[Federal Register Volume 60, Number 22 (Thursday, February 2, 1995)]
[Proposed Rules]
[Pages 6490-6499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2502]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73

[MM Docket Nos. 87-8 and 91-221; FCC 94-322]


Broadcast Services; Television Stations

AGENCY: Federal Communications Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: The Commission proposes a new analytical framework in which to 
evaluate its television ownership rules. This framework provides a more 
structured approach to a comprehensive economic and diversity analysis 
of the rules. This Further Notice of Proposed Rule Making (FNPRM) is 
issued in order to allow compilation of a comprehensive record, using 
this new framework, which would enable the Commission to make a fully 
informed decision in this important area.

DATES: Comments are due by April 17, 1995, and reply comments are due 
by May 17, 1995.

ADDRESSES: Federal Communications Commission, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:
Roger Holberg, Mass Media Bureau, Policy and Rules Division, (202) 418-
2130 or Robert Kieschnick, Mass Media Bureau, Policy and Rules 
Division, (202) 418-2170.


[[Page 6491]]

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rule Making in MM Docket Nos. 87-8 and 91-
221, FCC 94-322, adopted December 15, 1994, and released January 17, 
1995. The complete text of this FNPRM is available for inspection and 
copying during normal business hours in the FCC Reference Center (Room 
239), 1919 M Street, N.W. Washington, D.C., and also may be purchased 
from the Commission's copy contractor, International Transcription 
Service, (202) 857-3800, 2100 M Street, N.W., Suite 140, Washington, DC 
20037.

Synopsis of Further Notice of Proposed Rule Making

    1. This FNPRM proposes a new analytical framework within which to 
evaluate our ownership rules applied to television stations. This new 
framework provides a more structured approach to economic and diversity 
analyses of the rules. While the Commission found the comments received 
in response to the Notice of Inquiry (56 FR 40847, August 16, 1991) and 
Notice of Proposed Rule Making (NPRM) (57 FR 28163, June 24, 1992) in 
this proceeding useful, we believe that the issuance of this FNPRM is 
necessary to permit compilation of a record based upon this new 
framework which will enable us to make a fully informed decision in 
this important area. Additionally, the Commission solicits further 
comments in MM Docket No. 87-8, Television Satellite Stations, on the 
treatment of satellite television stations under our ownership rules.
    2. This review of the television ownership rules originated as a 
result of a 1991 report developed by the Commission's Office of Plans 
and Policy, which found that the market for video programming had 
undergone tremendous changes over the previous fifteen years, and that 
new competition to ``traditional'' broadcast services had affected the 
ability of broadcast services to contribute to a diverse and 
competitive video programming marketplace. The Notice of Inquiry 
initiating this proceeding thus solicited comment on whether the 
Commission's existing ownership rules and related policies should be 
revised to enable television licensees to be more responsive in meeting 
this competition. The subsequent Notice of Proposed Rule Making was 
issued to consider changes to several long-standing structural rules 
governing the television industry, including the rules limiting the 
ownership interests that a person or entity may have in television 
stations on both the national and local level. The Commission also 
solicited comment on certain rules governing the relationship between a 
network and its affiliates.
    3. This FNPRM considers the effects of several major developments 
since the 1992 NPRM that have altered the telecommunications landscape 
and accentuated the need to further explore the desirability of 
modifying the TV ownership rules. In particular, the Commission has re-
regulated cable television pursuant to Congressional mandate, leading 
to rate reductions and raising the prospect of increased cable 
penetration. DBS and wireless cable (MMDS) are becoming increasingly 
important players in the video marketplace, and some telephone 
companies may soon begin to provide video dialtone service. These 
developments increase the number of competitors broadcast TV stations 
face and thus may justify loosening the restrictions on broadcast 
television station ownership. Thus the Commission wishes to analyze the 
extent to which our TV ownership rules should explicitly account for 
these competing media. Finally, in 1992, the Commission adopted a 
regulatory scheme, recently reaffirmed and clarified, governing LMA 
rules for radio and wishes to consider whether similar rules should be 
adopted for TV.

I. Competitive Analysis of Television Broadcasting

Framework for Competitive Analysis

    4. The purpose of competitive analysis is to describe the markets 
at issue in light of established economic theory and legal precedent to 
determine how the current market structure and regulatory schemes 
affect competition and consumer welfare. The Commission's competitive 
analysis of the rules at issue in this proceeding focuses upon whether 
and to what extent market power exists and is being exercised, and what 
effect these rules have on the existence and exercise of this market 
power. This analysis requires two steps: (1) Definition of the relevant 
product markets, and (2) examination of these markets' structure for 
evidence of the existence and exercise of market power. A standard 
method to define the product market within which a particular firm 
operates is to ask the question: If this firm raised the price of its 
produce, to what degree would consumers continue to purchase that 
product or turn to the products of other firms, and what are these 
other products and other firms? After this set of relevant products is 
determined, the geographic extent of the market is outlined. In 
general, the geographic market refers to the area where buyers of the 
particular product can practicably turn for alternative sources of 
supply, or the area in which sellers sell this product. A useful 
technique in determining the geographic extent of the market is to 
examine the geographic region where buyers would buy and where sellers 
would sell in response to a ``small but significant and nontransitory'' 
price increase by any firm in that market. No single geographic market 
definition is likely to be decisive for all purposes in examining a 
particular industry.
    5. Once reasonably interchangeable substitutes are identified and 
the geographic extent of the market is delineated, the participants in 
the relevant product market can be identified. This identification 
allows market shares to be calculated to characterize the market's 
structure and its concentration. Such calculations are useful as one 
component of a competitive analysis of potential market power. As with 
many other human activities, a firm's possession and use of market 
power is a matter of degree. The potential for the exercise of market 
power is limited by the degree to which its consumers can turn to 
substitutes, the competition offered by its existing competitors, the 
potential competition offered by new entrants, and the degree to which 
its suppliers can sell their product to other firms. If the relevant 
product markets are properly defined, the ability of consumers to turn 
to substitute products offered by other firms will already be reflected 
in their definition. Market share and concentration can only be 
reasonable proxies to estimate market power if the market is properly 
defined.
    6. Market power cannot be adequately assessed by mere reference to 
market shares, however, because other factors, such as barriers to 
entry, can influence the degree to which market share conveys market 
power. As a result, in addition to market concentration, the conditions 
of entry in each market must be examined to determine whether the 
exercise of market power is possible.

