

    \17\ U.S. Department of Justice and the Federal Trade Commission, 
Horizontal Merger Guidelines, 1997, section 1.51.
    \18\ Id., section 0.1.
    \19\ Sinclair, p. 5.
    \20\ Leonard Downie, Jr. and Robert G. Kaiser, The News About the 
News (New York: Alfred A. Knopf, 2002), p. 125.
    \21\ Sinclair, p. 5.

    The Chairman. Thank you.
    Dr. Mikkelsen.

STATEMENT OF DR. KENT W. MIKKELSEN, VICE PRESIDENT, ECONOMISTS, 
                              INC.

    Dr. Mikkelsen. I am pleased to have an opportunity today to 
present an economist's perspective on three media ownership 
issues, the broadcast television national ownership cap, the 
so-called duopoly rule, and the ban on newspaper-broadcast 
cross-ownership. I have been looking at these issues for nearly 
20 years. I have worked for clients with an interest in these 
rules, including broadcast networks and the Newspaper 
Association of America, but I am not representing any clients 
here today.
    Economists and society as a whole generally believe in free 
markets. Individuals and firms acting in their own self-
interest will generally produce socially desirable outcomes. A 
totally free market is not always best. An exception to the 
rule is in the area of competition. Economic theory teaches 
that competing firms have an incentive to combine together, 
reduce competition, and raise their profits at the expense of 
consumers. The antitrust laws are designed to prevent such a 
concentration from occurring.
    These laws are justified by the clear potential for what 
economists call market failure. The antitrust agencies have 
developed regular, widely accepted procedures for determining 
whether or not a particular merger or joint ownership situation 
is likely to reduce competition significantly. As a rule of 
thumb, five to six equal-sized firms or a larger number of 
unequal-sized firms is considered sufficient to safeguard 
competition.
    The agencies do not attempt to maximize the number of 
competitors by opposing all mergers. Mergers and joint 
ownership can yield benefits to consumers in the form of 
improved product offerings and lower costs. In addition, 
economic freedom should not be curtailed unless there are clear 
compelling benefits to be gained. For these reasons, only 
mergers that are likely to reduce competition significantly 
should be opposed.
    One of the reasons given for the FCC media ownership rules 
under review today is that they protect competition. In my 
view, they are not needed to preserve this function. Broadcast 
stations compete locally to attract audience and advertisers 
and to acquire local programming rights. It is possible that a 
merger of two television stations in the same market or the 
purchase of a broadcast station by a local newspaper could 
significantly reduce competition, particularly in a smaller 
local market with relatively few media outlets, but there are 
other markets in which such a merger would raise no competitive 
problem.
    These are precisely the issues of ownership concentration 
and competition that the antitrust agencies routinely deal with 
in enforcing the antitrust laws. There is no need for a 
separate set of competition standards for media, nor is there 
any need for a one-size-fits-all restriction such as the 
duopoly rule and the cross-ownership ban.
    Diversity is offered as a second basis for the FCC's 
ownership rules. I find it instructive to contrast the 
competition and diversity rationales. First, competition policy 
is justified by clearly identified market failure. In contrast, 
I do not know that anyone has shown there is a corresponding 
market failure that leads the market to produce the wrong 
amount of diversity.
    Second, unlike with competition, there is no sound 
theoretical basis for linking deconcentrated station ownership 
to content diversity or viewpoint diversity. Often maximizing 
station owners do not typically enforce their viewpoints on 
their stations. Instead, they provide the diversity their 
audiences demand.
    Note that the national television ownership cap does not 
bear on any competition or diversity issues whatsoever. 
Competition among television stations and other media outlets 
occurs at a local level. Audience coverage across multiple 
markets does not affect local competition. Likewise, the 
diversity available to an individual consumer is determined in 
a local market and is not affected by ownership in other 
markets.
    Finally, a third FCC objective, localism, is advanced when 
stations provide programming, including news, that serves the 
needs and interests of their community. All media outlets have 
strong economic incentives to provide programming appealing to 
their local audiences. Local ownership is not required, and if 
it were, the ownership rules under consideration today would be 
poor tools to ensure local ownership. There is no reason to 
think that eliminating these rules would decrease localism. To 
the contrary, there is evidence that news and public affairs 
programming would increase if the rules were removed.
    In conclusion, competition in broadcasting can be preserved 
using antitrust standards without the need for one-size-fits-
all restrictions like the duopoly and cross-ownership rules. 
If, in selected markets, ownership concentration were allowed 
to rise to somewhat higher levels consistent with antitrust 
standards, I see no reason to think that the associated amount 
of diversity provided by broadcast stations and other sources 
would be insufficient. No separate ownership standard based on 
diversity is warranted. The national television ownership cap, 
which serves neither competition nor diversity, should also be 
removed. None of the rules are needed to promote localism.
    Thank you.
    [The prepared statement of Dr. Mikkelsen follows:]

 Prepared Statement of Kent W. Mikkelsen, Vice President, Economists, 
                                  Inc.

    I am pleased to have an opportunity to present an economist's 
perspective on three media ownership issues now being considered by the 
Committee: the broadcast television national ownership cap, the so-
called ``duopoly'' rule and the ban on newspaper-broadcast cross-
ownership.
    A few brief words about my background would be in order. I received 
a Ph.D. in economics from Yale University in 1984. I was an economist 
in the Antitrust Division of the U.S. Department of Justice, analyzing 
competition issues. Since 1986 I have been employed by Economists 
Incorporated, an economic research and consulting firm located in 
Washington D.C., where I am a vice president. I have been examining 
competition and regulatory issues in media, including broadcast and 
newspapers, for 19 years. Economists Incorporated is currently retained 
by Fox, NBC and Viacom to conduct research and analysis related to the 
ownership rules now before the Federal Communications Commission. I 
have previously been retained by the Newspaper Association of America 
to analyze newspaper-broadcast cross-ownership issues. However, the 
views I express today are my own; I am here on behalf of none of my 
clients.
    Among economists, there is a general presumption that in a free 
market, the self-interested actions of individuals and firms will lead 
to socially desirable amounts and types of goods and services being 
produced as efficiently as possible.
    Exceptions to this general presumption can occur due to what 
economists call ``market failure.'' Market failure can occur, for 
instance, when too much or too little of some good is produced because 
economic actors do not fully internalize the costs or the benefits of 
their actions. Of particular interest today is another type of market 
failure referred to as problems of monopoly or market power. In many 
industries, firms could increase their profits by combining to reduce 
or eliminate competition among themselves. The participating firms get 
higher profits, but consumers suffer through higher prices and inferior 
products and services. For this reason, the antitrust laws were 
designed to discourage or prevent firms from significantly reducing 
competition. These laws are justified by this potential market failure.
    Economic theory teaches that competition can be threatened if 
economic activity in a market is concentrated into the hands of a small 
number of firms. Generally speaking, the larger the number of firms in 
the market, and the more similar the firms are in size, the greater is 
the likelihood that competition will prevail (other things being 
constant). Thus, there is a clear theoretical link between the 
structure of ownership in the market and the presence of competition.
    The U.S. Department of Justice and the Federal Trade Commission, 
the two main Federal antitrust agencies, have developed a standard 
methodology to identify changes in ownership structure that can 
potentially reduce competition. Their ``Horizontal Merger Guidelines'' 
are also widely used elsewhere in analyzing competition issues. At the 
risk of oversimplification, I would like to very briefly describe the 
analytical process.

   The first step is to determine all the products and services 
        in which the merging parties compete.

   Next, one determines who else competes. That is, one 
        determines what other products and services are close 
        substitutes in use and are available in the relevant geographic 
        area.

   Having identified the relevant products and competing 
        providers, the next step is to assess the concentration of 
        ownership among the providers. Concentration is usually 
        measured using an index based on the market shares attributable 
        to each separate owner in the market, using actual sales shares 
        or shares based on capacity.

   The measured concentration level is then compared with 
        external standards. While there are other factors that are also 
        considered, the Federal agencies that routinely analyze mergers 
        have identified as a minimum threshold the concentration level 
        that would exist in a market with 5-6 equal-sized firms, or 
        some larger number of unequal-sized firms, depending on the 
        degree of inequality.

   Based on the results of this analysis, an antitrust agency 
        would decide whether a proposed merger was likely to result in 
        a significant decrease in competition. If so, the agency would 
        likely oppose or seek modification of the proposed merger.

    Please note that the antitrust agencies do not attempt to 
``maximize'' the number of competitors. Against the possibility that 
competition would not be preserved if two firms merged, competition 
policy recognizes that mergers and joint ownership can yield benefits 
to consumers in the form of improved product offerings and lower costs. 
It is also recognized that economic freedom should not be curtailed 
unless there are clear, compelling benefits to be gained. For these 
reasons, the antitrust agencies only oppose those mergers that are 
judged likely to have a significant impact on competition.
    One of the reasons given for the FCC media ownership rules now 
under review is that they protect competition. In my view, they are not 
needed to serve this function.
    Competition among television stations to attract viewers and 
advertisers and to acquire local programming rights occurs at a local 
level. It is possible, particularly in smaller local markets with 
relatively few media outlets, that competition would be significantly 
reduced if two television stations that now have different owners were 
brought under common ownership. Competition might also be reduced in 
specific markets if a television station or radio station were to be 
acquired by the owner of a local newspaper. But these are precisely the 
issues of ownership concentration and competition that the antitrust 
agencies routinely deal with in enforcing the antitrust laws. There is 
no need for a separate set of competition standards for media. Nor is 
there any need for one-size-fits-all restrictions such as the 
``duopoly'' rule and the cross-ownership ban. Joint ownership of two of 
the leading television stations in a market, or cross-ownership of a 
newspaper and a broadcast station, need not significantly reduce 
competition in local markets with many media outlets.
    In individual cases, joint ownership could be beneficial despite 
producing concentration levels that would appear troubling. If joint 
ownership or operation is necessary to bring stations on the air that 
would otherwise not be broadcasting or would be insignificant as a 
competitive force, joint ownership is probably not anticompetitive. 
Joint ownership or operation can also enable stations to provide 
superior services that would not be economical for either station to 
offer by itself on a stand-alone basis. Such gains may outweigh 
competitive concerns. But this can best be determined by looking at 
each specific case.
    Finally, the national television ownership cap does not bear 
significantly on any competition issues whatsoever. Competition among 
televisions stations and other media outlets occurs at a local level. 
Competition in one local market is not reduced if one of the stations 
in the local market is jointly owned with a station in another market.
    Another reason offered for the media ownership rules is to promote 
diversity. I find it instructive to contrast the competition and 
diversity rationales.
    First, the justification for a competition policy is ``market 
failure.'' I do not know of a corresponding rationale that demonstrates 
that the amount of diversity produced by economic agents in the market 
is or would tend to be too small.
    Second, unlike with competition, there is no sound theoretical 
basis for linking deconcentrated station ownership to the types of 
diversity the Commission is concerned about. It is presumed that, with 
a given number of stations, content diversity will be greatest if all 
stations are separately owned. However, it is equally plausible to 
believe that, if one party owned several stations, it would purposely 
diversify the offerings on its stations so as to increase the overall 
audience it would attract.
    The link between ownership diversity and viewpoint diversity is 
equally tenuous. Station owners do not typically enforce their 
viewpoint on their stations. If we assume profit-maximizing behavior, 
diversity in the audience seems to dictate that there will be diversity 
of viewpoints expressed on each station, as well as diversity across 
stations. Furthermore, station managers and news directors usually 
determine what is aired, not the corporate owners.
    Even if it could be demonstrated that deconcentrated ownership 
resulted in increased diversity, this would not justify what I will 
call an ``absolutist'' approach to diversity, i.e., if diversity is 
good, then a policy that leads to more diversity must be preferred to a 
policy that yields less diversity. Such an absolutist approach is not 
the basis for sound decision-making. To illustrate with an example, 
most people would agree that safety is a desirable goal. Nevertheless, 
we do not adopt policies that ``maximize'' the amount of safety. 
Mandating speed limits of 25 mph everywhere, or imposing restrictive 
licensing that would sharply reduce the number of cars on the road, 
would both likely increase traffic safety. We choose not to adopt these 
policies, however, because the cost in inefficiency and loss of 
personal freedom is judged to be too high. Similar balancing is needed 
in the pursuit of diversity or any other social goal.
    As with competition, it is difficult to find any connection at all 
between diversity concerns and the national television broadcast 
ownership cap. What matters to diversity is the range of viewpoints 
available to individuals. That range is not diminished when a local 
media outlet available to an individual is jointly owned with another 
media outlet in another geographic area that is not available to the 
individual.
    A third FCC objective is localism. I understand this objective to 
be that stations will provide programming, including news and public 
affairs programming, that serves the needs and interests of their 
community. All media outlets have strong economic incentives to respond 
to the needs of their local audiences. Local ownership is not required 
to achieve local responsiveness; if local ownership were necessary, the 
ownership rules under consideration would be very inefficient tools to 
bring it about. There is no reason to think that cross-ownership of a 
broadcast station and a newspaper in a market, or joint ownership of 
two television stations in a market, would decrease localism. To the 
contrary, there is evidence that a television station that is jointly 
owned or operated with another local television station is more likely 
to carry news and public affairs programming. No one has shown that 
lifting the national television broadcast ownership cap would lead to 
less localism.
    In conclusion, competition in media can be preserved using 
antitrust standards without the need for one-size-fits-all restrictions 
like the ``duopoly'' rule and the cross-ownership ban. If, in selected 
markets, ownership concentration were allowed to rise to somewhat 
higher levels consistent with competition standards, I see no reason to 
think that the associated amount of diversity provided by broadcast 
stations and other sources would be insufficient. No separate ownership 
standard based on diversity is warranted. The national television 
ownership cap, which serves neither competition nor diversity, should 
also be removed. None of the rules is needed to promote localism.

