[Federal Register Volume 60, Number 128 (Wednesday, July 5, 1995)]
[Proposed Rules]
[Pages 34959-34961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16374]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket No. 95-90; FCC 95-226]


Broadcast Services; Network/Affiliate Rule; Advertising

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This Notice of Proposed Rulemaking proposes to re-examine the 
Commission's rules prohibiting a broadcast television licensee from 
entering into agreements with a network that limits the licensee's 
ability to alter its advertising rates and from being represented for 
the sale of advertising by a network with which it is affiliated. This 
action is needed to determine if the costs of these rules exceed their 
benefits.

DATES: Comments are due by August 28, 1995, and reply comments are due 
by September 27, 1995.

ADDRESSES: Federal Communications Commission, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:
Paul Gordon (202-776-1653) or Tracy Waldon (202-739-0769), Mass Media 
Bureau.

SUPPLEMENTARY INFORMATION: This a synopsis of the Commission's Notice 
of Proposed Rule Making in MM Docket No. 95-90, adopted June 14, 1995 
and released June 14, 1995. The complete text of this NPRM 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 Notice of Proposed Rule Making

    1. With this Notice of Proposed Rule Making (NPRM), the Commission 
continues its reexamination of the rules regulating broadcast 
television network/affiliate relationships in light of changes in the 
video marketplace. This NPRM takes a fresh look at 47 CFR 73.658 (h) 
and (i) (the Commission's ``network control of station advertising 
rates'' rule and the ``network advertising representation'' rule, 
respectively). Section 73.658(h) prohibits agreements by which a 
network can influence or control the rates its affiliates set for the 
sale of their non-network broadcast time, and Section 73.658(i) 
prohibits broadcast television affiliates that are not owned by their 
networks from being represented by their networks for the sale of non-
network advertising time. Both rules address station relationships with 
any broadcast television network, i.e., any organization that provides 
and identical program to be broadcast simultaneously by two or more 
stations.
    2. In reconsidering these rules, our central focus is on whether 
they continue to effectively serve this Commission's cornerstone 
interests of promoting diversity and competition. In this NPRM, after 
first reviewing the initial premises for these rules, we will look at 
the changes in the competitive environment over the years since the 
rules were adopted, and we will consider the current marketplace in 
which they operate. We will inquire whether networks would have the 
capability and the incentive to exercise undue market or bargaining 
power in the absence of these rules and will examine public interest
    3. The network rules governing control of station rates and network 
advertising representation were originally adopted to protect the 
ability of affiliates to serve as viable, independent sources of 
programming, and to foster competition in the provision of advertising. 
As the Commission stated in 1941, ``[c]ompetition between stations in 
the same community inures to the public good because only by attracting 
and holding listeners can a broadcast station successfully compete for 
advertisers. Competition for advertisers[,] which means competition for 
listeners[,] necessarily results in rivalry between stations to 
broadcast programs calculated to attract and hold listeners, which 
necessarily results in the improvement of the quality of their program 
service. This is the essence of the American system of 
broadcasting.''\1\ The Commission still believes, fifty years later, 
that healthy and vigorously competitive television advertising markets 
are in the public interest.

    \1\Report on Chain Broadcasting, Commission Order No. 37; Docket 
5060, at 47, quoting Spartanburg Advertising Co., Docket No. 5451, 
(January 9, 1940).
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    4. Having discussed why network influence over national spot 
advertising rates implicates our public interest concerns, we turn to 
the practical questions of whether networks, under current market 
conditions, have the ability to exercise this influence, and whether 
they would choose to exercise it. The first question asks the degree to 
which a network could pressure its affiliates to act in a manner that 
benefits the network, but which may not be in the best interests of 
either the public or the licensee. The second question asks whether a 
network, even if it had such power, would have any incentive to 
exercise it. Finally, we request comment on whether the existing rules 
effectively perform their functions and whether elimination or 
modification of the rules would serve the public interest.
    5. The public interest may be harmed if networks possess sufficient 
bargaining power over their affiliates such that exercise of this 
bargaining power would result in reductions of affiliate advertising 
revenues significant enough to inhibit the affiliate's ability to 
present programming that best serves its community. In order to assess 
whether networks today have a substantial degree of bargaining power 
with respect to their affiliates, we must define the relevant 
alternatives available to the two parties. To the extent that an 
affiliate has alternative opportunities to affiliate with a given 
network, network bargaining power could be reduced. In the same manner, 
it is also presumed that the more potential affiliates in a market, the 
more bargaining power the network will have.
    6. We ask parties to comment on whether, and if so the extent to 
which, the balance of bargaining power has shifted toward affiliates in 
the years since these advertising rules were promulgated, and what 
effect the current balance of bargaining power has on our related 
public interest concerns of diversity and competition.
    7. Even if a network has undue bargaining power over its 
affiliates, it may not have the incentive or ability to exercise that 
bargaining power to influence national video advertising rates in a way 
that would harm the public interest. Presumably, a network would find 
it in its interest to manipulate the national spot advertising rates of 
its affiliates only if it could earn higher profits by doing so. 
Whether a network could profit form this activity depends on the 
availability of other sources of advertising time to which advertisers 
can turn that are ``reasonably interchangeable'' with network 
advertising time. Understanding the goals of advertisers and the role 
of the national advertising representatives is critical in determining 
whether national spot advertisements are reasonably 