Television Broadcasting's Relevant Markets

    7. With the above principles in mind, the Commission turns to an 
identification of the product markets influenced by the rules under 
consideration. We find that TV broadcasters operate in three economic 
markets relevant to the rules under consideration: (1) The market for 
delivered video programming; (2) the advertising market, and (3) the 
video program production market. For each of these markets, we need to 
identify what 

[[Page 6492]]
products are relevant substitutes for one another, who are suppliers of 
these products, what is the geographic scope of the relevant market, 
and how to measure market share for the different suppliers. It is 
these questions to which we now turn for each of television 
broadcasting's relevant markets.
The Delivered Video Programming Market

    8. Delineation of Relevant Substitute Products and Suppliers. To 
identify the relevant substitutes to delivered video programming, it 
must be recognized that Americans can spend their leisure time doing 
other activities. The stability of Americans' use of television as a 
leisure activity suggests that video programming seen on television may 
be a sufficiently different economic product from other entertainment 
so that it should be treated as a separate product market. However, 
parties are requested to comment on this view and supply data and/or 
analysis which demonstrates the economic relevance of their proposed 
substitutes for delivered video programming.
    9. Turning to an identification of economically relevant suppliers, 
the Commission is confronted by a more difficult demarcation of this 
market. Public broadcast station operators clearly compete with 
commercial broadcast television operators for viewer attention. Cable 
system operators also compete with broadcast television stations and 
have grown in importance as a group of suppliers of delivered video 
programming. The number of cable video networks and the channel 
capacity of cable systems continue to grow dramatically. However, the 
Commission notes that more than half of all viewing hours in cable 
households during the 1992-93 season were of retransmitted broadcast 
signals. In addition, more than one-third of all households that could 
subscribe to cable elect not to do so. Because some consumers choose 
not to purchase cable service, the degree to which cable TV channels 
are substitutes for broadcast television channels is an issue on which 
the Commission requests specific comment.
    10. In addition to cable, there are now several emerging for-
subscription multichannel providers of video programming, such as home 
satellite dish service, wireless cable service, and direct broadcast 
satellite service, which may compete with broadcasters in the same 
manner as cable. While all the above listed alternative suppliers 
currently provide some amount of delivered video programming, we will 
tentatively conclude, for purposes of this FNPRM, commercial broadcast 
television operators, public broadcast television station operators, 
and cable system operators to be economically relevant alternative 
suppliers of delivered video programming. While the Commission wishes 
to tentatively include some of the other suppliers (e.g., MMDS, DBS, 
VDT, etc.) in our demarcation at this time, we concede that it may not 
be appropriate to include them because their current market penetration 
is so low that they are not relevant substitutes to a majority of 
Americans. However, this situation may rapidly change and we solicit 
comment on these tentative conclusions. Finally, while VCRs are present 
in a large number of television households, they do not provide a 
complete schedule of video programming and so are treated as 
sufficiently different as to suggest that perhaps they should not be 
included at this time. However, commenters are asked to provide 
information on the degree of economic substitutability of all 
internatives considered above to a broadcast TV station's video 
programming. In submitting comments, commenters should provide evidence 
on the extent to which these are economically relevant substitutes as 
demonstrated by their cross-price elasticities of demand and supply.
    11. Delineation of the Market's Geographic Scope. Because 
commercial broadcast television stations have a limited signal range, 
it appears that, from these operators' perspective, the ``area of 
effective competition'' is geographically limited. This suggests that 
commercial broadcast television operators compete in a ``local'' market 
for delivered programming. However, the alternative suppliers that 
might be included in the product market have different service areas. 
Therefore, we recognize that as competition and technology change the 
geographic reach of the relevant competitors, our notions of the 
geographic scope of the market for delivered video programming may 
change.
    12. Earlier comments suggested several alternatives for defining 
the boundaries of the ``local'' market for delivered video programming. 
While in the past, the Commission has used the Grade B contour to 
define a local market, comments previously submitted in this proceeding 
tended to suggest the use of either a smaller geographic area 
definition (the Grade A contour) or a larger geographic area definition 
(the DMA). The Commission proposes to continue to rely on a contour 
overlap standard but will consider the DMA definition of ``local'' for 
determination of the relevant geographic dimensions of the market for 
delivered programming. However, further comment is sought on the use of 
the DMA definition of the geographic scope of these markets. Are DMAs 
equally applicable for alternative distributors such as cable? Are they 
too large?
    13. Delineation of Market Power Measurement. To determine whether 
market power exists, the Commission must also determine how to measure 
market concentration within the local delivered video programming 
market. There are four different measurement scales that were 
frequently mentioned in earlier comments. They are: (1) The number of 
separately owned stations or outlets, (2) the audience share of the 
separately owned stations or systems, (3) the number of available 
channels, and (4) the audience share of the separately available 
channels. The Commission tentatively proposes to use the number of 
separately owned stations or outlets serving a market as our unit of 
measure. However, we recognize its potential limitations and would like 
additional comment on which of these four measurement scales the 
Commission should use. Specifically, if the Commission were to use the 
audience share of the separately available outlets or channels, how 
should we address the variability this introduces into our television 
station ownership rules because of changes in the number of outlets or 
channels offered and the popularity of those outlets' or channels' 
programming over time? Further, if the Commission were to count the 
number of available channels, how should mandated-access channels on 
cable systems be included? Finally, comment is invited on the 
conditions of entry and other structural features of this market which 
influence the exercise of market power.

