[Federal Register Volume 60, Number 130 (Friday, July 7, 1995)]
[Proposed Rules]
[Pages 35368-35372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16640]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73

[MM Docket No. 95-92; FCC 95-254]


Broadcast Services; Network/Affiliate Programming Rules

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rule making.

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SUMMARY: The Notice of Proposed Rule Making initiates a reevaluation of 
five of the Commission's rules governing the relationship between 
broadcast networks and their affiliates with respect to programming. 
The five rules are the right to reject rule, the time option rule, the 
exclusive affiliation rule, the dual network rule and the network 
territorial exclusivity rule. The Commission raises issues about these 
rules as part of its continuing reevaluation of all its network/
affiliate rules in light of changes in the telecommunications 
marketplace.

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

ADDRESSES: Federal Communication Commission, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:
Jane Hinckley Halprin ((202) 776-1653) or Robert Kieschnick ((202) 739-
0764), Policy and Rules Division, Mass Media Bureau.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
notice of proposed rule making (nprm) in MM Docket No. 95-92, FCC 95-
254, adopted and released June 15, 1995.
    The complete text of the nprm is available for inspection and 
copying during normal business hours in the FCC Reference Center (Room 
239), 1919 M Street, NW., Washington, DC, and also may be purchased 
from the Commission's duplicating contractor, International 
Transcription Service, 2100 M Street NW., Suite 140, Washington, D.C. 
20037, (202) 857-3800.

SYNOPSIS OF NOTICE OF PROPOSED RULE MAKING

I. Introduction

    1. The Commission initiates this proceeding to continue its 
reexamination of the rules governing the relationship between broadcast 
television networks and their affiliates. The five rules at issue are 
briefly defined as follows. The right to reject rule provides that 
affiliation arrangements between a broadcast network and a broadcast 
licensee generally must permit the licensee to reject programming 
provided by the network. The time option rule prohibits arrangements 
whereby a network reserves an option to use specified amounts of an 
affiliate's broadcast time. The exclusive affiliation rule prohibits 
arrangements that forbid an affiliate from broadcasting the programming 
of another network. The dual network rule generally prevents a single 
entity from owning more than one broadcast television network. The 
network territorial exclusivity rule proscribes arrangements whereby a 
network affiliate may prevent other stations in its community from 
broadcasting programming the affiliate rejects, and arrangements that 
inhibit the ability of stations outside of the affiliate's community to 
broadcast network programming.
    2. These rules were all initially adopted in 1946. At that time, 
television was in its infancy and radio was the broadcast medium of 
mass national appeal. The broadcasting industry has undergone 
tremendous change in the intervening decades, particularly in recent 
years with the emergence of cable television and other alternative 
program distributors as vigorous competitors to broadcast television 
for viewers and advertisers. Further, the importance of protections for 
affiliates vis-a-vis their networks appears diminished by the 
availability of an ever-growing supply of alternative programming.

II. Goals of the Network/Affiliate Rules

    3. The overarching theme of the Commission's analysis is whether 
the rules continue to serve the purposes for which they were developed, 
which were themselves rooted in the Commission's primary goals of 
promoting competition and diversity in the communications industry. In 
general, each of the five rules under review here was based on either 
or both of the following specific goals: (1) To remove barriers that 
would inhibit the development of new networks; and (2) To ensure that 
licensees retain sufficient control over their stations to fulfill 
their obligation to operate in the public interest. The Commission 
questions whether the network rules remain necessary to achieve these 
goals or, conversely, whether the rules increase the costs of 
networking without producing any real benefits.

III. Changes in the Market for Affiliation

    4. All of the rules at issue in this proceeding were promulgated 
when terrestrial broadcasting was the only video connection to a 
consumer. This fact no longer holds true as there are several possible 
ways to reach a consumer, such as cable TV, direct broadcast satellite 
service and wireless cable. Such alternative pipelines offer multiple 
channels of video programming. Consequently, rules regulating the 
broadcast television network/affiliate relations to promote the flow of 
programs from producers to viewers may no longer be necessary because 
of the video programming alternatives available to consumers.
    5. Nonetheless, cable and other multichannel video programming 
distributors may not reach enough viewers that they sufficiently 
address diversity and competition concerns with respect to the video 
marketplace. The Commission solicits evidence regarding the extent to 
which those television households that do not subscribe to cable do 
subscribe to other multichannel providers. The Commission also asks for 
information regarding the broadcast networks' share of the viewing 
audience vis-a-vis other programming providers. Further, even if a 
substantial portion of households subscribe to video services other 
than over-the-air broadcasting, those non-broadcast video programming 
providers might not provide the kinds of services that would satisfy 
our traditional public interest objectives. To that end, the Commission 
asks commenters to address whether multichannel video programming 
distributors provide sufficient local news and other programming 
responsive to community needs to satisfy the Commission's longstanding 
goal that the public receive these types of programming.