[[Page 34960]]
interchangeable substitutes for network advertisements. We must also 
consider whether there are products, in addition to national spot 
advertisements, that might substitute for broadcast television network 
advertising. If these other products provide competitive alternatives 
to network and national spot advertisements, the ability of a network 
to adversely influence rates in the national video advertising market 
will be substantially diminished.
    8. In this regard, we propose to use the same analytical framework 
as in our pending television ownership proceeding.\2\ In that item, we 
sought comment on whether the advertising time supplied by broadcast 
television networks, program syndicators, cable networks, and perhaps 
cable multiple system operators were reasonably interchangeable. We 
noted that the amounts of advertising time sold by other suppliers, 
such as direct broadcast satellite, wireless cable, or video dialtone 
program providers, were too small to have an appreciable effect on 
national broadcast advertising.

    \2\Further Notice of Proposed Rule Making in MM Docket 91-221, 
60 FR 6490 (Feb 2, 1995).
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    9. The Report on Chain Broadcasting argued that a network would 
exert pressure on its affiliates to raise their national spot ad rates 
so as to make network ads more attractive to advertisers, and thus more 
profitable. In this way, the network's profits would increase at the 
expense of its affiliates' profits. The 1980 Network Inquiry Report\3\ 
argued that a network and its affiliates together had incentives to 
manipulate the network and national spot advertising rates so that all 
parties' profits increased. Under either of these scenarios, if 
networks or networks and their affiliates together have the incentive 
and the market power to manipulate national video advertising rates to 
their advantage, the Commission's goals of diversity and competition 
could be adversely affected in the absence of the rules.

    \3\Network Inquiry Special Staff, New Television Networks: 
Entry, Jurisdiction, Ownership and Regulation, Final Report, 
(October 1990).
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    10. The ability of a network or a network and its affiliates to 
influence national video advertising rates depends again upon the 
availability of reasonably interchangeable substitutes. If we were to 
conclude on the basis of the record that each network's advertising 
time competes vigorously with: (1) the advertising time of the other 
networks; (2) the advertising time for national spot ads sold by 
affiliates and independent stations; and (3) advertising time offered 
by syndicators and cable networks, then networks, either with or 
without their affiliates, will likely be unable to affect prices 
significantly in the national video advertising market. Under this 
scenario, if a network, or a network and its affiliates, were to 
attempt to raise their advertising rates above competitive levels, 
national advertisers would have several alternative suppliers to go to, 
and they would likely switch their patronage to these alternatives. We 
request comment on the ability of advertisers to switch to these 
alternative advertising providers and the resulting effect on station 
revenues. Commenters should focus on the degree to which these 
potential and actual competitors limit the ability of a network and/or 
its affiliates from profitably raising national television advertising 
rates above competitive levels.
    11. Alternatively, if we were to conclude on the basis of the 
record that networks face few competitors in the national video 
advertising market other than each other and broadcast television 
stations (through national spot sales), we must still determine whether 
a network, or a network and its affiliates, could affect national 
television advertising rates in a manner that should concern us. 
Including only these competitors in the relevant market, we seek 
comment on whether any network, or a network and its affiliates acting 
in concert, could adversely affect national video advertising rates.
    12. Finally, the record that we develop in this proceeding may 
indicate that network and national spot advertisements do not compete 
for the same advertisers. Should that be the case, changes in the rates 
for national spot advertisements will likely have no impact on the 
demand for network advertising and, consequently, no impact on network 
advertising rates. Such a finding would lead us to question the 
continued need for our advertising rules. We seek comment on what basis 
if any exists that would support retention of our advertising rules if 
we determine that network advertising time and national spot 
advertising time do not compete with each other for the same 
advertisers.
    13. We also seek comment and information on the nature and extent 
of the services currently provided by national television advertising 
representatives. If general industry practice is for a television 
licensee to instruct the representative what rates to charge (leaving 
the latter no discretion to alter them), we question what harm there 
would be in allowing networks to represent their affiliates. On the 
other hand, licensees might generally provide their representatives a 
range of rates within which to charge advertisers, thereby giving the 
representatives some latitude in managing the stations' transactions. 
We ask whether this would facilitate the adverse consequences in the 
national television advertising market and the resulting public 
interest concerns that were previously discussed.
    14. Finally, we must address the question of whether our rules 
effectively prevent the harms they were designed to redress. Can 
networks currently influence national spot advertising rates 
indirectly, by using mechanisms other than possible influence or 
control over affiliates' rates? For example, since a network currently 
can control the amount of national spot time its affiliates have 
available to sell during network programming, does this allow the 
network indirectly to control the affiliates' national spot rates? If 
we find that networks, with or without their affiliates, can easily 
circumvent the advertising rules, then eliminating those rules would 
appear to cause no additional harm.
    15. Whether we repeal, modify, or retain the prohibitions on 
network control of station advertising rates and network representation 
of affiliates in the advertising market depends on the nature of the 
competitive advertising interrelationships among the various video 
program providers. Should the record indicate that neither television 
broadcast networks nor networks and their affiliates have the ability 
or incentive to manipulate the market price for network or national 
spot television advertising time, we would consider eliminating or 
modifying the rules if the record indicates that they are ineffective 
in correcting the public interest harm they were designed to remedy. On 
the other hand, should we determine that networks, or networks and 
their affiliates, have the ability and incentive to manipulate the 
market price for network or national spot television advertising time, 
and that these rules effectively address any resulting public interest 
harm, we would consider retaining the rules.
    16. However, the record might indicate that we should eliminate one 
rule, but not the other. For example, we might determine on the basis 
of the record established that networks, acting as station advertising 
representatives, in fact have no influence over national spot rates of 
the stations they represent. If these representatives have no ability 
to affect their clients' rates, we would likely be inclined to 
eliminate the rule prohibiting network representation of affiliates in 
the national spot advertising market, even though we may wish to 