Advertising Markets

National Advertising Market
    14. Delineation of Relevant Substitute Products and Suppliers. 
Examination of available data (See appendix D in the full text of the 
decision) suggests that video advertising is the mass media of choice 
for advertisers wishing to reach national audiences. Unfortunately, the 
Commission has no clear evidence on the degree to which all the other 
alternatives reflected in Appendix D are economically relevant 
substitutes for video advertising. Consequently the Commission will 
tentatively consider video advertising an economically distinct segment 
of the national advertising market. However, we solicit any evidence 
that commenters can provide which demonstrates that some 

[[Page 6493]]
of the other alternatives provided in Appendix D are economically 
relevant substitutes for video advertising of the national advertising 
market.
    15. The Commission believes that the primary suppliers of video 
advertising in the national market consist of the broadcast networks, 
program syndicators, cable networks, and perhaps cable multiple system 
operators (MSOs). The Commission tentatively excludes individual 
broadcast television stations' and cable system operators' sale of 
advertising to media buyers (i.e., spot sales) from this market because 
spot sales of advertising to national advertisers are frequently made 
to allow the national advertisers to reach a more targeted geographic 
focus and not to reach a national audience. Further, at this time, we 
do not include wireless cable operators, DBS operators, or VDT 
operators because they do not presently provide appreciable amounts of 
national advertising. However, the Commission solicits evidence which 
would demonstrate that we have either included too many or too few 
alternative suppliers of national video advertising.
    16. Delineation of the Market's Geographic Scope. As stated 
earlier, we view the national advertising market as distinct from the 
local advertising market. By its very characterization, we view this as 
advertising directed to a national audience, and hence national in its 
geographic scope.
    17. Delineation of Market Power Measurement. To measure market 
share for the purpose of discerning the concentration of this market, 
the Commission proposes to use advertising revenues. Because of data 
availability concerns, we will proxy this by advertiser expenditures by 
media, from such sources as McCann-Erickson Incorporated. However, we 
invite suggestions of alternative measures which might be better 
indicators of market share in the national video advertising market, on 
the availability of data necessary to use the measure, and on the 
conditions of entry and other structural features of this market which 
influence the exercise of market power.

The Video Program Production Market

    18. Broadcast TV stations are also involved in the video program 
production market through their transmission of video programming 
produced by others. The competitive concern about multiple ownership of 
television stations in this market is one of either monopsony or 
oligopsony power--i.e., the ability of one or several firms to 
artificially restrict the consumption of programming or price paid for 
programming.
    19. Delineation of Relevant Substitute Products and Suppliers. The 
products involved in the video program production market, from movies 
to first-run syndicated television series, are readily distinguishable 
from other types of programming, like radio programming, and are 
therefore relevant substitutes. There are a number of sellers and/or 
suppliers in this market, including program production companies, 
broadcast television networks, movie studios, and syndicators.
    20. Broadcast television stations are major buyers of video 
programs and typically acquire the video programs they deliver to 
consumers in one of three ways. First, a broadcaster can affiliate with 
a broadcast network and obtain an entire package or schedule of 
programming directly from its network (the network ``feed''). For 
clearing its airtime for network programming, an affiliate is 
compensated according to the time of the day it clears time for network 
programming and the size of its potential audience. Second, television 
broadcasters can also obtain programming from suppliers called 
``syndicators''--national or regional entities that sell programming to 
television stations on a market-by-market basis. Finally, television 
stations can produce their own programming. Network affiliates and 
independent stations both generally air such locally-originated 
programming as local news and sporting events.
    21. Over the last 15 years, the list of additional buyers of video 
programs for delivery to consumers has grown. This increase in 
potential purchasers would seem to imply that there is competition 
among buyers of video programming and, thus, concerns that television 
broadcasting companies exercise oligopsony power in the purchase of 
video programs have lessened to some extent. However, the Commission 
invites comment on this implication.
    22. Delineation of the Market's Geographic Scope. The video 
programming production market is clearly national and perhaps 
international in scope, because television broadcasters obtain a large 
portion of their programs from national providers. The fact that 
television broadcasters produce some programming locally does not 
detract from the national scope of this market, because the television 
broadcasters could reasonably turn to national sources of supply for 
programming.
    23. Delineation of Market Power Measurement. The Commission 
proposes to use expenditures on video programming as the proper means 
of determining market shares for the purposes of examining the buying 
power of the relevant purchasers of video programming. Commenters are 
requested to discuss whether this a proper measure for assessing the 
potential for oligopsony power in this market and on the conditions of 
entry and other structural features of this market which influence the 
exercise of market power.

Tentative Economic Conclusions

    24. Above, the Commission has reached a series of tentative 
conclusions about the three markets that broadcast television stations 
are involved in that are important to consider in the context of this 
FNPRM. The Commission will assume these delineations of relevant 
substitutes and suppliers, geographic scope, and measures of market 
power for the market for delivered programming, the market for 
advertising, and the video program production market in subsequent 
analyses of the effect of broadcast ownership rules under 
consideration. To aid the reader, the Commission set out the 
alternatives in Appendix E of the full text of the decision, and those 
starred alternatives that will be tentatively used as working 
assumptions about the relevant markets in further discussion. Clearly 
these delineations should be the focus of comments on our competitive 
analysis of television broadcasting, and so are subject to change based 
upon comments and evidence received in response to the FNPRM.
    25. In analyzing the economic effects of the rules under 
consideration, the Commission assumes the above product market 
descriptions, and considers: (1) Whether the existing evidence points 
currently to exercise of market power (focusing upon prices in the 
different markets); and (2) whether relaxing the current rules will 
substantially increase the concentration of these markets to levels 
which raise concerns about the potential for the exercise of market 
power?

II. Diversity Analysis of Television Broadcasting

    26. The Commission has historically examined the effectiveness of 
its broadcast regulations in achieving diversity goals by primarily 
assessing diversity within the broadcasting industry, on national and 
local levels. However, due to the increasing availability of a variety 
of video programming sources, the Commission believes that a new 
framework for 

[[Page 6494]]
assessing diversity, which takes into account the developments in the 
communications marketplace and which captures the rigor of our economic 
analysis may be appropriate.
    27. In the full text of this FNPRM, the Commission lays out its 
traditional diversity goals and approaches for achieving them, raises 
questions concerning new approaches for defining diversity, and seeks 
comment on how to apply a framework for assessing the efficacy of 
broadcast regulations in achieving these goals. More specifically, 
Section IV A describes the three types of diversity that the 
Commission's rules have attempted to foster--viewpoint, outlet and 
source diversity, and the two basic techniques the Commission has used 
to achieve these diversity goals--direct means (such as 
nonentertainment programming guidelines) and indirect means (like our 
structurally-based ownership rules). Section IV B, then considers new 
approaches to ensure diversity, and Sections IV C and D set forth 
possible methods for defining what markets should be evaluated to 
determine whether the Commission's diversity goals are being served by 
the particular broadcast regulation in question. Section IV C proposes 
a broadening of the ``product'' market that the Commission has 
traditionally examined for diversity purposes, to go beyond just 
broadcast-delivered video programming received in the home, and Section 
IV D discusses the geographic markets the Commission would examine in 
determining whether its diversity goals are being furthered by the 
broadcast regulation in question.
    28. Once the Commission has determined the appropriate product and 
geographic markets that are relevant for assessing whether the 
diversity goals of a rule are being met, we will examine each rule at 
issue by (a) identifying which diversity goal or goals the rule seeks 
to foster (e.g., viewpoint, outlet and/or source), (b) determining 
whether the rule in fact fosters such goals in the relevant markets, 
and (c) deciding whether, in those markets, there is a need for 
continued regulation to maintain or increase existing levels of 
diversity.