A. Network/Affiliate Bargaining

    6. The relative bargaining positions of broadcast television 
networks and their affiliates will be determined in part by the 
specific conditions of each local market served by broadcast television 
stations. One likely determinant of a broadcast network's bargaining 
power over an independently owned affiliate is the number of 
alternative outlets with which the network could choose to affiliate in 
the same market. If the four largest broadcast networks are considered 
as currently competing with one another for affiliates and it is 
assumed for the sake of argument that these networks have preferences 
for affiliating with VHF stations, then the networks would appear to 
have a commanding position in bargaining with broadcast television 
stations in those markets where the number of VHF stations exceeds the 
number of networks (4% of the DMA markets serving 17% of television 
households). If one considers UHF and VHF stations to be equally 
desirable, there are 103 markets with more than four commercial 

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television stations, including both VHF and UHF (49% of all DMA markets 
and 84% of all television households). Based on the analysis discussed 
above, the four major television networks may be in a better bargaining 
position than broadcast stations in such markets. This is not to say, 
however, that such a bargaining advantage constitutes undue market 
power and would have a sufficient effect on programming available to 
the public to justify governmental intervention. We ask commenters to 
address whether preferences for VHF stations continue to exert a strong 
influence on this bargaining. We also ask commenters to address the 
extent to which new entrants to network programming are affecting the 
competition between networks for affiliates and should be included in 
our analysis.
    7. For affiliates, a critical issue is the availability of 
alternatives for obtaining profitable programming. In contrast to the 
time when the network/affiliate rules were first applied to the 
broadcast television industry, there is now an array of new network and 
new non-network sources of programming. We ask for comment and analysis 
of what effects, if any, alternative programming sources, especially 
non-network sources, have had and will have on network/affiliate 
relations.
    8. The network/affiliate relationship could also be affected by the 
trend toward group ownership in television broadcasting, particularly 
if the Commission were to relax its national ownership limits for 
commercial broadcast television group ownership. In addition, 
technological advances, such as the possibility of a station 
multiplexing digital signals and thereby broadcasting more than one 
channel of programming, could influence the relationships between 
broadcast networks and their affiliates. The Commission asks commenters 
to address how changes in ownership patterns and technology are likely 
to affect network/affiliate bargaining.
B. Effects of Network/Affiliate Bargaining on Other Parties

    9. Existing networks may have an incentive to block entry by new 
networks in order to maintain their existing market positions. One way 
they might do so is to pay their affiliates sufficient compensation to 
accept long-term contracts that include contractual terms that limit 
entry. The Commission therefore solicits comment on the effect of the 
length of the affiliation contract on the effectiveness of contractual 
devices in blocking entry by new networks. It also asks whether it 
might be appropriate to limit the length of affiliation contracts to 
mitigate these problems.

IV. Analysis of Specific Rules

A. The Right to Reject Rule

    10. Section 73.658(e) of the Commission's Rules, 47 C.F.R. 
73.658(e), prohibits a broadcast station from entering into a contract 
with a network that does not permit the station to (1) reject network 
programs that the station ``reasonably believes to be unsatisfactory or 
unsuitable or contrary to the public interest,'' or (2) substitute a 
program that the station believes to be of greater local or national 
importance.
    11. The Notice proposes to retain the right to reject rule based on 
the view that the rule is inextricably linked to a licensee's 
obligation to retain control over its station and to program in the 
public interest. Noting that the rule is unclear, the Notice proposes 
to clarify that the rule does not give stations the right to reject 
programming based solely on financial considerations. The Notice 
suggests that this represents the most appropriate balance between the 
competing public interest and economic efficiency concerns inherent in 
the right to reject rule. The Notice seeks comment on this proposal.