    The Chairman. Thank you.
    Mr. Fontana, welcome.

            STATEMENT OF THOMAS FONTANA, PRESIDENT,

         FONTANA-LEVINSON ON BEHALF OF WRITERS GUILD OF

        AMERICA, EAST, THE CAUCUS FOR TELEVISION WRITERS

         & DIRECTORS, AMERICAN FEDERATION OF TELEVISION

                       AND RADIO ARTISTS

    Mr. Fontana. Thank you very much. Hello to everybody. Thank 
you, Chairman McCain, for allowing me to speak, and Senator 
Hollings and the rest of you. My name is Tom Fontana. I am on 
the Council of the Writer's Guild of America, East, and I am 
also a representative of the Caucus of Television Producers, 
Writers, and Directors. Somewhere behind me is John Connolly, 
the President of AFTRA, and Mona Mangan, the Executive Director 
of the Writers Guild of America, East.
    Obviously, I have never done this before, so bear with me. 
I think the last time I wore a tie was when I got married.
    [Laughter.]
    Mr. Fontana. In the past 22 years, I have produced and 
written numerous television programs, from the gritty realism 
of Homicide: Life on the Street, to the religious fable, The 
Fourth Wise Man, and to America: A Tribute to Heroes, and I 
really have to tell you that in the past day-and-a-half, since 
it was discovered that I was going to be speaking before you, I 
realized your jobs are a lot harder than I ever thought, 
because I suddenly found out I had a constituency, and I have 
been getting faxes and phones and e-mails from a wide range of 
people with a lot of opinions, and I am going to try to boil 
all of that down to a simple fact.
    I am a small businessman, and unlike my father, who ran a 
bar, I am blessed to be able to work in a profession that I 
love, in an industry that I love, and I do think of it as an 
industry. I know it is a business, and I guess the question 
that I came here to ask is what kind of business is it going to 
be in the years to come?
    I think the answer lies somewhere in the past. It usually 
does. Twenty years ago, I worked for the best independent 
production company in the history of television, Mary Tyler 
Moore Enterprises, or MTM. You know, Mary and Rhoda, Bob 
Newhart, Hill Street Blues, and the show I did, St. Elsewhere. 
Ten years ago I started making Homicide for Reeves 
Entertainment, and 6 years ago I created Oz for Rysher, 
Incorporated.
    Now, what do these three independent production companies 
have in common? They are all out of business. They have all 
been bought by large conglomerates, as a result in part of the 
elimination of the Fin-Syn rules. Eight years ago, after much 
public debate, the Fin-Syn rules were dropped, and at that 
time, the heads of the major networks assured us that nothing 
would change.
    Here is what has actually occurred. In 1992, 15 percent of 
new prime time series were produced by the major networks. Ten 
years later, 2002, that number increased five times to 77 
percent. In 2002, only one new series, Dinotopia, which I am 
sure you all watched----
    [Laughter.]
    Mr. Fontana.--was completely produced, was the only show 
completely independent, not produced in any way, shape or form 
by a conglomerate, and it was almost immediately canceled.
    To go back to MTM for a second, it was an independent not 
just because it was not owned by anybody else, but because 
Grant Tinker made decisions based on both business savvy and a 
passion for quality. Grant was fearless when fighting against 
the dumbing-down of his products. He could afford to be strong 
because he had no corporate structure to answer to. As a 
result, his extraordinary vision nurtured several generations 
of TV's best talent, including many minorities and women, but 
as I said, MTM is no more.
    Big is not necessarily bad, but sometimes by deregulating a 
big business, you can choke the life out of a small one, and 
with that, you lose energy, imagination, and the 
entrepreneurial spirit. An example of that is Norman Lear's 
landmark series, All in the Family. Rejected by ABC, Mr. Lear 
took his idea to CBS. Because ABC did not own or control Mr. 
Lear's production company, he was free to take his show 
elsewhere, and I think we are all richer for the freedom he 
enjoyed.
    Another example is The Cosby Show. When Marcy Carsey first 
presented The Cosby Show to the network executives, they wanted 
to turn the middle-class Dr. Huxtable into a cigar-smoking Las 
Vegas entertainer. Cosby and Carsey stuck by their guns and 
went to another network, NBC. They could do that because they 
were protected by the FCC rules.
    Without Fin-Syn, many other fundamental practices in our 
industry have corroded over time, so rather than eliminate the 
rules we have, I am going to be bold enough to encourage you to 
establish a program source diversity rule which would require 
that broadcast networks and cable or satellite programming 
services purchase a specific percentage of their prime time 
programming from independent producers. By independent, I mean 
not owned in whole or in part by a company affiliated with a 
network or the distributor. Without such a rule, competition 
and diversity in my business will become a fiction.
    But simply adding a new rule is not enough. As you heard, 
we need to keep the national TV ownership cap at 35 percent, 
and the duopoly rule in place. Why? Because the leaders of the 
media are telling us once again that eliminating these rules 
will not hurt the industry. Well, I think, what are they going 
to say? It is unfair and unreasonable for us to expect any 
businessman to police himself. To do so would contradict the 
very model of capitalism that dictates corporate growth. It is 
not the job of business to protect us, it is the job of 
Government. Why? Television is democracy, it is our only 
national town hall.
    Television is where divergent points of view can be 
expressed, where conflicting opinions can be argued not just 
within one segment of Meet the Press, but from program to 
program. The brutality of NYPD Blue is balanced by the 
spirituality of Touched by an Angel, yet NYPD Blue would never 
have made the CBS schedule, and Touched by an Angel would have 
never aired on NBC.
    People will say there is diversity simply by the sheer 
number of networks currently available, but those channels are 
owned and controlled by a smaller and smaller number of 
companies, and in reality, many series are now repurposed, with 
episodes airing on cable several days after their broadcast 
premier. These shows, however, are not offered for sale on the 
open market, as has been traditionally done, but are 
automatically going to an entity tied corporately to the major 
network.
    For example, the ABC series, Life With Bonnie, was 
repurposed on the Family Channel because Disney owns both the 
broadcast network and the cable network. Back alley deals 
diminish a program's long-term value, but the need for 
diversity in television has a much larger reach. My series, Oz, 
is extremely popular all over the world, including such 
countries as Israel, Canada, and Italy. Entertainment is the 
second-largest product exported by this country after 
aerospace. In order for us to maintain our leadership in an 
industry so vital to our economy, we must ensure the quality of 
the product, and quality only comes through diversity and 
competition.
    By changing the rules, television will not get better, not 
for me as a writer/producer, not for me as a viewer, not for me 
as a stockholder, and not for me as an American, so I ask you 
to think long and hard before you allow history to be so 
dangerously rewritten. Five companies should not be permitted 
to own all the voices on the airwaves.
    Thank you.
    [The prepared statement of Mr. Fontana follows:]

 Prepared Statement of Thomas Fontana, President, Fontana-Levinson on 
  behalf of Writers Guild of America, East, The Caucus for Television 
   Writers & Directors, American Federation of Television and Radio 
                                Artists

    First, I want to thank Chairman McCain, Senator Hollings and the 
members of the Committee for giving me the opportunity to speak.
    My name is Tom Fontana. I am a Council Member of the Writers Guild 
of America, East and a representative of the Caucus for Television 
Producers, Writers and Directors. In the past twenty-two years, I have 
produced and written numerous television programs, from the gritty 
realism of Oz and Homicide: Life on the Street to the religious fable 
The Fourth Wiseman to America: A Tribute to Heroes.
    I'd like to start by saying that for the first time in my life, I 
have a much greater appreciation of what you Senators go through to do 
your jobs. After it was decided that I would be appearing before this 
Committee, I started to hear from my constituency: I have been flooded 
with phone calls, e-mails, faxes, facts, figures--the amount of input 
is staggering.
    But the simple truth is this: I am a small businessman. Instead of 
running a bar, like my father, I have been blessed, doing work that I 
love. I am proud to be a part of the entertainment industry. Yes, I say 
industry. I know that television is a business. The question is what 
kind of business will it be in the years to come. The answer, as usual, 
lies in the past.
    Over twenty years ago, I worked for the best independent production 
company that ever existed--MTM--Mary Tyler Moore Enterprises. Mary and 
Rhoda, Bob Newhart, Hill Street Blues and, the series I did, St. 
Elsewhere. Ten years ago I started making Homicide for Reeves 
Entertainment. Six years ago, I created Oz for Rysher, Incorporated.
    What do these three independent production companies have in 
common? They are all out of business, swallowed up by conglomerates, in 
part, as a result of the elimination of the Fin-Syn rules.
    Eight years ago, after much public debate, the Fin-Syn rules were 
dropped. At the time, the heads of the major networks assured us that 
nothing would change.
    Here's what has actually occurred:

   In 1992, 15 percent of new prime time series were produced 
        by the major networks;

   By 2002, that number increased over 5 times to 77 percent;

   In 2002, only one new series, Dinotopia, was completely 
        produced independent of a conglomerate. It was soon cancelled.

    MTM was an independent not just because it wasn't owned by anyone 
else, but because Grant Tinker made decisions based on both business 
savvy and a passion for quality. Grant was fearless when fighting 
against the dumbing down of his products. He could afford to be strong, 
he had no corporate structure to answer to. His extraordinary vision 
nurtured several generations of TV's best talent, including many women 
and minorities. But, as I said, MTM is no more.
    Big is not necessarily bad. But sometimes by deregulating a big 
business, you can choke the life of a small one. And with that you lose 
energy, imagination and entrepreneurial spirit of that small business.
    Norman Lear's landmark series, All In The Family, is another 
example of that spirit. Rejected by ABC, Mister Lear took his idea to 
CBS. Because ABC did not own or control Mister Lear's production 
company he was free to take his show elsewhere and I think we are all 
richer for the freedom he enjoyed.
    Another example is The Cosby Show. When Marcy Carsey first 
presented The Cosby Show to network executives they wanted to turn 
Doctor Huxtable into a cigar smoking Las Vegas entertainer. Cosby and 
Carsey stuck to their guns and went to NBC. They could do that because 
they were protected by FCC rules.
    Without Fin-Syn, many other fundamental practices in our industry 
have corroded over time. So, rather than eliminate the rules we have, I 
encourage you to establish a Program Source Diversity Rule, which would 
require that broadcast networks and cable or satellite programming 
services purchase a specific percentage of their prime time programming 
from independent producers. By independent I mean, not owned in whole 
or, in part, by a company affiliated with a network or distributor. 
Without such a rule, competition and diversity will become a fiction.
    But simply adding a new rule is not enough: the rules currently in 
place must be maintained. In particular, the National TV Ownership cap 
must remain at 35 percent and the Duopoly Rule must remain intact in 
order to prevent the homogenization of local TV.
    The media giants are once again telling us that eliminating these 
rules will not hurt the industry. What else can they say?
    I think it's unfair and unreasonable for us to expect businessmen 
to police themselves. To do so would contradict the very model of 
capitalism that dictates corporate growth. It is not the job of 
business to protect us, it's the government's.
    Television is democracy, it is our only national town hall. 
Television is where divergent points of view can be expressed, where 
conflicting opinions can be argued, not just within one segment of Meet 
The Press, but from program to program. The brutality of NYPD Blue is 
balanced by the spirituality of Touched By An Angel. Yet, NYPD Blue 
would have never made the CBS schedule and Touched by an Angel would 
have never aired on NBC. Certain shows can only exist at certain 
networks, either because of branding or because of some executive's 
individual taste.
    People will say there's diversity simply by the sheer number of 
networks currently available, both broadcast and cable. But those 
channels are owned and controlled by a smaller and smaller number of 
companies. And in reality, many series are now ``repurposed'', with 
episodes airing on cable several days after their broadcast premiere. 
These shows, however, are not offered for sale on the open market as 
has traditionally been done, but are automatically going to an entity 
tied corporately to the major network. For example, the ABC series Life 
With Bonnie was repurposed on the Family Channel because Disney owns 
both the broadcast network and the cable network. Back alley deals 
diminish a program's long-term value.
    But the need for diversity in television has an even larger reach. 
My series Oz is extremely popular in such countries as Israel, Canada 
and Italy. Entertainment is the second largest product exported by this 
country after aerospace. In order to maintain our leadership, in an 
industry so vital to our economy, we must ensure the quality of the 
product. And quality only comes through diversity and competition.
    By changing the rules, television will not get better. Not for me, 
as a writer and producer. Not for me, as a viewer. Not for me, as a 
stockholder. Not for me, as an American.
    So, I ask you to think long and hard before you allow history to be 
so dangerously rewritten. Five companies should not be permitted to own 
all of the voices on our airwaves.
    I wish to quote from a fellow Italian American more famous than I 
in these halls and ask you to listen to the advice of one the 
industry's wisest statesman:

        Unless we knowingly abuse the essentials of a free and living 
        land, our government must, at all costs and in spite of all 
        pressure, never allow a tiny group of corporate entities, no 
        matter how seemingly benign the management, to establish 
        dominion over what is seen on television.