III. National Ownership Rule

    29. Currently, a company is limited to owning 12 broadcast TV 
stations nationally in different local markets and to a maximum 
aggregate 25% national audience reach. The reach limit presently 
prevents a group owner from owning television stations in each of the 
12 largest markets. The national networks and some other group owners 
have concentrated their station purchases on stations located in 
markets with the largest audiences. As a result of this strategy, some 
group owners have reached the 25% audience reach limit before they have 
acquired 12 stations. Thus, it appears that for many of the existing 
national TV group owners, the 25% national audience reach limit is the 
more binding regulatory constraint on group acquisition of additional 
stations nationally. In order to examine whether the national ownership 
limits should be relaxed, the full text of this FNPRM presents first a 
competitive analysis and then a diversity analysis.

Effects on Competition

    30. In conducting the competitive analysis, the Commission seeks to 
examine the effects of relaxing these rules on the potential 
competitiveness of the markets for delivered video programming, 
advertising, and video program production. The primary focus in each of 
these discussions is on the effect of changing the rules on the 
concentration of the market. As a consequence of these analyses, the 
FNPRM solicits comments on a number of issues such as: (1) The effect 
of relaxation of the national ownership limits on competition in the 
local market for delivered video programming; (2) the effect of 
relaxation of the national ownership limits on competition in local 
advertising markets; (3) evidence concerning economies in the 
distribution of video programming which may accrue to group owners of 
television stations, particularly if the commenters distinguishes 
between the effects of owning a group of stations and the effects of 
affiliating with a network; and (4) the effect relaxation of national 
group ownership limits might have on the prices of broadcast television 
stations, with its attendant effect on the ability of minorities to 
acquire broadcast television stations.

Effects on Diversity

    31. In conducting the diversity analysis, the Commission seeks to 
examine the effects of relaxing these rules on the diversity of 
viewpoints available to the public, paying particular attention to the 
diversity of voices. The FNPRM notes that one of the premises of the 
national television ownership limitations has been that placing 
limitations on the number of stations a party can have a cognizable 
interest in promotes diversity outlets and viewpoints, and limits the 
degree of control over viewpoints expressed nationally that any entity 
could have thus furthering First Amendment goals. However, while the 
national ownership rules may foster these goals, and especially outlet 
diversity, the rules may not be essential to achieving such diversity. 
It appears that such factors as increased video media competition, 
network affiliation and diversity on the local level all favor 
alteration of the national ownership limitations. While the 
Commission's analysis suggests that, from a diversity standpoint, 
changes in the current national ownership limitations may be warranted, 
commenters should nevertheless address what effect, if any, group 
ownership and consolidation of ownership nationally would have on 
viewpoint diversity in news and public affairs programming, especially 
locally. Additionally, for national news, network affiliated stations 
primarily use their network affiliation to provide national news 
programming, and broadcast networks must compete with each other and 
with cable news networks in providing national news. Consequently, we 
ask whether changing national group ownership rules would have any 
impact on the delivery of national news and, if so, what that impact 
would be. Finally, given that the pursuit of large audiences may drive 
all licensees--whether group owners or not--towards the exclusion of 
controversial, non-mainstream subjects from their programming, does 
ownership diversity, indeed, have a major effect on viewpoint diversity 
with respect to television?

Tentative Proposals

    32. The Commission tentatively concludes that liberalization of the 
national ownership limits would not have an adverse impact upon 
competitiveness of the markets for delivered video programming, the 
market for advertising, or the video program production market. Nor do 
we believe that raising the national ownership limits would have 
serious adverse effects on diversity. Therefore, the Commission 
proposes raising national ownership limits and seeks comment about the 
manner in which these limits should be expressed (e.g., number of 
stations or outlets, number of stations or outlets with a reach cap, 
reach cap without any limit on the number of stations or outlets, or 
audience share cap) and the extent to which they should be raised. The 
Commission believes that changes in the national multiple ownership 
rules should be incremental in order to avoid significant dislocation 
in the television industry.
    33. The NPRM in this proceeding proposed several adjustments to the 
multiple ownership rules, which 

