[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