    I agree with these sentiments that were originally presented to 
this Committee by Mr. Jack Valenti on June 1989.
    Thank you for your kind attention.

    The Chairman. Thank you, Mr. Fontana. That is a good-
looking tie.
    [Laughter.]
    Mr. Fontana. Thank you very much. I have to get it back 
this afternoon.
    [Laughter.]
    The Chairman. Mr. Murdoch, Mr. Kimmelman states in his 
written testimony, and I quote--and by the way, we will stick 
to 5 minutes. We will have additional rounds. I will try not to 
go over, and I will ask my colleagues to do the same.
    Mr. Murdoch, Mr. Kimmelman says, quote, while News Corp. 
Fox has agreed to abide by the FCC's program access 
requirements, this pledge could end up being nothing more than 
a tool for pumping up cable prices. There is absolutely nothing 
that would prevent News Corp./Fox from raising the price that 
it charges itself on its satellite system in return for 
increased revenues from the other 70 million cable households. 
If the cable system refuses to pay the increased price, then 
New Corp./Fox would be able to threaten cable operators to use 
its newly acquired satellite system to capture market share 
away from cable in those communities.
    Would you respond to that, please?
    Mr. Murdoch. Thank you, Mr. Chairman. I would be delighted. 
I am surprised at Mr. Kimmelman's ignorance of how things work, 
although I do not mean to be insulting to him.
    [Laughter.]
    Mr. Murdoch. The fact of the matter is, we are only buying 
34 percent of Direct Television. A majority of the directors 
will be independent directors with no connections to News 
Corporation at all. The Audit Committee will be 100 percent 
manned by those independent directors, and it is absolutely 
impossible for us to do what he suggests, and as the 
legislators in this country, you will all know the penalties 
that exist in the Sarbanes-Oxley Act should we try to rip off 
our company and use our shareholding for what Mr. Kimmelman 
suggests. It would be go-to-jail time, and there is no interest 
or possibility of that.
    We have the same situation, as a matter of fact, in 
Britain--I will just give a little anecdote, if I may indulge 
you, seek your indulgence--where we have 36 percent of BSkyB, 
and it has taken us 3 years to get only last week an agreement 
with BSkyB to carry a Fox channel for 7 cents a month. I can 
assure you there is a lot of blood on our corporate floors over 
that, so it is just not possible to do what Mr. Kimmelman 
suggested legally, or in our economic interest or in anybody's 
interest.
    The Chairman. Mr. Kimmelman, by the way, we are in 
agreement that the change in the FCC rules will trigger a wave 
of consolidations. Is there any disagreement to that, even you, 
Dr. Mikkelsen? There will be purchases by newspapers of 
television stations, et cetera. That is the whole reason why 
they are seeking relaxation of these rules, right?
    Dr. Mikkelsen. I am sure if no one wanted to make any 
acquisitions there would not be any interest in relaxing the 
rules. I do not know if I would characterize it as a wave.
    The Chairman. Thank you. Thank you.
    Go ahead, Mr. Murdoch.
    Mr. Murdoch. If I could interrupt, I certainly have no 
plans for anything other than what I have before you today.
    [Laughter.]
    The Chairman. Thank you.
    Mr. Kimmelman. If I may respond, Mr. Chairman, there are a 
couple of hundred newspapers abroad that you own, Mr. Murdoch. 
I guess at some point you owned 100 or 50?
    Mr. Murdoch. That would include----
    Mr. Kimmelman. Apparently you have a pretty good appetite 
for acquisitions. I am not suggesting anything illegal. I want 
to make it clear, I am not suggesting violations of any laws, 
but since the last time I supported Mr. Murdoch's effort to try 
to compete against cable, a number of things have happened.
    When he initiated that process, he got quite a strong 
reaction from the cable industry. They did not really like it. 
He changed his mind. He decided he was going to try to sell his 
satellite capacity to PrimeStar Properties, owned by the cable 
industry. The Justice Department did not really like that idea 
of having cable-owned satellites, and they blocked it, and in 
their complaint to block that transaction, they quote from 
someone you know well, Mr. Malone. And if I may I would just 
like to quote it.

        There is some kind of peace in which Rupert gets what 
        he wants, which is broader distribution of his 
        programming network, in exchange for which he is not 
        quite as aggressive in DBS.