[[Page 6495]]
commenters should consider in the context of this decision. The NPRM 
proposed amending the national numerical limit to permit common 
ownership of 18, 20 or 24 television stations and altering the national 
reach restriction to permit a group owner to reach 30 or 35 percent. 
Alternatively, the NPRM sought comment on whether to modify only the 
numerical limit, retaining the 25 percent reach limit. Commenters were 
mixed in their responses to each of these proposals and provided little 
structured analysis by which we could compare contrasting positions. 
Consequently, comments are requested on these proposals which are 
structured in a manner consistent with the analytical framework 
proposed herein.
    34. Comment is also invited on the following new proposal. The 
Commission could eliminate the numerical station limit entirely, and 
allow the reach limit to increase by some fixed percentage, such as 5% 
every 3 years, until the reach limit rises to 50%, the final limit. 
During this period, the Commission would monitor the relevant markets 
and determine whether or not problems have arisen which call for a halt 
in the relaxation of the national ownership limit. The Commission 
believes that formulating national limits only in terms of reach, 
rather than in conjunction with a number of stations limit, may be 
preferred because it captures the relevant dimension of interest (i.e., 
the total audience potentially available) and it allows companies 
flexibility to own either a few stations serving large population 
markets or a larger number of stations serving small population 
markets. In addition to these advantages, it may be desirable to allow 
the reach limit to rise gradually rather than immediately to 50%, in 
order to monitor industry changes. Parties are encouraged to comment on 
all the above proposals and any others they wish to suggest.
    35. In applying the above to full power stations, we note that UHF 
stations are now attributed with only 50 percent of their theoretical 
reach within the ADI. The Commission incorporated this adjustment in 
the 1984 rules to account for the physical limitations of the UHF 
signal. The Commission seeks comment on whether this adjustment should 
be retained. Similarly the Commission similarly seeks comment on 
whether and, if so, to what extent, there remains a disparity between 
VHF and UHF signal propagation and how this should affect the UHF 
discount, if at all. In this regard, comment is also invited on 
whether, should the UHF discount be modified, existing group owners 
should have the reach discount for any currently owned UHF stations 
``grandfathered,'' or whether this should be done only where 
divestiture would otherwise result from a new UHF reach rule that no 
longer reduced the theoretical reach by 50%.
    36. Next, the Commission notes that a television station that 
qualifies as a satellite is exempt from the national ownership 
restrictions. Because the Commission, in this proceeding is now 
considering modifying all aspects of the national and local ownership 
rules in this proceeding, we believe it is appropriate to incorporate 
MM Docket 87-8 (Second Further Notice of Proposed Rule Making at 56 FR 
42306, August 27, 1991; Report and Order at 56 FR 31876, July 12, 1991) 
the outstanding proceeding on satellite television stations and resolve 
such ownership matters in this proceeding. In light of the proposed 
treatment of local marketing agreements in this FNPRM, we invite 
comment on whether satellite television stations should continue to be 
exempted from the national multiple ownership rules.

VI. Local Ownership Rule
    37. The local ownership rule prohibits common ownership of two 
television stations whose grade B contours overlap, and is intended to 
preclude ownership of more than one television station in a local 
community in order to promote competition and diversity. As discussed 
earlier herein, television stations compete for viewership and sell 
advertising in local markets. Thus, it is important that the 
Commission's rules ensure workable competition in local markets. 
Accordingly, changes to the local ownership rule give rise to more 
serious concerns than changes to the national ownership rule. The 
Commission intends to carefully evaluate the economic factors that 
affect the local marketplace, including changes that occurred after the 
NPRM was adopted in 1992. We will also look at how the proposal to 
modify the contour overlap rule from Grade B to Grade A is affected by 
other proposals in this FNPRM and how it and these other proposals 
influence the effects of allowing common ownership of broadcast 
television stations with contour overlap in a local market.

Effects on Competition

    38. Because commercial broadcast television station operators 
effectively compete with each other, with public broadcast television 
stations, with cable system operators, and others serving their 
``local'' market, some existing large markets for delivered video 
programming appear to be unconcentrated when we use either the number 
of independent operators measure or the number of channels of 
programming measure for market share calculations.
    39. Allowing one entity to own more than one broadcast TV station 
within a ``local'' market may permit the company to realize economies 
of scale, reducing the costs of operating the two stations. The 
Commission seeks hard evidence from commenters of the existence and 
magnitude of such economies, particularly information regarding the 
experience of those group owners who have consolidated pursuant to the 
Commission's relaxed local radio ownership rule and the one-to-a-market 
waiver standard. Comment is also invited on whether experiences with 
respect to the radio market can be used to predict the benefits of 
relaxing ownership rules in local television markets.
    40. Allowing a company to own more than one broadcast TV station in 
a local market might give the company the economic power to raise video 
advertising rates within the local service area, if, by virtue of the 
combination, the local market became sufficiently concentrated. 
Evidence on whether significant market power in the local advertising 
market already exists is mixed. Further, at this time, it is not clear 
whether cable system operators offer effective competition to broadcast 
station operators in providing local advertising. It is also not clear 
how substitutable radio and newspaper local advertising is for 
broadcast television local advertising. Interested parties are asked to 
provide whatever data and analysis they can on the substitutability of 
these media in the local advertising market at present and in the 
future. Assuming that they are not effective substitutes, comment is 
also requested on how many independent providers of local video 
advertising are necessary to ensure effective competition in this 
market. Statistical evidence supporting comments will especially be 
welcome.
    41. Television stations purchase or barter for video programming in 
a national market in the sense that producers of video programming 
typically create product which is marketed to be broadcast in more than 
one local market. However, the program market could be affected if 
Commission relaxation of the local ownership rules permitted one or a 
few broadcast station owners to exercise significant market power in 
the purchase of video programming. The result might be that suppliers 
of video programming would 

[[Page 6496]]
be forced to sell their product at below competitive market prices in 
order to gain access to the local market controlled by one or a few 
local group owners. However, the ever increasing number of alternative 
providers of delivered video programming in just about every major 
market may mitigate the potential distortion of video programming 
prices through an entity's control of broadcast access to television 
sets in a local market by providing program producers with additional 
outlets for their product. The Commission solicits comment on this 
point and evidence on the potential market power in the purchase of 
video programming in different markets if we were to relax the local 
ownership rule.
    42. As with relaxing the national ownership limits, relaxing local 
ownership limits could increase the price of broadcast television 
stations. The potential for increased prices of broadcast TV stations 
is troubling in light of the limited financial ability of minorities 
and women to purchase TV stations. The Commission addressed issues 
relating to the difficulties of minorities and women in obtaining 
access to capital in a Notice of Proposed Rule Making in MM Docket 94-
150 (FCC 94-324, adopted December 15, 1994, and released January 12, 
1995). We ask for comment and analysis of these issues.
    43. The Commission is also concerned about the possibility that 
changes in the local ownership limits may adversely affect the pool of 
independent television stations available for acquisition by and/or 
affiliation with nascent broadcast networks. Consequently, we solicit 
comment on the effects of allowing station ownership consolidation at 
the local level on the future development of these nascent broadcast 
networks. A separate but related concern, is with allowing the owner of 
a station affiliated with or owned by an established broadcast network 
to own another broadcast television station serving the same market. 
This possibility may confer on such an owner more market power than 
would arise from an independent station operator acquiring a second 
station in the market. Comment is sought on the importance of this 
concern.