[[Page 34961]]
retain the rule prohibiting network control of station advertising 
rates. We ask for comment on the circumstance under which it might be 
appropriate to repeal one rule but retain the other.

Administrative Matters

    17. Pursuant to applicable procedures set forth in Sections 1.415 
and 1.419 of the Commission's Rules, 47 CFR Sec. Sec. 1.415 and 1.419, 
interested parties may file comments on or before August 28, 1995, and 
reply comments on or before September 27, 1995. To file formally in 
this proceeding, you must file an original plus four copies of all 
comments, reply comments, and supporting comments. If you want each 
Commissioner to receive a 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.
    18. 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 CFR Sec. Sec. 1.1202, 1.1203, and 
1.1206(a).

Initial Regulatory Flexibility Analysis

    19. Reason for the Action: This proceeding was initiated to review 
and update the Commission's Rules concerning network control of station 
advertising rates and affiliate advertising representation by networks 
in light of changes in the video programming industry.
    20. Objective of this Action: This Notice is intended to reexamine 
the Commission's rules regulating broadcast television stations' sale 
of advertising.
    21. Legal Basis: Authority for the actions proposed in this Notice 
may be found in Sections 4 and 303 of the Communications Act of 1934, 
as amended, 47 U.S.C. 154 and 303.
    22. Recording, Recordkeeping, and Other Compliance Requirements 
Inherent in the Proposed Rule: None.
    23. Federal Rules that Overlap, Duplicate, or Conflict with the 
Proposed Rules: None
    24. Description, Potential Impact, and Number of Small Entities 
Involved: Approximately 1,500 existing television broadcasters of all 
sizes may be affected by the proposals contained in this decision.
    25. Any Significant Alternatives Minimizing the Impact on Small 
Entities and Consistent with the Stated Objectives: The proposals 
contained in this NPRM are intended to simplify and ease the regulatory 
burden currently placed on commercial television broadcasters.
    26. As required by Section 603 of the Regulatory Flexibility Act, 
the Commission has prepared the above Initial Regulatory Flexibility 
Analysis (IRFA) of the expected impact on small entities of the 
proposals suggested in this document. 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 Notice of 
Proposed Rule Making, but they must have a separate and distinct 
heading designating them as responses to IRFA. The Secretary shall send 
a copy of this Notice of Proposed Rule Making, including the IRFA, to 
the Chief Counsel for Advocacy of the Small Business Administration in 
accordance with paragraph 603(a) of the Regulatory Flexibility Act. 
Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq. (1981).
    27. This Notice of Proposed Rule Making is issued pursuant to 
authority contained in Sections 4(i) and 303 of the Communications Act 
of 1934, as amended, 47 U.S.C. 154(i), 303.

List of Subjects 47 CFR Part 73

    Television broadcasting.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-16374 Filed 7-3-95; 8:45 am]
BILLING CODE 6712-01-M