    Well, when the deal was made, before Justice intervened, 
the Justice Department found more information from Mr. Malone, 
quote----
    The Chairman. Make your point.
    Mr. Kimmelman. Malone testified, this agreement, in effect, 
resolved the difference between Murdoch and the cable industry 
because, quote, it just really says, hey guys, I am not Darth 
Vader any more. If you carry my programming, you will not be 
subsidizing the enemy, and therefore feel free to treat me as a 
friend, not as an enemy, although the written agreement did not 
so specify, at about the time the agreement was reached, 
certain PrimeStar partners' cable systems began to widely carry 
Murdoch's program networks.
    The Chairman. Dr. Mikkelsen, I would like you also to 
respond, but at the same time, because I am trying to stay 
within a reasonable time here. I received a letter from Diane 
English, the developer of the TV show, Murphy Brown. Ms. 
English states that she left series television in 1998 after 
Fox told her it would not put her pilot on the air unless she 
made a production deal with Fox's sister company, 20th Century 
Fox, for far less than what she paid for producing Murphy 
Brown.
    In order to have a television series picked up by a 
network, are networks forcing writers and producers to team up 
with the network's affiliated studios? Do you want to address 
the first question, Mr. Murdoch?
    Mr. Murdoch. As far as Ms. English goes, I heard about that 
allegation. I have inquired into it. She did offer us a 
program. We said that we were prepared to invest $600,000 in a 
pilot, and she said that was not enough, and we said, we are 
very sorry, we are not prepared to put more money than that 
into it, and that lapsed.
    I would say I am a little surprised at Mr. Fontana, of whom 
I am a very great admirer--we just recently signed a contract 
with him for a pilot program which we are looking forward to 
getting into production as soon as Disney releases it in July--
--
    The Chairman. Thank you.
    Mr. Murdoch.--and we will buy programs simply from anyone 
who has got a good idea, and if I just can go on for a second, 
this year, for instance, we have just announced our new 
programming. Forty percent of all our programs will come from 
completely 100 percent independent producers, nothing to do 
with Fox, 30 percent will be done in association with other 
companies and independents, only 30 percent, the remaining 30 
percent will be done by Fox 100 percent.
    The Chairman. Thank you. My time has expired.
    Senator Hollings.
    Senator Hollings. Well, let the record show that I am sorry 
we do not have Mr. Powell up here, the Chairman, and I know you 
and I discussed it, Mr. Chairman. I have written two letters 
asking for it. The reason I pursued it is because Mr. Powell 
has been appearing everywhere else----
    [Laughter.]
    Senator Hollings.--and to come after the ruling on June 2 
is like the horse already leaving the barn.
    With respect to antiquated rules, come on. We took 2 years 
when I had the bill, and then 2 more years when Chairman 
Pressler had the bill, over a 4-year period, and I wish Mr. 
Dorgan was here, because we had an amendment on the cap of 25 
percent, but did not agree to the 35 percent. Mr. Dorgan won, 
and Mr. Kimmelman can shake his head, because he knows that Mr. 
Dole with some of the other lobbyists and so forth changed that 
vote. We came back and it went up to 35 percent, not antiquated 
rules. It took us 4 years to bring everything up to date in 
1996. These caps now released to 35 percent. You have got five 
programmings, not just 77 percent, Mr. Fontana, but the recent 
report of the analyst is that they will own, increase their 
share to 85 percent of the prime time programming.
    Mr. Fontana. Well, I gave you the 2002----
    Senator Hollings. Yes, that is right. So, they are going up 
to 85 percent under the present rules of holdings, just five 
programmers, and three companies own over 50 percent of the 
radio stations. We have a witness say that no rules are needed 
to promote localism. Come on.
    Mr. Murdoch, I admire you. There is not any question you 
come out of Australia and you built up a fourth network, but--
and I was saying, well, it is not so bad. What is wrong? We 
could see the wrong in EchoStar, because that left rural 
America with one provider in obtaining DIRECTV, so I said what 
is really wrong with Murdoch and News Corporation taking hold 
of this one. I saw where you said the media market is highly 
competitive, and I looked at that and found out about the five 
and the three on radio. Then I looked at your holdings, where 
you said they are completely independent. I wish I could buy 
some stock in this thing, 10 pages.
    Mr. Murdoch. Any day.
    [Laughter.]
    Senator Hollings. I will tell you, you have got it all. I 
mean, what are you going to do with an additional takeover? 
What are you going to do with it?
    Mr. Murdoch. We are going to work very, very hard to make 
it successful. I know that things add up to a lot there, but 
for instance, you throw in a book publisher, Harper Collins. It 
is one of hundreds of book publishers.
    I repeat what I said in my opening statement. We only have 
2.8 percent of the market here, and we feel that is not a 
significant thing in any anticompetitive terms or even in 
anticompetitive power.
    Senator Hollings. Well, I do not know. We had a witness 
here just a week or so ago, Mr. Goodman, who was one of your 
affiliates. He said look, they put in the contract--you say 
they are going to operate independently, but here is what the 
lawyers put in the contract, that Fox can terminate the entire 
contract if Fox's program is not carried, or if the station 
intends not to carry or preempt three of their programs. That 
is three strikes and you're out. You have got that in your 
contract. That does not sound like localism or anything else, 
when the poor fellow is struggling. He just did not want to put 
on Who Wants to Marry a Multimillionaire.
    [Laughter.]
    Mr. Murdoch. It was a different program, sir, but he--
    [Laughter.]
    Mr. Murdoch. He--Mr. Goodmon is not a poor struggler. 
However, he did preempt a series, I believe, or half a series 
on what he considered was a matter of taste, and we did not 
penalize him in any way at all. There are often preemptions. We 
do have these rules. We have to run a network. We have to run a 
business. We spend $2 million an hour on programming. We have 
to get advertising to cover that.
    These stations, all these affiliates are dependent on 
having good prime time viewing. It is the basis, really, of the 
identification in the market, whether it be for weekend 
football or all this expensive programming which the Big Three 
broadcasters bring them. That really is the bedrock.
    Now, to succeed further in their markets, they need to do a 
great job locally, and I agree with that entirely, but if I 
could just go on for a second here, we have heard from people 
that everything should be about localism and diversity, and 
public interest. Can I just give you my history of this? We 
have 33 stations, it is true. Since we have bought those 
stations, we have increased the local news on those stations on 
an average of 60 percent.
    We now have 800 hours of local news on our stations, and we 
are very proud of it, and we are continuing to expand them. We 
are just about to go with morning news in Boston and in Denver. 
By the end of this year, we plan to have 3 to 4 hours of news 
every morning on every station that we own. That is not true, 
you will find, if you go into the small affiliate groups who 
are complaining about expansion. They do not do nearly as good 
a service in local news.
    And I cannot come to you and honestly say I am doing this 
out of the interest of the public good. It is simply good 
business for stations to identify--the only way a free 
broadcaster can really stay in business against 100 cable 
channels is to identify with his local community as well as 
have some headline programs at night.
    Senator Hollings. Your lawyer is good. Your answer went 
past the red light. Thank you, Mr. Chairman.
    [Laughter.]
    Mr. Murdoch. Sorry.
    Senator Hollings. Jesus.
    [Laughter.]
    The Chairman. Senator Stevens.
    Senator Stevens. Mr. Kimmelman, I have been very interested 
in your testimony before, and I thought I heard that you said 
that over 60 percent, these five companies own over 60 percent. 
You are talking about cable operations, though. Five companies 
own 60 percent, they account for 60 percent of subscribers to 
cable networks. Do you disagree with this chart that Mr. 
Murdoch has given us that shows that his company, the News 
Corporation has 2.8 percent of total media?
    Mr. Kimmelman. Well, when you define total media as 
including Consumer Reports, which we publish, he probably is 
down at that percentage. It includes everything that--probably 
every napkin that has something written on it.
    [Laughter.]
    Mr. Kimmelman. The issue that I focused on, Senator 
Stevens, has been prime time programming.
    Senator Stevens. You are talking about cable, though?
    Mr. Kimmelman. Yes. Cable and network.
    Senator Stevens. Maybe rural America does not get cable 
yet.
    Mr. Kimmelman. Satellite, cable, and networks, any 
technology transmitting the programming. We are looking at 
where it comes from, who owns it, and prime time is where you 
have the largest audience share. That is where the networks----
    Senator Stevens. All right. I only have 5 minutes. Let me 
tell you, my state is 20 percent of the land mass of the United 
States. We have 227 different villages. You know how they get 
television today? Our state pays for 4 hours of television 
distribution of network programming. We are talking about total 
media now, not just the people who get cable. To be a 
monopolist today, you have to have control of total media 
because of the vibrant competition between all sources of means 
to deliver the news or whatever it is to our consumers, but I 
do not think you are looking at rural America. I hope you will 
take another look at this from the point of view of media 
control.
    Mr. Murdoch, let me ask you--I do not have much time--
thinking about this problem of rural America, you will have the 
ability now, if you exercise it, to deliver signals to any 
small town anywhere in rural America. Are you going to try and 
proceed to cover the whole country with your system?
    Mr. Murdoch. We want to cover all the designated market 
areas which make up all of America, which is 210 areas.
    Senator Stevens. Well, there are some areas that are not 
market areas. My mother-in-law happens to live out in rural 
Arizona, as a matter of fact.
    Mr. Murdoch. If she has a local station there----
    Senator Stevens. No. They waited a long time for signals 
and they finally got satellites, but they do not have access to 
total media. Your system could deliver to rural America total 
access to all media if it wanted to do so.
    Mr. Murdoch.--Senator Stevens, we do that. I understand 
that both satellite operators do, in fact, carry the network, a 
network station at least, in what we might call the white areas 
where there is no local station, all of our programs are there.
    Senator Stevens. Would this merger expand the capability?
    Mr. Murdoch. We do have a problem in Alaska, but that is a 
rather special one.
    Senator Stevens. We are considered special. This committee 
gets tired of hearing about exceptions for Alaska.
    Mr. Murdoch. I am afraid it has to do with the curvature of 
the Earth and where we have the spectrum.
    Senator Stevens. What is your answer, though, to Mr. 
Kimmelman about the percentage that you do control with regard 
to the cable systems?
    Mr. Murdoch. I think he is misled. We have four or five 
channels he lumps together as a great number of channels, or 
this chart that I have here, what we call the Fox Sports Net--
in fact, we are involved in and have our name on 24 local 
channels, like in Los Angeles or in Chicago or Detroit or 
Phoenix. Of those--I think there are actually 23. We have 
ownership and control of 12 of them, in a junior partnership 
role with other people in the remainder of those channels, and 
they were lumped together and said, hey, Murdoch's got 24 
channels.
    I have a different chart here, as a matter of fact, 
crediting me with all of those, but actually says that about 10 
companies--I will give it to Mr. Kimmelman, but these include--
really, a lot of them are very minority investments in 
channels. Liberty is there with a lot, and they only--they have 
50 percent in one channel, and a lot of influence. The rest----
    Senator Stevens. Can you proceed with your merger without 
the FCC lifting the 35 percent cap?
    Mr. Murdoch. Oh, yes, sir.
    Senator Stevens. I have no more questions.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Murdoch, what is of concern to me is, your proposal 
would take consolidation to a new and unprecedented level, and 
let me be specific. Your impending purchase of DIRECTV would be 
the first time there was a merger between a major broadcast 
network and a multichannel video distribution platform, 
specifically cable, or satellite, and my sense is that this is 
going to mean everybody else has got to keep up with the 
Joneses. So there will be great pressure for NBC and ABC and 
CBS to go forward with exactly the same kind of approaches. 
Now, do you think that is in the public interest?
    Mr. Murdoch. Senator, I can only answer that by saying that 
all of those companies which are very, very much bigger 
companies than mine, had a look at Direct Television and passed 
on it, so they had their opportunity. That is all I can give 
you, so I presume they do not have any intention of following 
it.
    Senator Wyden. What do you think happens to consumers, Mr. 
Kimmelman, if the big networks go out and buy cable or 
satellite?
    Mr. Kimmelman. I think there is a likelihood they are going 
to at least want to. Whether they have the cash to do it, I do 
not know. I think everyone is going to want to bulk up and make 
sure they control the distribution system as well as content. 
They are going to want to make sure they are as well-positioned 
as they can be vis-a-vis Mr. Murdoch, and so I think it is very 
likely that a Comcast and an AOL-Time Warner, EchoStar, are 
likely to be looking at network relationships to try to match 
Mr. Murdoch.
    Senator Wyden. Mr. Murdoch, we had testimony from the Media 
News Group recently that viewpoint diversity does not require 
ownership diversity, and they basically said that even if we 
get down to two or three companies in this country, we are 
going to still have plenty of diversity. Do you share that 
view?
    Mr. Murdoch. No. I think there was a problem of diversity, 
and I think there is a monolithic view. The almost farthermost 
powerful newspaper and the farthermost powerful force in this 
country is The New York Times. Its news and its priorities are 
repeated in hundreds of newspapers across the country that buy 
its service. I am not saying it is not a fine newspaper, but 
there is very much a tendency there, if you like, to domination 
by one company.
    Senator Wyden. Do you think, Mr. Murdoch, that there ought 
to be any limits on vertical integration at all? I mean, do you 
basically think that the more the merrier, and there should not 
be any limits?
    Mr. Murdoch. No. I do not think you can defend--in the 
particularly small markets, where there may only be one 
newspaper and one television and a couple of radio stations, I 
do not think you can defend that being all in one hand, not for 
a minute.
    Senator Wyden. So, how do consolidations in different areas 
of the media reinforce each other? Mr. Kimmelman, maybe this 
would be appropriate for you, because it seems to me, again, 
when you start down this consolidation path, I have said it is 
sort of like being on a cliff. Once you go over it, you are not 
going to like what is below, but tell us in your view why it is 
going to result in areas of the media reinforcing each other.
    Mr. Kimmelman. As you well know, Senator Wyden, it is 
extremely expensive to build out infrastructure to distribute 
anything from telephone service to television service in this 
country, extremely expensive. It is very expensive to invest in 
quality programming and maintain it.
    There are key inputs to this industry, and so when one 
person controls satellite distribution and has--granted by 
Congress--the right under law to get on every cable system 
through must-carry or retransmission consent and owns a lot of 
programming, Mr. Murdoch's right, a lot of it is regional 
sports channels, that happen to be the most important channel, 
often, in every community to get your local teams, so it is 
significant in that community, when one company has all of 
that, the others who have these similar investments and needs 
to keep up I think are going to be looking at cross-platform 
investments and combinations.
    Senator Wyden. Mr. Murdoch, on this point, with respect to 
the producers getting their shows on the network, do you know 
how many shows in your, say, prime time schedule Fox is 
coproducing or has a financial stake in?
    Mr. Murdoch. Yes, sir. We have a full financial stake in 30 
percent and we coproduce a further 30 percent, and 40 percent 
is bought totally from outside. That is the plan as we have for 
this year. Now, it comes up and down and it varies, but 
frankly, anyone who will come to us with an idea that we think 
will get us a commercial audience, we will be the first to buy 
it.
    Senator Wyden. Mr. Fontana, I share your views that these 
issues are a concern, that it is a problem for your people from 
a creative point of view. Why don't you amplify on that?
    Mr. Fontana. Well, for me, it is interesting, sitting here 
with Mr. Murdoch, because this is one of the few cases where we 
wrote a show for ABC, they passed on it, and yet because they 
owned a part of it, they did not want us to do it on Fox. Fox 
was very open to us and is very open to us doing it there, and 
after a very intense negotiation, the project has moved forward 
quite stunningly, I think.
    Having said that, there are those times when the pressure 
to get a series on the air, things that happen the weekend 
before the schedule is announced in hotel rooms that I am not 
privy to, because I am not an executive, people are told that 
they have to give the networks a piece of the show. That has 
happened, and what happens sometimes is, the network will not 
step up until they have decided they are going to air the show, 
so they make the studio put up the money and then take a piece 
of it after the time, after they decide they are going to air 
it.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Senator Allen.
    Senator Allen. I first want to direct my questions to you, 
Dr. Mikkelsen. In reading through your testimony and 
background, you have performed intensive research on media 
ownership rules, and people seem to think that things have not 
changed in the last six, seven, 8 years, or the last 20 years, 
and clearly they have changed in the last 6 to 7 years, since 
the 1996 act. Have you seen any changes in the media 
marketplace in, say, the last 10 years that would justify 
retaining the FCC's newspaper-broadcast cross-ownership rule in 
any market?
    More particularly, I would like you to address if there are 
any studies that empirically show that there is a basis that 
the FCC ought to treat smaller markets differently from larger 
markets. In other words, why should not smaller markets have 
the same benefits as do large metropolitan areas insofar as 
cross-ownership is concerned?
    Dr. Mikkelsen. Thank you for your question, Senator. As I 
think the members of the Committee know, the cross-ownership 
ban was put in place in 1975. A few years ago, I and some 
others did a study comparing local concentration among the 
media that are affected by this rule, radio, TV, and newspaper, 
in a sample of 23 different markets. We took one at random from 
1 through 10, and one at random from 11 through 20 and so on, 
to try to cover the entire representative scope of the markets, 
and we found that in 20 of these markets, concentration as 
measured conventionally by economists decreased significantly.
    In 19 of those it increased by an average of 20 percent or 
more, so we looked at on a local basis, where competition 
issues are really important, as I think Mr. Kimmelman also 
acknowledged, in many markets, there has been a drastic 
decrease in concentration, and this was done, of course, 
several years after the 1996 Act, so it also reflects buying 
activity that followed on that Act.
    With respect to local markets in rural areas or in smaller 
markets, as I said in my earlier statement, I really think that 
what we need to preserve competition is effective antitrust 
enforcement. It is a fact that in some smaller markets, there 
tend to be fewer media outlets selling advertising or 
presenting points of view than in some of the Nation's largest 
markets.
    Senator Allen. Let me ask you to give us a summation. The 
point is, in larger markets there is a reason for these duopoly 
rules. For larger markets there are limits on cross-ownership 
and so forth that apply, in small markets that do not. However, 
have you not seen in some of your studies there are costs in 
programming updates and technology and so forth that you could 
actually have improved capabilities in localities if there were 
the relaxation or updating of the rules, as opposed to having 
discrimination in smaller areas in cross-ownership, or for that 
matter the duopoly rules?
    Dr. Mikkelsen. Well, I guess I see two areas in which 
smaller markets might benefit from a relaxation of this 
absolute ban and a focus on market-by-market analysis to see 
whether cross-ownership is merited. One is in the area that you 
spoke of, possibly increased efficiencies through cross-
ownership is something that the antitrust agencies always look 
at in connection with a merger, and the second would be if 
there is a prospect of one of these media outlets actually 
going out of business where the cross-ownership allowed them to 
remain a business and provide a service that they would 
otherwise not provide.
    Senator Allen. So your testimony, to sum it up, is that it 
ought to be looked upon on a case-by-case basis, or market-by-
market basis, as opposed to absolute, one-size-fits-all rules 
for every community in this country?
    Dr. Mikkelsen. That is correct.
    Senator Allen. Thank you.
    Mr. Murdoch, it is my understanding DIRECTV, and this was 
somewhat of an answer to Senator Stevens' question, that you 
committed to providing local-to-local to the top 100 designated 
market areas by the end of the year. What commitments would you 
be willing to make to provide local-to-local in the final 110 
DMAs?
    Mr. Murdoch. Well, let us say at least another 100, but 