Effects on Diversity

    44. The Commission's concern with diversity is most acute with 
respect to local ownership issues. The Commission has consistently 
believed that a reduction in local outlet diversity would translate 
into a reduction of viewpoint diversity. While the existing duopoly 
rule may foster diversity by assuring that only one television outlet 
in a given market can be owned by a single entity or individual 
(assuring that each local television outlet is owned by a different 
person or entity), we believe it is appropriate to solicit comments on 
whether the rule remains essential in its current form to ensure 
diversity.
    45. In recent years the totality of information outlets on the 
local level has increased. In a recent radio ownership proceeding 
(Report and Order in MM Docket No. 91-140, 57 FR 18089, April 29, 
1992), the Commission found that the abundance of radio and other media 
outlets now available ``make clear that the local marketplace is far 
more competitive and diverse--indeed, has been virtually transformed--
since the local ownership rules were first promulgated.'' On this 
basis, the Commission liberalized the duopoly rule with respect to 
radio.
    46. With respect to television, because of the fewer number of 
broadcast television stations than broadcast radio stations, we must be 
cautious in our analysis of outlet diversity, and the impact of mergers 
among TV stations on the local level on such diversity. Further, it 
should be recognized that the apparent level of television outlet 
diversity may not reflect what is in fact available to, or obtainable 
by, many consumers. For example, cable and other subscription services 
are perceived to provide an alternative video outlets. How, if at all, 
should the portion of viewers that chooses not to subscribe affect our 
analysis of available programming outlets? Is an outlet of opinion less 
available simply because it is not popular or is more costly? Further 
comment is requested on the degree to which such fee-based sources and 
outlets for video programming provide true alternatives to over-the-air 
television for purposes of ensuring viewpoint diversity.

Tentative Proposals

    47. The Commission sets out one specific proposal and requests 
comment on other possible rule changes. The current rule prohibits 
common ownership of broadcast television stations with overlapping 
Grade B contours. The Commission believes that the record already 
established in this proceeding is sufficient to justify proposing to 
relax the rule by decreasing its prohibited contour overlap from Grade 
B to Grade A. Comment is sought on this proposal as well as on other 
possible ways in which the rule could be modified.
    48. The NPRM, asked whether the Commission should modify the 
contour overlap rule, balancing the greater flexibility afforded 
broadcasters against the potential harm to our underlying competition 
and diversity concerns. Comment was invited on whether the predicted 
Grade B contour should continue to determine prohibited overlap, or 
whether it should be changed to the Grade A contour. The vast majority 
of commenters agreed that a Grade A contour standard provides a 
substantially more realistic and accurate measure of a station's core 
market than the existing Grade B contour rule. The commenters also 
stated that the switch from a Grade B standard to a Grade A standard 
will increase broadcasters' long-term viability by enabling them to 
reap the benefits provided by ``economies of scale''--without any 
commensurate loss in program diversity. The Commission thus proposes to 
modify this rule so that joint ownership will be precluded only where 
there is overlap of the Grade A contours. The Commission seeks further 
comment on this proposal in light of our competitive and diversity 
analyses of the television broadcasting industry. Comment is also 
requested on what the impact would be of moving from a Grade B to a 
Grade A contour rule on particular markets. Further, how many cases 
would occur in which relaxing the rule to a Grade A contour would allow 
an entity to own two stations within a single designated market area or 
within a single metropolitan statistical area?
    49. As a separate matter from whichever contour test the Commission 
ultimately decides to use, the issue arises as to whether, in at least 
some situations, a company should be allowed to acquire stations with 
overlapping contours. The Commission requests comment on whether to 
permit common ownership in local markets, such as UHF/UHF combinations 
or UHF/VHF combinations, or maintain the current prohibition against 
contour overlap and allow waivers either under a presumptive guideline 
or a case-by-case basis.
    50. The NPRM asked whether or not an entity should be permitted to 
own two UHF stations with overlapping contours. Comment was also sought 
on whether the Commission should permit a UHF station to merge with a 
VHF station as a more effective way of preserving or improving the 
service of UHF stations, and on whether it would be appropriate to 
consider such consolidations only where a minimum number of separately 
owned television stations would remain after the proposed combination. 
Commenters were very divided as to whether the economic benefits to 
licensees outweighed the potential harm to 

[[Page 6497]]
competition and diversity. Commenters are invited to submit further 
analyses of these proposals with reference to a Grade A contour 
definition of the relevant local geographic market for purposes of 
establishing local television ownership limits. However, commenters 
arguing that the economic benefits outweigh the potential harm to 
competition and diversity need to provide more specific evidence of the 
projected economic benefits as weighed against the potential harm to 
competition and diversity.
    51. If the Commission were to maintain the existing prohibition 
against common ownership of broadcast television stations with contour 
overlap but allow waivers, it must also be determined whether to follow 
a case-by-case approach. Parties may wish to address the factors the 
Commission currently considers in one-to-a-market waivers, which 
include the financial condition of the station to be purchased, the 
competitive and diversity characteristics of the market, and potential 
public interest benefits.
    52. Whether the Commission relaxes the rule or adopts a waiver 
standard, it is necessary to consider the number of independent 
suppliers serving the market. In a number of our past ownership 
proceedings, the Commission described and generally took into account 
the growth of new media that provide competitive and diversity 
enhancing alternatives to over-the-air television (or radio). However, 
with the exception of the one-to-a-market rule, the Commission 
fashioned the actual rule that counted only television stations or only 
radio stations in the local or in the national market. Given the 
conclusions discussed above regarding who are the relevant alternative 
suppliers and the kind of analysis we were concerned with (e.g., 
competitive analysis versus diversity analysis), comment is invited on 
the issue of which market or analysis should control the determination 
of who are the independent suppliers that the Commission counts for 
purposes of setting local ownership limits.
    53. In determining the number of independent suppliers for either 
competitive or diversity analysis of a relaxation to the contour 
overlap rule, the Commission must define the region in which the count 
is performed. One proposal is to treat the overlap area as the relevant 
region. Another proposal would be to treat the relevant region as the 
DMA within which the two broadcast television stations operate. This 
second proposal might allow joint ownership of two broadcast television 
stations with contour overlap when such joint ownership does not reduce 
the number of independent suppliers in their DMA below some critical 
level. The Commission solicits comment on both these proposals.
    54. Finally, should the Commission decide to designate a minimum 
number of independent suppliers that should remain in a local market, 
the question must be addressed of whether we should choose a number 
which allows everyone in the market currently to acquire another 
station or whether to allow firms to be acquired on a first-come first-
served basis until some minimum number of independent broadcast 
television stations remain. The Commission seeks guidance on which 
threshold number, if any, of remaining independent suppliers would 
satisfy both competition and diversity concerns. Further, comment is 
solicited on whether simply counting outlets is preferable to examining 
audience share for addressing the impact of an outlet on our 
competitive and diversity concerns. Finally, guidance is sought on 
which of the above approaches is the preferred approach with respect to 
these concerns.