B. The Time Option Rule

    12. Section 73.658(d) of the Commission's Rules, 47 C.F.R. 
73.658(d), prohibits arrangements between a station and a network 
whereby the network retains an ``option'' on certain hours of the 
station's time, which it may or may not decide to exercise. If the 
network chooses not to act on its option, the station is able to air 
other programming during the optioned time.
    13. The Notice proposes to modify the rule by eliminating the 
outright prohibition on time optioning but requiring that networks give 
affiliates a particular amount of advance notice if they are going to 
use an optioned time slot. The Notice points out that time optioning 
may be valuable to a new network; a new network may want to book a time 
slot with enough stations so that it can raise funding to develop a 
programming concept, but may want to retain the ability to opt out of 
those time slots if the program does not work out as expected. 
Nonetheless, because unrestricted time optioning may interfere with an 
affiliate's long-range planning, the Notice proposes to adopt a 
notification requirement and asks commenters to propose an appropriate 
notification period. In the alternative, the Notice asks whether the 
rule should be repealed and notification issues left to the parties.

C. The Exclusive Affiliation Rule

    14. Section 73.658(a) of the Commission's Rules, 47 C.F.R. 
73.658(a), prohibits arrangements between a station and a network that 
prevent the station from broadcasting the programming of another 
network. The prohibition was based on the Commission's concern that 
permitting stations to become exclusive affiliates of existing networks 
could foreclose the development of new networks. The Notice points out 
that there are now many more stations available to take the programming 
of new networks, and that exclusive affiliation may be valuable to 
networks and affiliates. The Notice proposes to eliminate the rule, at 
least in large markets. The Notice also questions, however, whether 
lifting the restriction in small markets might inhibit the development 
of new television networks in those markets. The Notice seeks comment 
on these issues and, if the rule is retained for small markets, on the 
manner in which large/small markets should be defined.

D. Dual Network Rule

    15. Section 73.658(g) of the Commission's Rules, 47 C.F.R. 
73.658(g), provides that a station may not enter into an agreement with 
a network that operates more than one broadcast TV network, except if 
the networks are not operated simultaneously or if there is no 
substantial overlap in the territories served by each network. The rule 
was adopted based on the Commission's concern that dual networking 
might impede the development of new networks and might confer undue 
market power on one entity.
    16. The Notice observes that the increase in the number of stations 
since the rule was adopted has provided greater opportunity for new 
networks to develop, and notes that dual networking could provide 
networks with economies of scale and scope. The Notice also expresses 
concern, however, that permitting merger of the existing major networks 
could lead to excessive concentration of market power. The Notice seeks 
comment on these issues. It also seeks comments on the effects of 
technological advances that will facilitate digitization of the 
broadcast industry, and how the use of multiple channels by 
broadcasters would implicate the dual network rule.

E. Network Territorial Exclusivity Rule

    17. Section 73.658(b) of the Commission's Rules, 47 C.F.R. 

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    73.658(b), prohibits a station from entering into an agreement with a 
network that prevents (1) another station located in the same community 
of license from broadcasting those network programs not taken by the 
network affiliate; and (2) another station located in a different 
community of license from broadcasting any of the network's programs. 
The rule provides that it is permissible for a network affiliate to 
have the ``first call'' within its community on programming offered by 
the network. Similar rules for radio are included in Sec. 73.132 of the 
Commission's Rules, 47 C.F.R. 73.132.
    18. The Notice proposes to eliminate the first prong of the rule 
but to retain and possibly modify the second prong. Elimination of the 
first prong could be valuable to networks and affiliates and would 
appear to have few, if any, negative effects. With respect to the 
second prong, however, elimination would appear to have no efficiency 
benefits and could deprive an entire local population of a network's 
programming. The Commission seeks comment on these proposals. While the 
Commission proposes to retain prong two, it asks commenters to address 
the relative costs and benefits of expanding the permissible area for 
territorial exclusivity from a station's community of license to its 
DMA, Grade B contour, or some other measure.