that will mean launching two more satellites. They have to be 
ordered; that will take time, but we will do that.
    Senator Allen. So your commitment to local-to-local in the 
top 100 is firm, and you have those capabilities?
    Mr. Murdoch. Oh, yes. Those satellites are already in 
production, and I think one is launching very shortly. We will 
have something over, slightly over 100, I believe, by the time 
this deal is even concluded.
    Senator Allen. Quickly, Mr. Murdoch, broadband access is 
important to many people in rural areas. Do you have any plans 
to provide broadband, utilizing your DIRECTV satellites or 
customers in rural areas?
    Mr. Murdoch. Senator, we are studying this, and we have 
people on it all the time. To do it by satellite on the 
technologies that I have so far heard about is perfectly 
possible, but very expensive in that the two-way receiver that 
has to be installed in the home is about eight times as much as 
what it costs to put cable in. That will come down, but not to 
that sort of level.
    We are investigating at the moment two or three different 
technologies to be able to provide broadband to every home via 
the electricity grids and the utility companies. There is a lot 
of promising work being done there, particularly Allied, with 
this new Wi-Fi technology. We are not at a stage to make 
promises about it, but we are working at it.
    Senator Allen. Thank you for your honesty.
    Thank you, Mr. Chairman.
    The Chairman. Senator Breaux.
    Senator Breaux. Thank you, Mr. Chairman, again for having 
the hearing. I thank the panel. I have no problems with having 
some type of a cap established to prevent market dominance by 
any group of station owners. My argument is only that the 
current standard that is being used has nothing to do with 
market dominance of the station owners.
    Mr. Kimmelman, is it not correct that you could have a 
group of station owners or a network that had a station in 
every one of the largest cities in the United States, but had a 
viewership of only 1 percent of the people there, because they 
do not like what they are putting on the air----
    Mr. Kimmelman. That is correct.
    Senator Breaux.--and yet they would be exceeding the cap of 
35 percent, not because anybody is watching them, not because 
they have market or economic dominance, but only because they 
have a station in an area that has the potential audience to 
reach 35 percent of the population? I just think it is an 
archaic way of measuring market dominance.
    I mean, if nobody is watching the stuff that they are 
putting on the air, that is certainly not market dominance, and 
that is what we are relying on really, is an estimate of the 
population in the area, not how many people watch the channel 
or watch the broadcast. It seems to be deficient to me, how we 
measure it.
    Mr. Kimmelman. Senator Breaux, I do not disagree that it is 
a very odd measurement.
    Senator Breaux. Yes.
    Mr. Kimmelman. Forty-five percent is no better than 35 
percent in that regard. The other thing the FCC does is it 
treats UHF stations as half a station, and Mr. Murdoch has got 
17 of those. When you get it on cable, when you get it on 
satellite, it is the same as anything else, so there is a clear 
problem here in how the measurement is being done.
    Senator Breaux. I agree with that. I mean, I looked at the 
thing that one of the networks put out. I mean, it shows that--
they probably should not put this out to their advertisers 
because it shows how little people are watching the networks, 
but I mean, NBC with all their stations has 1.6 percent of the 
population in prime time. Fox, Mr. Murdoch, has 2.7 percent in 
prime time. I mean, that is not anywhere near 35 percent market 
dominance. I mean, you could have a station, like I said, in 
every large city in the country, and nobody watches it. You 
could not get another station because you have market 
dominance. It is unrealistic, the way we measure market 
dominance.
    I think people ought to have choices. If you are a network 
in Los Angeles or New York, you probably have 150 other 
choices, and people look at those other choices.
    Mr. Kimmelman. If I could just add one thing, Senator 
Breaux, the one critical thing, you are absolutely right about 
the illogic of that, but here is where it is important. It is 
the potential eyeballs that can be seen over that network----
    Senator Breaux. Sure.
    Mr. Kimmelman.--and it is what advertisers are paying for, 
and it is what local affiliates have to deal with, and where it 
is relevant, whatever the number is, it is relevant in who has 
more bargaining power in the negotiation over whether a locally 
selected program goes on or a network program.
    Senator Breaux. But advertisers just do not look at the 
size of the city that the station is in. They look at the 
ratings to see if anybody is watching the stuff, and that is 
what the prices are determined on. They are not determined on 
how big the city, or station is. They say, what is your 
percentage of people watching your station, OK.
    The other point is, the whole argument--I thought we had 
set this argument aside, that somehow local ownership versus 
network ownership guarantees more local news. That is not 
correct. In Louisiana, we have seven media markets. I have got 
one station in one market of the seven that is locally owned. 
One. I mean, and some are owned by networks, but everything 
else is owned by people in New York or Los Angeles. That is not 
local input. I mean, they do not even know where Lafayette, 
Louisiana is, or Lake Charles. I mean, they are all owned by 
people and conglomerates who are very sophisticated, but they 
run local news because it is in their interest to do so.
    The FCC has told us that network-owned stations, in fact, 
have about 30 percent more local news than the non-network-
owned facilities. They run local news because it is good for 
business, and they cannot tell me that in my home town, that 
the local station, which is non-network-owned, serves the 
community better because all the owners are in New York City. 
String them up.
    [Laughter.]
    Senator Breaux. But, that argument, I thought has been set 
aside. I cannot--I think that argument is really not 
responsive, so I guess my point is, really that we ought to 
have a measurement of dominance, and you should not have any 
outlet that dominates the market, but having said that, the 
standard that we use is not connected to reality. We ought to 
find out which one is and move in that direction. The 35 
percent, 45 percent is meaningless in terms of market 
dominance.
    Mr. Fontana, I have a great deal of sympathy for you, but, 
the networks are the content providers. They hire. They have to 
hire writers. You are either writing independently, or you have 
negotiated a contract to write for a network, and you agree to 
the price or not agree, or negotiate and get a better price. 
They cannot produce content without writers. The writers are 
either going to be working for themselves or working for the 
people who are producing the content. Explain the difference, 
and why one is better than the other----
    Mr. Fontana. Well, this is less about the specific deal 
than it is about the kind of programming that a particular 
network wants to do, and, you know, if you have a deal, let us 
say with a specific company, and this is why the thing with Fox 
is so extraordinary, because I do have a deal with HBO, which 
has a deal with ABC, and normally what would happen if ABC said 
we do not want it, it would be dead.
    Senator Breaux.--if you worked for ABC.
    Mr. Fontana. With the way my current deal is set up, it 
would be dead. Normally that is what would happen.
    Senator Breaux. Did anybody negotiate a deal with the 
content provider that says, look, I am writing this, if you do 
not like it, I will reserve the right to take it somewhere 
else?
    Mr. Fontana. Well, there are those things in there. You 
usually have to wait about 9 months to a year to get the 
property back, and----
    Senator Breaux. But it is your property.
    Mr. Fontana.--well, technically it is theirs until they are 
willing to sell it back to me.
    Senator Breaux. But every writer is being compensated for 
the product.
    Mr. Fontana. Oh, absolutely. I am not complaining with the 
compensation, believe me.
    Senator Breaux. Well, you all do great work. I admire it 
immensely. Oh, I am sorry, I am out of time. Thank you.
    The Chairman. Senator Sununu.
    Senator Sununu. Thank you, Mr. Chairman.
    Dr. Mikkelsen, the studies you have done on ownership, 
whether it is TV or newspapers, does your evaluation support 
the assertion of Senator Breaux that having an owner from 
outside the local area does not necessarily mean that you will 
not carry local content, local news in your media property?
    Dr. Mikkelsen. Our research does support the notion that 
network ownership of a station results in statistically more 
news programming being shown than ownership by an affiliate. It 
does not go directly to the question of where they are located, 
and I frankly do not see that any of these rules are very well 
designed to ensure that a station is owned in the same city in 
which its operated. The relevance of where the owner is to 
where the station is located is oblique at best.
    Senator Sununu. I appreciate that point.
    The other concern would be that somehow opening up the 
rules means that more owners from outside the area will come up 
and buy local properties, and I think the question that has 
been raised by Mr. Kimmelman and others is whether that results 
in less local news and local information, and Mr. Kimmelman, 
can you speak a little bit to that point? You raise the issue 
that the rules first and foremost are about, or at least should 
be about local news and information, and Senator Allen pointed 
out that this acquisition will result in rural areas getting 
into local content for, I guess, 100 market areas by the end of 
the year. Would that not be a good thing for local news and 
information?
    Mr. Kimmelman. We have supported local-into-local forever, 
getting local broadcast signals to as many communities as 
possible. That is wonderful. That is repeating the current 
voice in the local community, the existing broadcasters, and 
bringing them in through a new technology. It is wonderful. It 
is a new option for satellite customers. It is not another 
local news voice.
    I do not know of a satellite channel that is a local 
Roanoke or Manchester station beaming in just to your 
community. I wish there were. I think it would be wonderful, 
but I do not know of that.
    Senator Sununu. But those rural communities are relying on 
a distributor to put together the technology necessary to get 
them access, and I have rural communities in New Hampshire, and 
they cannot get that local voice because of geography and 
interference and other issues, and it seems to me that there is 
some value--it might not be a reason for you to support the 
acquisition, but some value in a commitment to get that local-
into-local in 100 areas by the end of this year, I think that 
was the number, and 200 long term.
    Mr. Kimmelman. Yes, Senator, and we have supported it from 
Mr. Murdoch's competitor, and I would just note I heard him say 
where it is economically and technically feasible, and that is 
totally logical and reasonable, but I am not sure what number 
that ends up getting you. We hope that through competition, he 
and EchoStar will serve every community with local channels as 
soon as possible.
    Senator Sununu. Fox also has ownership of 40 local sports 
networks. I am pretty sure----
    Mr. Kimmelman. Twenty-three.
    Mr. Murdoch. Twenty-three.
    Senator Sununu. Twenty-three?
    Mr. Murdoch. Yes, I believe so.
    Senator Sununu. I stand corrected.
    Mr. Murdoch. Nineteen, sir. I am sorry. It is going down 
fast.
    [Laughter.]
    Senator Sununu. A number of local sports channels, and I 
think eight, 10 years ago, I certainly do not recall having 
access to these local sports networks. Again, putting aside, 
Mr. Murdoch, your News Corporation, is not this a positive 
trend in delivering local source sports information or news, 
and is not that a positive step forward at least in the 
delivery of that local content?
    Mr. Kimmelman. Absolutely, Senator Sununu. I can remember 
when I had to listen to a local radio late at night to hear 
those games. Now you can see them. My question is, is it 
exclusive control and distribution? What is the cost of it? Is 
it at a competitive price? That's all, and we have a problem 
here with leagues that have protection from antitrust laws, and 
that is another difficulty in the price of a product.
    Senator Sununu. I would agree with a number of those 
points. I mean, the concerns of pricing and antitrust issues in 
local markets I think need to be addressed, but the reason that 
we are addressing them is because someone has made the 
investment to create the local networks in the first place, and 
I just wanted to underscore at least my sense that having this 
new option, having this new source of information, having this 
locally driven source of information is a positive thing.
    Mr. Fontana, Mr. Murdoch indicated that 40 percent of their 
programming, at least this year, is exclusively independent. I 
assume you think that is a good thing, and second, do you think 
that is part of the reason for the current level of success of 
the network, or is it a coincidence?
    Mr. Fontana. Well, I do think it is a good thing. You know, 
I am not opposed categorically to the network owning shows, but 
I do think--I did not know the statistic that 40 percent of Fox 
was outside programming, and I think that is an admirable 
thing, so what makes success is something, if I had that answer 
I would not be sitting here right now.
    Senator Sununu. With regard to the Fin-Syn rules, I found 
it very dismaying that at the time that the rules change was 
put forward, two things, (1) that executives suggested that it 
would not change anything, and (2) that anyone believed them 
when they said that.
    [Laughter.]
    Senator Sununu. Of course changing those rules would change 
things, and I think it is inevitable that it would result in a 
reduction in purely independent production players, and that is 
not necessarily a bad thing.
    The question in my mind is the degree to which those 
independents provide some special virtue, some special value, 
and that is what I am struggling with a little bit here. You 
mentioned some good programs and some bad programs actually. 
The Cosby Show and Dinotopia, we do not need to talk about 
which is which, and then, of course, a lot of the product you 
put together, but I also see equally good product that may well 
be produced and controlled by the networks. Can you try to give 
a little bit clearer picture as to what the special virtue is, 
or the uniqueness of the independently produced programs?
    Mr. Fontana. I will give you an example in the sense of 
what happened to Homicide when Reeves went out of business, and 
Homicide was sold to NBC Studios by Reeves. There was a kind of 
like a buy-three-desks-and-a-TV-series fire sale, and what 
happened was, is that the studio that I answered to and the 
network that I answered to were basically the same people, so I 
did not really have an advocate.
    I did not really have back-up. The studio functions for me 
in a way to say, no, no, no, we are behind Tom and where he 
wants to take the direction of the series. When it is all 
homogenized and when you are talking to the studio, but they 
really are the network, and the network is really the studio, I 
am kind of out there by myself.
    Now, I happen to be somebody who is very willing to argue 
for things that I believe in, but I am not sure the next 
generation--I am less worried about myself than I am about the 
next generation--of creative people coming into the business, 
because they will have never known the joys of the Fin-Syn 
world, and so I find myself like some elder, you know, 
storyteller trying to go back to the golden days of yore.
    That is where I worry. I worry about a television universe 
created by people who do not know that they do not have to 
listen to from the studio/network.
    The Chairman. Senator Boxer.
    Senator Boxer. Thank you very much, Mr. Chairman, for this 
hearing. This has been a fascinating hearing, as yours usually 
are. I think there is grave concern across the political 
spectrum in this country from Wayne LaPierre of the NRA to very 
liberal groups that--and as a matter of fact, he said diversity 
is what America is all about, so let us take that as a 
centerpiece.
    I agree with that, so the ability to echo a particular 
political point of view, now--and it could be echoed in many 
ways. It could be echoed on news programs; it could be echoed 
on entertainment. You know, it could be echoed in so many ways. 
This is the concern, frankly, that I have, and I have it across 
the board. Just because Mr. Murdoch is here, I have this chance 
to ask him about that.
    What it said was, on February 23, when it was clear that 
France would oppose an American resolution at the United 
Nations, a Fox News anchor described France as a ``member of 
the axis of weasels.'' This phrase was then picked up----
    The Chairman. Which he got from the New York Post, I think.
    [Laughter.]
    Senator Boxer. No, no. It was picked up in the New York 
Post, which is owned by the same individual. OK. That is 
exactly my point, and it often appeared at the scroll at the 
bottom of the screen on Fox News.
    Senator Lott. And in the Congressional Record, probably.
    Senator Boxer. Well, that is fine. I am just talking about 
how one can take a political--suppose it just said, you know, 
America is acting terribly in this, and that was repeated, it 
all is disturbing that a political point of view is represented 
in one place, second place, third place, fourth place, fifth 
place, sixth place, whatever, whether it is from The New York 
Times, which owns many stations, or you, so I am trying to be 
fair here. I am using this as an example because it was used in 
this particular article.
    So I guess my question is to Mr. Murdoch and whoever else 
might want to comment on it. Do you believe there should be any 
limits at all on how much media one individual or one company 
can control, and if so, what would those limits be?
    Mr. Murdoch. I have no idea what the limits are, but I do 
not think anybody today is anywhere near those limits. I think 
2.8 percent is neither here nor there, which is what we have. 
That is in media. What we are talking about, what I am talking 
about today, DIRECTV is hardly media. It is simply a 
distribution platform.
    Senator Boxer. I was not talking about DIRECTV at all.
    Mr. Murdoch. I understand that.
    Senator Boxer. I am talking about the other issue that is 
before Chairman Powell. I am not talking about that.
    Mr. Murdoch. Right. Right.
    Senator Boxer. I am talking about the ability to take a 
point of view, left, right, center, whatever the point of view 
is, and have the ability to reiterate it.
    Mr. Murdoch. I do not know what the right limits are, but I 
am certainly in favor of relaxing the existing limits, Senator.
    Senator Boxer. You are in favor of relaxing the limits. Do 
you have any idea if there should be any limits at all?
    Mr. Murdoch. No. I think it depends. I mean, as I say, I do 
not intend to take advantage of it. On the other hand, I think 
I have demonstrated how much in the public interest our 
ownership of 33 stations has been to those 33 major 
communities.
    Senator Boxer. Well, what if you owned everything?
    Mr. Murdoch. What if I owned everything?
    Senator Boxer. Would there be any limits on you?
    Mr. Murdoch. No, of course not. And we do not expect----
    Senator Boxer. You think there should be limits?
    Mr. Murdoch. I think there should be competition 
everywhere. My life has been built, and my business, starting 
competition and starting up against other people, and providing 
diversity.
    Senator Boxer. So we have gotten this far, so you agree 
there should be limits?
    Mr. Murdoch. I should think there should always be 
diversity.
    Senator Boxer. Good. Limits and diversity, we agree. So 
then, the question is, how much, and you are saying you cannot 
put a number on it.
    Mr. Murdoch. There should be no limit to diversity. And----
    [Laughter.]
    Senator Boxer. No, no, no. I am not asking you to limit 
diversity, limit the ability for one to own many, those are the 
limits we are talking about.
    Mr. Murdoch. I do not know what the antitrust laws would 
say, you know, if you have 25 percent of a media market or 
something, I am sure that could be enormous.
    The Chairman. Let me weigh in on this. Do you think it is 
right for one city, for all six radio stations to be owned by 
one company?
    Mr. Murdoch. No, sir.
    The Chairman. That is the case. Go ahead.
    Senator Boxer. Thank you.
    Mr. Murdoch. I do not have a dog in that fight. Yet.
    [Laughter.]
    Senator Boxer. That is good. Mr. Kimmelman, I think what we 
are having here is a problem, because Mr. Murdoch is using 1 
percentage of this 2.8. You are saying he is including things 
like Consumer Reports. I think that needs to be discussed. So 
are we going to have another round after this if we want? Is it 
possible?
    The Chairman. If you desire it, yes.
    Senator Boxer. That would be swell. Maybe while the yellow 
light is on, just tell me, do you agree when Mr. Murdoch uses 
this 2.8 percent?
    Mr. Kimmelman. Absolutely not, Senator Boxer. You need to 
look at exactly what Senator Breaux said. You need to look at 
market dominance, market concentration. The issue is, what is 
the market? What do you care about? I think most people care 
about news and information. I am not worried about the national 
market. I am worried about local markets.
    Here is what the FCC is doing. They are saying, if you are 
a national network you are going to count UHF stations for 50 
percent so they can own more, but when you look at the local 
market and they say how many local broadcasters there are, they 
are not counting the UHF as 50 percent, they are counting it as 
100 percent, and when they are looking to see whether a 
newspaper can buy a local broadcaster, they are not looking at 
you to see whether it is 50 percent or 100, they are calling it 
100 percent. They are relaxing any way they can, 
inconsistently, to allow more ownership without looking at real 
concentration factors.
    I think to get diversity, you need the appropriate 
concentration measures. I do not think antitrust is enough, 
because antitrust, it can measure advertising revenue. It 
cannot measure what is competition of ideas. It never has. I 
wish it could. It cannot, and they have not ever tried to.
    The Chairman. Senator Lott.