II. The Radio-Television Cross-Ownership Rule

    55. The radio-television cross-ownership rule, or the one-to-a-
market rule, basically provides that a company cannot own both a radio 
station and a television station located in a given ``local'' market. 
This rule was adopted to limit any potential market power in the media 
market, and to ensure a sufficient diversity of broadcast outlets, and 
was amended in 1989 to permit, on a waiver basis, radio-television 
mergers as long as the combination occurred in one of the top 25 
television markets and 30 separately owned broadcast licensees remained 
after the combination, or if the waiver request involved a ``failed'' 
station, or if the waiver request satisfactorily addressed five 
criteria relating to public interest concerns. Whether this limit is 
still needed to promote these ends will be considered in the following 
discussion.

Effects on Competition

    56. As indicated above, the Commission tentatively concludes that 
delivered video programming and delivered audio programming were 
sufficiently distinct products so as to represent different product 
markets for competitive analysis purposes. Commenters are asked to 
provide information on the nature and extent of harm, if any, from 
relaxing this rule on these markets.
    57. The main potential economic cost of permitting the owner of a 
broadcast TV station to own a broadcast radio station in a local 
market, or vice versa, appears to be that it might give the company the 
market power to raise local radio and/or television advertising rates. 
People may listen to radio and watch television at different times 
while advertisers might view either means as an acceptable substitute 
for getting their message to the same people. On the other hand, some 
advertising messages may be more effective on television and others 
more effective on radio. However, as our earlier discussion indicated, 
we do not have sufficient evidence on this issue to address the effects 
of relaxing the one-to-a-market rule on the local advertising market. 
Assuming for the purposes of soliciting comments, that they are 
economically relevant substitutes, then the issue arises as to how many 
independent suppliers of local advertising are necessary to ensure that 
these markets are workably competitive. The Commission invites comment 
and evidence on both these issues.
    58. Earlier in the FNPRM, the Commission tentatively concluded that 
video programs are sufficiently distinct products that the market for 
video program production should be considered a separate product 
market. By this logic, the markets for video program production and 
audio program production are arguably distinct markets. Thus, market 
power in the video program production market should not translate into 
market power in the audio program production market, unless the company 
already has such market power. However, these program production 
markets are national markets and presumably the national ownership 
limits for either broadcasting station type should prevent a company 
from acquiring such market power. Thus the Commission sees no reason 
why relaxing the one-to-a-market rule should harm competition in either 
of these supply markets, but seeks comment on this tentative 
conclusion.
    59. The benefits of permitting the owner of a broadcast TV station 
to own a broadcast radio station in the same local market, or vice 
versa were discussed in the Memorandum Opinion and Order in MM Docket 
No. 87-7 (54 FR 32639, August 9, 1989). The company can reduce its 
video and audio programming costs through a reduction in personnel and 
overhead expenses and could use one advertising sales force instead of 
two for the two stations. This reduction in expense could make the 
joint enterprise more economically 

[[Page 6498]]
viable than the separate operations were before the combination took 
place. It would be important for commenters to provide factual evidence 
on the size of such efficiency gains so the Commission could weigh them 
against any potential costs of relaxing the one-to-a-market rule.

Effects on Diversity

    60. The radio-television (``one to a market'') rule is intended to 
foster outlet and viewpoint diversity on the local level. The rule 
appears to be achieving the diversity goals for which it was adopted, 
but may not be necessary in its current form to ensure competitive and 
diverse radio and television markets. Nevertheless, as noted above, 
diversity has the most impact in the local context and we must be 
cautious in taking any action that could serve to reduce that 
diversity, particularly in smaller markets.
Tentative Proposals

    61. The NPRM in this proceeding sought comment on a variety of 
proposed relaxations to the one-to-a-market rule, including: (1) 
Elimination of the rule--using local limits of each service to prevent 
undue concentration; (2) allowing common ownership of one AM, one FM 
and one TV station per market; (3) allowing TV-AM combinations only; 
and, (4) codifying current waiver criteria and applying them to all 
markets, and not just the top 25 markets, where 30 independently owned 
voices remain. Commenters were generally in favor of elimination or 
relaxation of the current rule, arguing that the economies from joint 
operations would allow more stations to remain on the air and would 
also permit licensees to provide better service to the public.
    62. The Commission tentatively concludes that there are two 
alternative approaches towards modifying the one-to-a-market rule. On 
the one hand, the Commission could find that radio stations and 
television stations do not compete in the same local advertising, 
program delivery, or diversity markets and propose to eliminate this 
rule entirely and rely on local ownership rules to ensure competition 
and diversity at the local level. On the other hand, the Commission 
could conclude that radio and television do compete in some or all of 
these local markets, in which case we propose to allow radio-television 
combinations in those markets that have a sufficient number of 
remaining alternative suppliers/outlets as to ensure sufficient 
diversity and workable competition. In this regard, the Commission 
seeks comment on whether ``30 separately owned, operated and controlled 
broadcast licensees'' continues to represent the appropriate minimum 
requirement, or whether diversity and competition concerns can be 
satisfied if a lesser number of licensees remain, such as 20. Further, 
comment is invited on whether this count should be for independent 
supplier/outlets within a DMA or some other geographic market 
delineation. Finally, the Commission notes that if the latter proposal, 
to modify rather than eliminate the rule were to be adopted, we also 
propose to continue accepting waivers for ``failed'' broadcast stations 
as currently provided for in note 7 of Sec. 73.3555 of the Commission's 
Rules, and to continue evaluating other waiver requests on the basis of 
the five considerations set forth in the Second Report and Order (54 FR 
08744, March 2, 1989) and the Memorandum and Order (as cited above) in 
MM Docket No. 87-7.
VIII. Local Marketing Agreements