V. Cumulative Effects

    19. The Commission asks commenters to address the cumulative 
effects of the rule changes proposed in the Notice. The Commission 
notes that changes to the right to reject rule, the time option rule 
and the exclusive affiliation rule must be carefully coordinated, 
because these rules have a common focus and are closely interrelated in 
that they all regulate the restraints a network may impose on its 
affiliates' program choices. For example, the Commission notes that in 
proposing to retain the right to reject rule it proposes to preserve 
the most explicit protection of an affiliate's control over program 
choice. In seeking comment on the cumulative effects of the proposals, 
then, one of the primary questions is whether modification of the time 
option rule and elimination of the exclusive affiliation rule would 
undercut the explicit protections left by the right to reject rule.
    20. The Commission also questions whether its proposals for the 
first three rules would have any significant cumulative effects on the 
dynamics of the network/affiliate relationship. By comparing the 
current programming practices of network owned stations and those of 
independently owned affiliates, the Commission may be able to discern 
whether the safeguards now embodied by the right to reject, time option 
and exclusive affiliation rules have produced a measurable degree of 
programming autonomy on the part of the independently owned affiliates. 
The Notice asks commenters to submit studies setting forth such a 
comparison. Once the Commission has information on the type and degree 
of autonomous affiliate behavior, it will be in a better position to 
assess the relative value of each of these rules, how they act in 
concert and whether its proposals as a whole would yield results that 
would best serve the public interest.
    21. The fourth rule, which restricts dual networking, can operate 
in concert with the exclusive affiliation rule to prevent market 
foreclosure by established networks to new networks. Consequently, the 
Notice seeks comment on the joint effects of changing these two rules 
on entry by new networks.
    22. The Commission welcomes any additional comment regarding the 
cumulative effect of its proposals on consumer welfare generally, and 
on the historical foci of the rules at issue here--i.e., the 
development of new broadcast networks and licensee control over station 
operations. With respect to consumer welfare, the Commission notes that 
there has been some discussion in the academic literature that 
identifies a correlation between the types of restraints on exclusivity 
and their cumulative effects on consumer welfare. For example, one 
publication asserts that, in certain settings, the ability to enter 
into exclusive dealing arrangements with multiple parties in the same 
market, coupled with the opportunity to reach territorial exclusivity 
agreements, may reduce consumer welfare. See T. Gabrielsen and L. 
Sorgard, Vertical Restraints and Interbrand Competition (Center for 
Economic Studies, University of Munich, Working Paper No. 77). The 
Notice asks commenters to address these theories, as applied to the 
broadcasting industry.

VI. Administrative Matters

    23. Ex parte Rules--Non-Restricted Proceeding. This is a non-
restricted notice and comment rulemaking proceeding. Ex parte 
presentations are permitted, except during the Sunshine Agenda period, 
provided that they are disclosed as provided in the Commission's Rules. 
See 47 C.F.R. 1.1202, 1.1203, 1.1206.
    24. Comment Information. Pursuant to applicable procedures set 
forth in Sections 1.415 and 1.419 of the Commission's Rules, interested 
parties may file comments on or before August 28, 1995, and reply 
comments on or before September 27, 1995. All relevant and timely 
comments will be considered by the Commission before final action is 
taken in this proceeding. To file formally in this proceeding, 
participants must file an original and four copies of all comments, 
reply comments and supporting comments. If participants want each 
Commissioner to receive a personal copy of their comments, an original 
plus nine copies must be filed. Comments and reply comments should be 
sent to the Office of the Secretary, Federal Communications Commission, 
Washington, DC 20554. Comments and reply comments will be available for 
public inspection during regular business hours in the FCC Reference 
Center (Room 239) of the Federal Communications Commission, 1919 M 
Street NW., Washington, DC 20554.

VII. Initial Regulatory Flexibility Analysis

    25. Reason for the Action: This proceeding was initiated to review 
and update the Commission's rules regarding network/affiliate 
relationships with respect to programming.
    26. Objective of this Action: The actions proposed in the Notice 
are intended to eliminate or modify the network/affiliate rules 
regarding programming to enable broadcast television networks and 
affiliates to better serve the public by enabling them to adjust to the 
changing communications marketplace.
    27. 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, 303.
    28. Reporting, Recordkeeping and Other Compliance Requirements 
Inherent in the Proposed Rule: None.
    29. Federal Rules Which Overlap, Duplicate or Conflict with the 
Proposed Rule: None.
    30. 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 Notice.
    31. Any Significant Alternatives Minimizing the Impact on Small 
Entities and Consistent with the Stated Objectives: The proposals 
contained in this Notice are meant to simplify and ease the regulatory 
burden currently placed on broadcast television stations of all sizes.

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    32. As required by Section 603 of the Regulatory Flexibility Act, 
the Commission has prepared the foregoing 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 the notice, but 
they must have a separate and distinct heading designating them as 
responses to the Regulatory Flexibility Analysis. 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)).

List of Subjects in 47 CFR Part 73

    Television broadcasting.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-16640 Filed 7-6-95; 8:45 am]
BILLING CODE 6712-01-M