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

    Senator Lott. Thank you, Mr. Chairman, for having this 
hearing. I agree with Senator Boxer, this has been very, very 
interesting, very informative. Thank you all for being here. 
You have given very thoughtful testimony and have been very 
interesting, listening to you answer the questions.
    I may come at it from a completely different point of view 
than Senator Boxer, but I do think that the 35 percent 
ownership cap is a reasonable one. I was involved in 
legislation, as were a number of the members of this committee, 
that came up with that kind of cap.
    Now, generally speaking, philosophically I like 
deregulation. I do not like caps, but I do think in the media 
area, the possibilities of concentration and limiting people's 
access is something that you need to consider. It is dangerous.
    I think that--I want to congratulate Mr. Murdoch for the 
fact that he has brought more diversity of viewpoint into the 
media in America. In the past, it was The Washington Post, New 
York Times, L.A. Times, the three networks, and they all took 
the same point of view, and if The New York Times said it, the 
networks picked it up. Used to, when I would go on the Senate 
talk shows--I do not do that much any more, but when I did--
    [Laughter.]
    Senator Lott.--I knew exactly what the question was going 
to be on Meet the Press or Face the Nation.
    All you had to do was read The New York Times. There it 
was. They were going to ask the questions based on the front 
page article, simple as pie. And so, you looked like you knew 
what they were going to ask. You did, because you read the Post 
and The New York Times.
    So I am glad that you brought that diversity, but you did 
say that you think that there should be some limit. In answer 
to Senator Boxer's question, you did say that you had concern 
about a small local market, that the idea that one company 
would own the TV station and both radio stations and the 
newspaper, that would not be good.
    But I do think we need to get to a really important 
question here to show that the Senate really does pay attention 
to pop culture, and this is the question. Did you do it 
internally, or was it an independent idea to come up with 
American Idol that led us to Ruben?
    [Laughter.]
    Mr. Murdoch. That was actually a British idea and an 
independent programmer who offered it to Fox, and all I can 
claim is, I heard about it and called them and said, ``for 
God's sake, buy it.'' That was last summer.
    Senator Lott. I hope he was well-paid, because he has 
created a phenomenon.
    Mr. Murdoch. I can assure you he will become very rich.
    Senator Lott. You know, also, looking at this 
philosophically, generally speaking my disposition would be 
that mergers are OK. I never thought that necessarily big is 
bad. I think if it makes good business sense, if it makes good 
sense in terms of providing the service, that that ought to be 
all right unless there is a good reason not to do it, and 
unless it does, as the Justice Department has to review it and 
the FCC, it wipes out competition, it has certain antitrust 
considerations, then you should not do it, and I had 
reservations about the earlier proposal for DIRECTV, and Dish 
to come together, because I do think that that was going to 
eliminate the competition in that area of media.
    I think your situation is different, though, and I assume 
you would say it was different, because now you are going to be 
chairman of this board that will own it though, are you not, 
Mr. Murdoch?
    Mr. Murdoch. I hope so, yes.
    Senator Lott. But I do think--I mean, you are going to add 
strength and money, I presume----
    Mr. Murdoch. Yes, sir.
    Senator Lott.--to DIRECTV, and Dish is, I presume, 
hopefully going to be strong, and you all are going to really 
get out there and compete. You are not going to mistreat your 
installers.
    Mr. Murdoch. Dish already makes more money, more money per 
customer and more money totally than DIRECTV.
    Senator Lott. Since my son-in-law is an installer, I am 
worried about his future, too, but, so I do not feel like in 
this case that it is a further consolidation. I think it may, 
in fact, strengthen and improve what is offered in this 
particular area, but let me ask you a question where I do have 
some concerns, and that is about program access commitments.
    I understand that News Corp. and DIRECTV have agreed to a 
series of program access commitments similar to the ones in the 
1992 Cable Act, which are designed to ensure that News Corp. 
makes its programs available to other distributors in a 
nondiscriminatory way, but there has been some indication that 
if the FCC eliminates that access requirement, or it is 
rescinded, that News Corp. would not be inclined to keep its 
program access commitments. What is the situation on that?
    Mr. Murdoch. I think we will be certain to keep the 
practice because it is good business. On the other hand, I am 
not prepared to come here today and say I am prepared to 
operate under rules that do not apply to any of my competitors. 
If Comcast went and bought the Disney Company, or other people 
started things or used things in a discriminatory way against 
me, I would reserve the right to retaliate, but that is 
competition, and all I am saying is, we will abide by the 
rules, and we think it is good business to abide by the rules.
    Senator Lott. Well, I understand what you are saying----
    Mr. Murdoch. I think it is highly unlikely.
    Senator Lott.--but let me just say to you and to the 
industry, and we have had other people here, you know, program 
access is important to a lot of parts of the media now. I think 
this is a place where you all could get in real trouble. If you 
limit program access, eventually we are going to intervene, if 
there is not some fairness there.
    Mr. Murdoch. I agree totally.
    Senator Lott. You invented the fair and balanced term. Let 
us make sure it applies to program access, too.
    Thank you very much, Mr. Chairman.
    Mr. Murdoch. Thank you, Senator.
    The Chairman. You decide.
    [Laughter.]
    Senator Lautenberg.

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

    Senator Lautenberg. Thank you, Mr. Chairman, for conducting 
this fair and balanced hearing. The one thing about our 
Chairman, he lets you spin, because he thinks that as you 
present different views, you get an energy source that produces 
conclusions that are well-thought-out. We salute the Chairman's 
deft hand.
    I am pleased to have a chance to say hello to you, Mr. 
Murdoch. I do not think we have had a chance to meet over the 
years, and let me say I admire your success in having built 
this corporation that you now have. The prospects for the 
future are, some peril to the glow of that success, because you 
just said whatever the rules are, you will obey them. But you 
will, I assume, agree with the fact that you would like to 
change the rules.
    Mr. Murdoch. Not the program access rules, sir.
    Senator Lautenberg. No, but other rules such as percentage 
of market and so forth.
    Mr. Murdoch. Yes.
    Senator Lautenberg. Yes. And Dr. Mikkelsen, you said that 
you were not representing anybody here. You are not here on 
behalf of--I am here on behalf of none of my clients. Do you 
represent Fox at times?
    Dr. Mikkelsen. Our firm has worked for Fox, yes.
    Senator Lautenberg. Yes. Mr. Murdoch, did you appear before 
the Commission, the FCC, to give any testimony?
    Mr. Murdoch. No, no, not on this matter, no.
    Senator Lautenberg. Dr. Mikkelsen, did you appear before 
the Commission?
    Dr. Mikkelsen. I and others at my firm have written papers 
that have been submitted to the Commission, Senator.
    Senator Lautenberg. Yes. So--and you present a point of 
view that you registered here. You were very clear and 
articulate, and I respect that, that you think we ought not to 
have these limitations. I do not know whether you said that 
there is an artificiality to them in the marketplace, or that 
maybe they are redundant because we have our rules that Justice 
maintains.
    Dr. Mikkelsen. I think that is the way I put it, Senator. 
There are some legitimate concerns, but I do not think these 
rules are needed to advance the goals we have.
    Senator Lautenberg. Did you represent other people before 
the Commission who were also in the industry, other media 
companies?
    Dr. Mikkelsen. As I mentioned, I have done some work, some 
independent research that Senator Sununu asked about 
previously----
    Senator Lautenberg. Right.
    Dr. Mikkelsen.--for the Newspaper Association of America, 
and some of the research we did most recently was funded by Fox 
and NBC and Viacom.
    Senator Lautenberg. Are you under retainer now with Mr. 
Murdoch's company?
    Dr. Mikkelsen. I am not working for them presently. We have 
been working throughout this proceeding.
    Senator Lautenberg. But you have a continuing relationship?
    Dr. Mikkelsen. Yes, sir.
    Senator Lautenberg. OK. So can you be so balanced that when 
you come in here, you do not represent any of those points of 
view that you worked on so hard for such a long time?
    Dr. Mikkelsen. The views I have expressed have been views 
that I have articulated before and long held, Senator, and I 
would ask that people look at the research that we have done 
and evaluate it on its merits.
    Senator Lautenberg. Yes. OK. So there might be coincidence 
of value that Mr. Murdoch receives as a result of your view 
here.
    Dr. Mikkelsen. Well, I do not know how the panel was 
chosen, Senator, but I think that----
    Senator Lautenberg. No, but, I mean, based upon your 
testimony, you are saying, look, take off the wraps, and that 
certainly complies with Mr. Murdoch's intention at this point.
    One thing about Mr. Murdoch, we know that what he means, he 
says, and what he says, he means, and sometimes you can agree--
I find it a little harder as time goes on to agree, maybe 
because I am getting younger or something.
    [Laughter.]
    Senator Lautenberg. The fact is that I have spent some time 
with Hannity and Bill O'Reilly and so forth, and it is easy, I 
have put on my bulletproof jacket, I go into the studio, and we 
get along famously because I will not lie down.
    But there is a coincidental common point of view that 
spreads through the Fox programs that we see that tend to be a 
little more conservative, and once we include the New York 
Post, we see all kinds of assertions, weasels and all of that. 
It is not bad to be called a weasel. There are worse names. 
Peter Arnett got a real scalding. We did not see the same 
applied to Geraldo when he violated the rules that the military 
thought were bad, and it is hard to get either fair or balanced 
views out of that.
    Mr. Murdoch, did Star Satellite TV stop the BBC and CNN 
because Beijing had problems with their reporting?
    Mr. Murdoch. No, sir.
    Senator Lautenberg. What was the cause?
    Mr. Murdoch. I just bought Star TV and it was losing $100 
million a year, and an easy way to save $10 million was to drop 
BBC.
    Senator Lautenberg. That only had you losing $90 million a 
year? That was--it really got to look like a good deal at that 
point.
    Mr. Murdoch. That is correct. It would have taken us 10 
years to break even, and BBC then went up at their own cost.
    The Chairman. The Senator's time has expired.
    Senator Lautenberg. OK, Mr. Chairman. Thanks very much. If 
we had the time, we could sit here all day, but none of us has 
the time, Mr. Murdoch.
    The Chairman. Thank you, Senator Lautenberg.
    [The prepared statement of Senator Lautenberg follows:]