Description

    63. A Local Marketing Agreement (LMA) is a type of joint venture 
that generally involves the sale by a licensee of discrete blocks of 
time to a broker who then supplies the programming to fill that time 
and sells the commercial spot announcements to support it. Such 
agreements enable separately owned stations to function cooperatively 
via joint advertising, shared technical facilities, and joint 
programming arrangements. In MM Docket 91-140, the Commission adopted 
guidelines primarily applicable to the AM and FM services for LMAs. We 
also decided that TV station LMAs should be kept at the station and be 
made available for inspection upon request by the Commission.
    64. The NPRM sought comment on the prevalence of TV LMAs, whether 
they presented the same types of competitive and diversity concerns 
that the Commission found in the radio context, and whether they should 
be subject to some limitations. Few commenters addressed LMAs, and 
those who did comment on this issue basically expressed two divergent 
general views: (1) That TV LMAs should remain unregulated absent 
evidence of abuse, irrespective of whether new TV multiple ownership 
rules are adopted; or (2) that if the Commission did adopt rules 
governing TV LMAs, such rules should be no more restrictive than those 
governing radio LMAs. The Commission seeks further comment and specific 
information on this matter to enable us to choice between these views 
and adopt appropriate guidelines for TV LMAs.
    65. Specifically, the Commission solicits specific quantitative 
data about TV LMAs, indicating the number of such agreements currently 
in existence. If such comment is not received, it may be necessary for 
the Commission to conduct a survey to obtain this quantitative data. 
Also do TV LMAs serve the same purposes as radio LMAs or are there 
significant differences between them? What benefits accrue to the 
parties involved in TV LMAs? What benefits accrue to the public from TV 
LMAs?

Analysis and Tentative Proposals

    66. The Commission believes that, to ensure that TV stations using 
LMAs comply with the TV multiple ownership rules, regardless of whether 
such rules are modified, some guidelines may be necessary. We 
tentatively propose to treat LMAs involving television stations in the 
same basic manner as radio station LMAs. That is, time brokerage of 
another television station in the same market for more than fifteen 
percent of the brokered station's weekly broadcast hours would result 
in counting the brokered station toward the brokering licensee's 
national and local ownership limits. If the local TV multiple ownership 
rules are not relaxed, such an attribution provision would preclude TV 
LMAs in any market where the time broker owns or has an attributable 
interest in another TV station. Additionally, TV LMAs would be required 
to be filed with the Commission in addition to the existing requirement 
that they be kept at the stations involved in an LMA. Furthermore, the 
TV LMA guidelines would allow for ``grandfathering'' TV LMAs entered 
into prior to the adoption date of the FNPRM, subject to renewability 
and transferability guidelines similar to those governing radio LMAs.
    67. To test the appropriateness of these proposals, the Commission 
seeks comment on the following issues. Are there any compelling reasons 
why the Commission should not apply the existing radio LMA guidelines, 
including the filing requirements, the limitation on program 
duplication, and the ownership attribution provisions, to TV LMAs? If 
the radio ownership attribution rule applies to TV LMAs, should the 
Commission use the fifteen percent benchmark that it used in the radio 
context, or is some other percentage more appropriate? What effects, if 
any, should LMAs have on the renewal expectancy of TV stations? What 
effects, if any, would these 

[[Page 6499]]
proposed attribution guidelines have on the ownership of TV stations by 
minorities and women, and how should the Commission deal with such 
effects?
    68. To avoid any unnecessary disruption to existing contractual 
relationships, the Commission also seeks comment on guidelines 
concerning the termination, transferability and renewal of TV LMAs. 
Should the contract rights associated with existing TV LMAs be 
transferable when the brokering station is sold? If so, what 
restrictions, if any, should apply? Should TV LMAs entered into before 
the adoption date of this Further Notice be subject to the same 
``grandfathering'' and renewability guidelines that govern radio LMAs 
as set forth in the Second Radio Reconsideration, supra, irrespective 
of whether the local TV multiple ownership rules are modified? 
Specifically, should existing LMAs be ``grandfathered'' for the 
remainder of the initial term of the LMA and then be subject to the 
governing local TV multiple ownership rules?

Administrative Matters

    69. Pursuant to applicable procedures set forth in Section 1.415 
and 1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested 
parties may file comments on or before April 17, 1995, and reply 
comments on or before May 17, 1995. To file formally in this 
proceeding, you must file an original plus five copies of all comments, 
reply comments, and supporting comments. If you want each Commissioner 
to receive a personal copy of your comments, you must file an original 
plus nine copies. You should send comments and reply comments to Office 
of the Secretary, Federal Communications Commission, Washington, D.C. 
20554. Comments and reply comments will be available for public 
inspection during regular business hours in the FCC Reference Center 
(Room 239), 1919 M Street, N.W., Washington, D.C. 20554.
    70. This is a non-restricted notice and comment rulemaking 
proceeding. Ex parte presentations are permitted, except during the 
Sunshine Agenda period, provided they are disclosed as provided in the 
Commission Rules. See generally 47 C.F.R. 1.1202, 1.1203, and 
1.1206(a).

Initial Regulatory Flexibility Act Statement

    71. The Initial Regulatory Flexibility Act Statement found in 
paragraphs 18 through 25 (57 FR at 28166-67) in the summary of the 
Notice of Proposed Rule Making in this proceeding remains unchanged.
    72. As required by Section 603 of the Regulatory Flexibility Act, 
the Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the expected impact on small entities of the proposals 
suggested in this document. The IRFA is set forth in the Notice of 
Proposed Rule Making in this proceeding as set forth above. Written 
public comments are requested on the IRFA. These comments must be filed 
in accordance with the same filing deadlines as comments on the rest of 
this Further Notice, but they must have a separate and distinct heading 
designating them as responses to the Initial Regulatory Flexibility 
Analysis. The Secretary shall send a copy of this Further Notice of 
Proposed Rule Making, including the Initial Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration in accordance with paragraph 603(a) of the Regulatory 
Flexibility Act. Public Law 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 
et seq. (1981).

List of Subjects in 47 CFR Part 73

    Television broadcasting.

Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.
[FR Doc. 95-2502 Filed 2-1-95; 8:45 am]
BILLING CODE 6712-01-M