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

    Mr. Chairman,

    I look forward to today's hearing on broadcast media ownership. I 
congratulate you for holding ``fair and balanced'' hearings in this 
Committee. We don't want any ``spin'' in this ``zone'' and I know the 
Chairman well enough that he won't permit it. He enables competing 
views to be heard. He is ``fair'' and ``balanced'' and we get all the 
data we require for an informed discussion. That's something we need in 
the media that I fear we are losing because of deregulation that is 
harming the public interest.
    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. That's already happened under the 1996 Telecommunications Act, 
which relaxed the media ownership rules significantly. With regard to 
broadcast television, for instance, 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.
    I would submit that the media consolidations and mergers we have 
already seen have not been in the public interest in at least one 
crucial area, and that's the public's access to ``fair and balanced'' 
news coverage that reflects varied viewpoints.
    Consolidating media ownership means that a few large corporations 
can exercise considerable control over the news. 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.'' Is it really in the public interest to make it 
easier for a few companies to dominate the airwaves and determine what 
news the American people will--or won't--hear? I don't think so.
    It's fitting that our first witness today is Rupert Murdoch, the 
President and CEO of News Corporation. I doubt there is any other 
individual or corporation that stands to benefit as much from 
additional de-regulation. Mr. Murdoch has deftly assembled a 
horizontally and vertically-integrated media behemoth that exceeds the 
35 percent cap, has duopolies in nine of the top ten media markets, has 
an FCC waiver allowing cross-ownership of newspapers and broadcast 
stations, and was able to avoid complying with the FCC's so-called 
``FinSyn'' (Financial Interest and Syndication) rules.
    And now Mr. Murdoch and News Corp. would like to purchase a 
controlling interest in DIRECTV. On its face, this acquisition might 
appear to be good for consumers since DIRECTV, which is a Direct 
Broadcast Satellite (DBS) service, is cable's principal competitor.
    But I'm not so sure. By gaining control of the DIRECTV platform, 
Mr. Murdoch would have considerable leverage to extract higher 
licensing fees, which would driver subscriber costs up, not down. He 
claims that News Corp. will continue to make its national and regional 
programming available to other pay-TV distributors on a nonexclusive 
basis and with non-discriminatory prices, terms, and conditions. We 
shall see.
    And if Mr. Murdoch is so devoted to diverse programming, as he 
repeatedly claims, I'm curious to know why he dropped the BBC from his 
Star TV satellite operation in China.
    Jeffrey Chester of AlterNet has written an article dated May l9, 
``Rupert Murdoch's Digital Death Star,'' which draws attention to 
potential problems with the merger. Mr. Chester calls the DIRECTV 
acquisition ``A triple play when it comes to influencing U.S. 
television with his (i.e., Murdoch's) control of broadcast, cable and 
satellite channels.''
    This concerns me. In the New York metropolitan area, News Corp. 
already owns two VHF broadcast stations, a daily newspaper, a broadcast 
network, a movie studio, a satellite service, and four cable networks.
    ``Imagine Fox News on steroids,'' is how Mr. Chester describes the 
impact of the DIRECTV acquisition if it goes through.
    The danger here, as Washington Post columnist Richard Cohen 
recently wrote, is that Mr. Murdoch's media empire tends to ``infuse'' 
his conservative political ideology into news coverage ``while 
insisting it does nothing of the sort.''
    Mr. Murdoch certainly has a right to his views and he certainly has 
a right to express them. But to call Fox News ``Fair and Balanced'' is 
a joke. I know--I have been on several of the Fox News Channel shows. I 
try to ``give as good as I get'' and I enjoy the banter, but I have no 
illusions whatsoever that these shows are anywhere near balanced.
    There is an organization called FAIR--Fairness and Accuracy in 
Reporting. Interestingly, FAIR founder Jeff Cohen appears on Fox News 
on a regular basis. But he is about the only Fox commentator who 
presents a progressive viewpoint. In 2001, FAIR issued a report 
entitled ``The Most Biased Name in News: Fox News Channel's 
Extraordinary Right-Wing Tilt.'' The report convincingly debunks any 
notion that Fox News is anything more than a mouthpiece for the right 
wing. It documents, for instance, that over a five-month period, of 56 
partisan guests on ``Special Report with Brit Hume,'' 50 were 
Republicans and 6 were Democrats. That's 89 percent Republican. The 
conservative point of view outnumbered all others by more than 2 to 1.
    The FAIR report draws an interesting conclusion, similar to the 
point Richard Cohen made in his column:

        With the ascendance of Fox News Channel, we now have a national 
        conservative TV network in addition to the established centrist 
        outlets. But like the mainstream networks, Fox refuses to admit 
        its political point of view. The result is a skewed center-to-
        right media spectrum made worse by the refusal to acknowledge 
        any tilt at all.

        Fox could potentially represent a valuable contribution to the 
        journalistic mix if it admitted it had a conservative point of 
        view, if it beefed up its hard news and investigative coverage 
        (and cut back on the tabloid sensationalism), and if there were 
        an openly left-leaning TV news channel capable of balancing 
        both Fox's conservatism and CNN's centrism.

    So the problem isn't that Fox News is conservative. The problem is 
that it bills itself as ``fair and balanced.'' And the problem isn't 
that Mr. Murdoch is conservative. The problem is that his company, News 
Corp., has enormous control over the media now, and he wants even more 
control. That burgeoning control threatens to drown out other voices 
and different points of view.
    I urge my colleagues to review the broadcast ownership very 
carefully. We made substantial changes in 1996 that I don't think are 
in the public interest. At best, 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 has said: ``getting it right is more 
important than just getting it done.'' Getting it right means serving 
the public interest, not boosting profitability and ownership 
concentration.
    Thank you, Mr. Chairman.

    The Chairman. I want to thank the witnesses.
    Senator Boxer. Can we have one more round?
    The Chairman. Yes, ma'am. Can I finish? I want to thank the 
witnesses. We try to get the most qualified people to come here 
before the Committee and with diverse opinions, as Senator 
Lautenberg pointed out, and Dr. Mikkelsen, you were recommended 
to us as an extremely knowledgeable person basically with a 
difference of opinion from Mr. Kimmelman, and we appreciate you 
being here.
    Mr. Fontana, I do not think you are going to see a return 
to Fin-Syn.
    Mr. Fontana. No, I do not expect so.
    The Chairman. I think it is because of a court decision, 
but I am very impressed by the letters that I have received 
from the creators such as yourself, Mr. Gelbart, Mr. Burns, 
John Gay, some of the most respected people in your line of 
work, the creators, and they are all deeply concerned about 
this issue, and I will do what I can to pursue it, but frankly, 
right now, I do not know an answer, but you have helped the 
Committee and you have helped all of us by being here.
    Mr. Murdoch, I do not know what the correct level of 
diversity is. I do not know what is the precise, appropriate 
rule, whether 35 or 45 or 55 or 25. I do know this, that the 
Clear Channel hearing we had was a miner's canary to all of us, 
whether it be an idiosyncracy in the rule, or what, but when 
one corporation owns every radio station, no matter how small 
the city is, there is something wrong with that picture.
    I agree with Senator Lott's point about The New York Times 
and what questions we are going to be asked. I also agree that 
with Gannett, which owns USAToday, which owns the Arizona 
Republic, which owns Channel 12, I know what the news anchor's 
going to ask me about on the radio and television, and that is 
what was in the Arizona Republic, and I do not know if Gannett 
should own more than one station, three, four, five. Should 
they own every television station in Arizona?
    I do not know where that answer is, but we need to look at 
this issue I think with great care so that we do preserve 
diversity, localism, et cetera, and I do believe that there is 
some danger that at least in some segments--and you know, you 
said that in rural areas that you would be concerned about 
diversity. What is a rural area? Phoenix, Arizona 20 years ago 
used to be a rural area. Now there are 3\1/2\ million people 
that live there.
    So I am asking more questions than I am answering here. 
Example: Is EchoStar now going to have to be bought by one of 
the major networks? Can EchoStar survive independently now that 
you will acquire Direct?
    Mr. Murdoch. Very easily. I said it already makes a lot 
more money than Direct per customer, and you know the owner and 
I do, and I can tell you he is a very, very able operator.
    The Chairman. I agree, and it is one of the great American 
success stories I think, just as yours is.
    Mr. Murdoch. Yes.
    The Chairman. But there are many experts who say that 
EchoStar cannot survive independently, and I am not saying 
that, but there are a whole lot of experts in the media that 
say that is the case.
    Mr. Murdoch. Senator, we have neither the skills nor the 
financial resources.
    The Chairman. I do not think bought by you. I am saying, 
bought by one of the other major networks----
    Mr. Murdoch. No, I mean, it could compete in a way to hurt 
them. Both services are increasing their reach by more than a 
million customers a year. They are both expanding very fast, 
giving cable a rough time.
    The Chairman. Well, you have heard my sort of comments 
there, and so, since I am not going to ask questions again, 
maybe I could just have some responses to those comments, 
starting with you, Mr. Murdoch, down the line, or no response 
if you do not choose to.
    Mr. Murdoch. I do not wish to get into a debate with Mr. 
Fontana. I would just point out that in 1986, when we wanted to 
start a little network and get going, we could not do it 
without a waiver of the Fin-Syn rules. We received that waiver, 
and we started and struggled and lost some money, but we 
finally got there.
    Later, the rules were taken away by the courts. Then you 
got Warner Brothers starting a network. Then you got Paramount 
starting a network. There are 6 networks today, where there 
were only 3, and there were not any really major cable 
operators. Today, a cable operator can reach 77 percent of the 
country. There are no limits on what he can reach up to 77 
percent, and they do have a very great advantage.
    I just wanted to make that point.
    The Chairman. Thank you. Mr. Kimmelman.
    Mr. Kimmelman. Mr. Chairman, you know that since 1997, I 
have been coming before this committee saying it is time to 
reopen a lot of these issues and consider the flaws in these 
markets. Will there be a merger with EchoStar? Well, Bell 
Atlantic bought NYNEX and SBC bought Pacific Telesis, and they 
said that would be it, but then Bell Atlantic bought GTE. It is 
now Verizon, and SBC bought Ameritech. I mean, it does not--
this has to be mutual assured destruction in these industries. 
Given the assets involved, I think we will be back here looking 
at some other transactions in the future.
    I think the big problem, Mr. Chairman, is the FCC is just 
about to make an enormous mistake about local markets, because 
it is looking at the wrong issues. It is not looking at the 
real facts, and I think there are easy ways to take the data 
the FCC has, and I think in some ways, the Chairman of the FCC 
has the right inclinations. He just may not have the votes or 
the support to look at this from a simple market concentration 
point of view, and look at where you get news and information, 
look at it right smack down the middle.
    Look at where Mr. Murdoch's companies and Viacom's have 
bought two stations and reduced them down to one news 
operation, or where, in Chicago, Mr. Murdoch has taken local 
programming off of a channel he bought--he has two channels--
and eliminated a top-rated children's television program. Look 
at the facts, and just set the limits. That is what we need. I 
am afraid we are going to be back here having to redo it.
    The Chairman. Dr. Mikkelsen.
    Dr. Mikkelsen. Thank you for this opportunity. One thing 
that I have noticed in many of the discussions, not your 
comments in particular, Senator, is confusion with overbigness.
    I spoke earlier about how I think the antitrust laws help 
us out to ensure competition. I think they also bring an 
analytical focus because they help us think about what goes 
together and what really does not go together, and so, I think 
it is quite dangerous to think about this as big. It has lots 
of media, without thinking carefully about whether they compete 
with one another or whether they are really alternatives to one 
another.
    So, if stations in two different markets are commonly 
owned, I do not see how that reduces or even affects diversity 
because you have different people living in those two markets, 
so I think that we need to be cautious in worrying about some 
of these things.
    And I have lost the other point.
    [Laughter.]
    The Chairman. That is all right. I just want to point out, 
we seem to see that often a group of stations, even though 
there is diversity in programming, use the same news source to 
keep down cost. We have already seen that, so you lose the 
diversity of news. I mean, that is just fact.
    I have long exceeded my time.
    Mr. Fontana.
    Mr. Fontana. The only thing I would like to add is, I 
always thought that what was brilliant about what Mr. Murdoch 
did in order to form Fox Network was to take a bunch of 
independent stations and pull them together to create that 
fourth network. It was a very bold move, and it also creatively 
opened up a whole new avenue for writers and producers.
    What I guess I am worried about is, there are really only 
four networks. The other two, I do not really think are in the 
game, but there are no more opportunities to build another 
network, because all the stations seem to have been bought up.
    The Chairman. Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much. I had to 
go to an Appropriations Subcommittee hearing and I have just 
returned.
    Dr. Mikkelsen, you, in your testimony, said that, quote, 
what matters to diversity is the range of viewpoints available 
to individuals, that range is not diminished when a local media 
outlet available to an individual is jointly owned, and so on. 
Just because I have the information in front of me, I want to 
talk just for a moment about radio, because I know we are 
talking about television today.
    The 44 largest stations owned by the five largest ownership 
groups in the country, 50,000 watts or greater, so these are 
the big stations owned by the five major groups, on a weekday, 
each weekday there are 312 hours of nationally syndicated 
conservative talk radio and 5 hours of nationally syndicated 
progressive or liberal talk radio. Now, that has come about, of 
course, as we have had this galloping concentration in radio. 
How does that fit with your theory in your testimony about a 
diversity of range of viewpoints? Would you consider that 
troublesome?
    Dr. Mikkelsen. I do not know whether that has been a result 
of, as you put it, galloping consolidation, Senator.
    Senator Dorgan. Whatever its result, how do you square that 
with the issue of range of viewpoints and diversity?
    Dr. Mikkelsen. What you need to focus on in evaluating 
diversity is what viewpoints are available to people located in 
a single spot, so I would not count shows that are showing in 
California as either adding or detracting from diversity from 
shows that are available in some other state. I am not sure how 
the 305 are calculated, but that sounds like a lot of 
programming in a single market, that no individual, I would 
guess, is being exposed to or has even an opportunity to listen 
to 300 hours of conservative and 5 of liberal in the same 
market.
    Furthermore, there are many, many other outlets available 
to people, other than radio. You have said let us look at 
radio, but we have other broadcasts.
    Senator Dorgan. I understand that.
    Dr. Mikkelsen. And many other opportunities to inform 
oneself and for people to express their views.
    Senator Dorgan. I was just asking this piece, because it 
seems to me every time we talk about the issue of 
concentration. We have got people saying, well, look, there is 
no concentration. Are you kidding me? There is so much more 
diversity, and such a range. Are you joking? It is kind of like 
the old, the gag in the movie, are you going to believe me or 
your own eyes?
    It is quite clear what has happened in radio and 
television. I recited what has happened at the start of this 
hearing. It is hard to argue with that. One might say it is 
great. I mean, we had airlines in here saying let us just have 
one or two airlines. That way you would have seamless 
transportation.
    It is fine for somebody to come and argue with us or debate 
the point that concentration is great for the American people. 
That is fine to do, but it is not fine for me to have somebody 
come in and say, well, there is no concentration going on. I 
mean, the evidence is quite clear it is.
    Dr. Mikkelsen. Well, Senator, I know you are not advocating 
that the FCC regulate whether stations have conservative 
viewpoints or liberal viewpoints, or wanting to get involved in 
content at all.
    Senator Dorgan. I am only asking about your--well, you are 
an economist. I taught economics in college 2 years and 
overcame that----
    [Laughter.]
    Senator Dorgan.--but you are an economist, and you said 
that what matters is a range of viewpoints and diversity. I was 
only making the point to you, it does not appear to me, as I 
drive in my car and listen to the radio, you find much 
diversity, and so I think this is an economic theory that does 
not hold a drop of water.
    Dr. Mikkelsen. Well, the question is whether that range of 
diversity would be any different if we had a different 
ownership structure, and I do not think that has been 
demonstrated. And that is what is at issue in these rules.
    Senator Dorgan. I want to ask Mr. Murdoch a couple of 
questions. I might say you are begging that we be cautious in 
worrying about concentration. You have a great constituency 
down at the FCC. They are very cautious in worrying about 
concentration of ownership, regrettably so, I must say.
    Anyway, look, I love economists. I mean, the field of 
economics is really just psychology pumped up with a little 
helium. We all love to talk about all of these theories.
    Dr. Mikkelsen. And a little math.
    Senator Dorgan. That is right.
    Mr. Murdoch and Mr. Kimmelman, I was interested in your 
opening dialogue. I know you patted him on the arm when you 
said he was ignorant, so you were just kidding Mr. Kimmelman. 
Later you said he was misled, but you and Mr. Kimmelman have 
very different views of not just this issue, but also, I think, 
the issue of concentration. I want to ask you just a bit about 
that if I can. I do not want to talk so much about this 
proposal. I mean, there is time to do that, because I think 
that is before the FCC, and there is a lot to discuss, I 
suppose.
    You indicate that you will agree to abide by the FCC 
program access regulations for as long as those regulations are 
in place. One of my concerns about all of these things with 
respect to the media is--and especially ownership, is the 
regulations do not always stay in place. You know, you say, 
well, I will abide by whatever is there, and then we have got 
people trying to change it very aggressively.
    My colleague, Senator Hollings, indicated that in 1996, I 
offered an amendment on the floor of the Senate, and my 
amendment was to restore the 25 percent ownership limitation 
with respect to television stations. It was opposed by Senator 
Dole very aggressively, and I will be darned if I did not beat 
him. I beat him by, I think, three or four votes at 4 in the 
afternoon, and I thought, this is pretty incredible. I mean, 
you seldom ever have that kind of a win.
    And then dinner intervened--supper, in North Dakota, we 
call it, intervened, and apparently four or five of my 
colleagues had an epiphany over dinner. Lord knows what they 
ate, and we had a re-vote and I lost, and so, we have 35 
percent rather than 25 percent. Now we have a proposal to take 
it to 45 percent. The question is, I guess, what would concern 
you about concentration?
    I understand you have answered a question from other 
colleagues that there might be circumstances in which 
concentration would be bad for the American people. Can you 
describe your feelings about that?
    Mr. Murdoch. Not well, but I think I would find myself in 
agreement with what Mr. Kimmelman hinted at earlier, that there 
should be some measure of what is concentration market by 
market, which apparently, rumor has it Mr. Powell proposed and 
could not get through the FCC. Mr. Kimmelman would know more 
about that than I do, but I may disagree about where the level 
is, but I think there are very strong reasons for something 
like that.
    Senator Dorgan. As an expert, and you are quite an 
incredible businessman with a reputation of great success, let 
me ask you if you might respond to the same question I asked 
Dr. Mikkelsen. I described to you what is happening on the top 
44 radio stations, 50,000 watts and above, owned by the five 
largest ownership groups with respect to diversity, 312 hours 
of nationally syndicated conservative talk, and 5 hours of 
nationally syndicated liberal or progressive talk. Can you give 
me your impression of that?
    Mr. Murdoch. Yes. Apparently conservative talk is more 
popular. The people running that are just businessmen. I can 
tell you that, for instance, Infinity, which is owned by CBS, 
is no conservative organization.
    Senator Dorgan. What if, at some moment, there is only one 
thing the American people want to hear, and only one viewpoint, 
and we have substantial concentration in the media, and only 
one viewpoint is available to the American people because it 
makes money, and that is what they want to hear. Is that a good 
thing for our country and our democracy?
    Mr. Murdoch. I think one should always--as I say, we should 
always be fair and balanced. I am most serious about that. I 
know that Democrats are not used to seeing conservative 
viewpoints put on the air, but we put on both sides, and we are 
very, very serious about it, and if you can point to anything 
where we have erred, I will be the first to move in and try and 
put it right.
    Senator Dorgan. If it were your stations, it was 312 hours 
to 5 hours, would that be fair and balanced?
    Mr. Murdoch. I am not in the radio business.
    Senator Dorgan. Oh, I understand that, but I am just asking 
what your definition of fair and balanced is. Is the 312 to 
five fair and balanced?
    Mr. Murdoch. Oh, if we could find a popular--maybe you 
could do it, if we could find a popular, amusing broadcaster to 
talk for an hour or two every day, and he was a liberal, we 
would have him on like a shot.
    Senator Dorgan. So do you think this is an audition for me?
    [Laughter.]
    Mr. Murdoch. You are doing very well.
    Senator Dorgan. I understand you pay better than the 
Senate.
    [Laughter.]
    The Chairman. Senator Boxer.
    Senator Boxer. Thanks, Mr. Chairman, for allowing me a 
second round. I do not agree that Democrats are not used to 
conservative viewpoint. I mean, do you ever watch the Senate?
    [Laughter.]
    Senator Boxer. Do you ever watch television? We are quite 
used to it, believe me. Coming from the state I come from, you 
know, it is a very interesting State, because we have, I say 
the most conservative and the most liberal politicians get 
elected from different areas of the state, and sometimes even 
statewide, so we are used to it, but I have got to tell you, 
and I need you to take a look at this, I have seen crawls under 
politicians' names when they go on your fair and balanced news 
show that are ridiculous, and why anyone would want to go on 
there and subject themselves to that is another issue, so I 
hope you will take a look at it.
    Mr. Murdoch. Senator, I know of your conversation about 
this yesterday.
    Senator Boxer. I have had many.
    Mr. Murdoch. I only learned about it last night, and I will 
certainly look into it, and if there was anything unfair or 
inaccurate, I will certainly have it put right. You would be 
very welcome back.
    Senator Boxer. Well, it has nothing to do with me. I do not 
need to go back. That is not the point. I do not care about 
myself. I am making a point that has nothing to do with that. 
This is not about special favors. It is about decency and 
fairness, and I have to say, if you believe that your--that Fox 
News is fair and balanced, if you really believe that, I am 
kind of stunned, because I do think it is fair and balanced 
between the right and the far right----
    [Laughter.]
    Senator Boxer.--but in terms of overall--I mean, you have 
an absolute right to do what you do on your show. You have a 
right if I go on, or Senator McCain, to run anything underneath 
our name you want. That is free speech. It is your right.
    The question I am trying to get you to think about is not 
personal, it is what is really fair, and I hope you will take 
that away from this hearing today.
    Mr. Kimmelman, I wanted to ask you, there have been more 
than 20,000 public comments about the media ownership rules at 
the FCC, and the analysis of that is, 9,000 were citizens 
opposed to changing existing rules, 99 were organizations 
opposed to the rule, 46 were organizations supporting a 
relaxation of the rules, and 11 were comments supporting the 
rules change.
    As an observer of the FCC, how seriously do you think the 
commissioners have taken what I consider to be a pretty decent 
public outcry against media concentration, and I have to say, 
our office has been overwhelmed. That is why I was so happy to 
have a chance to be on this committee to be able to address 
this. Do you think they are really seriously looking at it?
    Mr. Kimmelman. Senator Boxer, I think when Chairman Powell 
started this process, he talked about the need to gather facts 
to deal with the court that had overruled the previous rules, 
and to make sure that he was updating them to fit with market 
conditions. Everything I have seen in the last few months tells 
me he has thrown out the facts, he has thrown out the market 
conditions analysis, and he is not listening to these thousands 
and thousands of individuals coming in.
    It appears that this is a decision that will, in the end, 
favor a handful of media companies that have lobbied 
aggressively for many, many years, and you know it. They have 
been up here as well to say what they want to own, in what 
cities they want to own, and I think the definition of too much 
concentration that comes out of this, Mr. Chairman--you raised 
the question before--is, are any politicians afraid of any 
media companies? Are any politicians afraid to take them on?
    When I sat behind many of you in a different situation and 
had the privilege of doing that, I saw some of that. I think it 
is getting worse and worse, and I think that is the danger of 
concentration, when people who otherwise represent the American 
people are afraid to get out and state their points of view 
because of retaliation from media companies, there is something 
wrong.
    Senator Boxer. Well, let us hope that we will have an 
opposite effect today, because I think we have had a chance to 
be pretty upfront in this committee. I do not think there were 
that many pussycats here today. I am proud of that, and 
certainly, our Chairman, who has been called a lot of things, 
but never a pussycat as far as I am concerned, and--a lion 
would be more like it.
    But I just want to ask my final question to Mr. Fontana. I 
represent a lot of the creative community in this country, and 
I do not know where we would be without a creative community, 
regardless of what politics they have, it does not matter, but 
they are the ones that make life so interesting, that challenge 
us, that bring us different points of view through 
entertainment, and I would like you, in the final moments here 
of this hearing, to tell us. I know you have been successful, 
but do you think you would have been any less successful if you 
were in a more consolidated marketplace, and if you could put 
that so that the people in my state and across the country can 
understand what is at stake here.
    Mr. Fontana. Well, the only thing I can think of, the 
extreme example is, having gone to China last year on a trip, I 
watched Chinese television, and I do not think I would have 
been very successful doing what I do in China, because I do not 
know how to write operas celebrating the triumph of the 
proletariat.
    I think that the great danger is, as things get smaller, 
that people who take risks will be moved aside in favor of 
people who can do yet another version of yet another wildly 
successful show. The problem with my business is that we only 
think in terms of this week's ratings and last week's revenues, 
and so, I live in fear, as I said, for the next generation of 
young writers coming up that they will not be able to express 
themselves, create original kinds of programming, and so, it is 
a great concern of mine, and I thank you for asking about it.
    Senator Boxer. I think you said it very eloquently. Thank 
you.
    The Chairman. The witnesses have been very patient. You 
have been here over 2\1/2\ hours. I appreciate it. It has been 
an excellent hearing, and I thank you. This hearing is 
adjourned.
    [Whereupon, at 12:30 p.m., the hearing was adjourned.]

                                  
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