[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Rules and Regulations]
[Pages 44773-44780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21319]



=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket No. 94-123; FCC 95-314]


Radio Broadcast Services; Television Program Practices

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This Report and Order repeals the Commission's Rules regarding 
the Prime Time Access Rule. The Commission had invited comments in a 
rulemaking proceeding to assess the legal and policy justifications, in 
light of current economic and technological conditions, for the Prime 
Time Access Rule and to consider the continued need for the rule in its 
current form. Based on the comments received from interested parties, 
including economic and empirical analyses of the effects of repealing 
or retaining the rule, the Commission concludes that the public 
interest warrants the repeal of PTAR. In repealing the rule, the 
Commission believes a one-year transition period is appropriate to 
provide parties time to adjust their programming strategies and 
business arrangements.

EFFECTIVE DATE: August 30, 1996.

FOR FURTHER INFORMATION CONTACT: Charles W. Logan or Alan E. Aronowitz, 
Mass Media Bureau, Policy and Rules Division, Legal Branch, (202) 776-
1663, or Alan Baughcum, Mass Media Bureau, Policy and Rules Division, 
Policy Analysis Branch, (202) 739-0770.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Report and Order in MM Docket No. 94-123, adopted July 28, 1995, and 
released July 31, 1995. The complete text of this document is available 
for inspection and copying during normal business hours in the FCC 
Reference Center (Room 239), 1919 M Street NW., Washington, D.C. 20554, 
and may be purchased from the Commission's copy contractor, 
International Transcription Service, (202) 857-3800, 2100 M Street NW., 
Washington, D.C. 20037.

Synopsis of the Report and Order

    1. The Commission's Prime Time Access Rule (``PTAR'') generally 
prohibits network-affiliated television stations in the top 50 prime-
time television markets (``Top 50 Market Affiliates'') from 
broadcasting more than three hours of network programs (the ``network 
restriction'') or former network programs (the ``off-network 
restriction'') during the four prime time viewing hours (i.e., 7 to 11 
p.m. Eastern and Pacific times; 6 to 10 p.m. Central and Mountain 
times). The rule exempts certain types of programming (e.g., runovers 
of live sports events, special news, documentary and children's 
programming, and certain sports and network programming of a special 
nature) which are not counted toward the three hours of network 
programming.\1\ PTAR was promulgated in 1970 in response to a concern 
that the three major television networks--ABC, CBS and NBC--dominated 
the program production market, controlled much of the video fare 
presented to the public, and inhibited the development of competing 
program sources. The Commission believed that PTAR would increase the 
level of competition in program production, reduce the networks' 
control over their affiliates' programming decisions, and thereby 
increase the diversity of programs available to the public. PTAR also 
came to be viewed as a means of promoting the growth of independent 
stations in that they did not have to compete with Top 50 Market 
Affiliates in acquiring off-network programs to air during the access 
period.

    \1\47 CFR 73.658(k)(1)-(6).
---------------------------------------------------------------------------

    2. On October 20, 1994, the Commission adopted a Notice of Proposed 
Rule Making (``Notice''), 59 FR 55402 (November 7, 1994), in this 
docket to conduct an overall review of the continuing need for PTAR 
given the profound changes that have occurred in the television 
industry since 1970. In response to the Notice, we received a 
substantial number of comments from interested parties, including 
economic and empirical analyses of the effects of repealing or 
retaining the rule.
    3. Based on this record, the Commission concludes that PTAR should 
be extinguished. The three major networks do not dominate the markets 
relevant to PTAR. There are large numbers of sellers and buyers of 
video programming. Entry, even by small business, is relatively easy. 
There are a substantially greater number of broadcast programming 
outlets today than when PTAR was adopted in 1970 due to the growth in 
numbers of independent stations. In addition, nonbroadcast media have 
proliferated. We also find, given these market conditions, and the 
record before us, 

[[Page 44774]]
that the rule is not warranted as a means of promoting the growth of 
independent stations and new networks, or of safeguards affiliate 
autonomy. Indeed, the rule generates costs and inefficiencies that are 
not now offset by substantial, if any, benefits.
    4. The Commission thus finds that the public interest warrants the 
repeal of PTAR. In scheduling repeal of the rule, a one-year transition 
period is appropriate to provide parties time to adjust their 
programming strategies and business arrangements prior to the 
elimination of a regulatory regime that has been in place for 25 years. 
Consequently PTAR will be repealed effective August 30, 1996.
    5. This conclusion is consistent with the Commission's 1993 
decision to schedule the repeal of the financial interest and 
syndication rules ((``fin/syn''), which was upheld on appeal by the 
U.S. Court of Appeals for the Seventh Circuit. See Capital Cities/ABC, 
Inc. V. FCC, 29 F.3d 309 (7th Cir. 1994). We determined that repeal of 
the fin/syn rules was warranted given the increased competition facing 
the networks and the conditions in the television programming 
marketplace. Based upon these findings we eliminated a number of the 
fin/syn rules immediately and set a timetable for repeal of the 
remainder.
    6. The Commission reaches its conclusion to PTAR by analyzing the 
following factors: First, it evaluates whether the networks dominate 
the markets relevant to the rule, or would be likely to dominate them 
in the absence of PTAR. Second, it assesses the costs imposed by the 
rule. Third, taking into account its findings regarding whether the 
networks dominate and the costs of the rule, it analyzes whether the 
rule is necessary as a means of pursuing the benefits of fostering 
independent programming, promoting the growth of independent stations 
and new networks, and safeguarding affiliate autonomy.
I. The Networks and Their Affiliates Do Not Dominate Markets 
Relevant to PTAR

    7. The Commission's adoption of PTAR in 1970 was premised on a view 
that the three networks dominated television programming. The 
Commission's analysis of the record leads it to conclude that neither 
the networks nor their affiliates dominate video programming 
distribution or the video programming production market. The Commission 
reaches this conclusion by employing a two-step market power analysis 
which involves defining the relevant market and examining evidence of 
undue market power.

A. Video Programming Distribution

    8. PTAR applies to ABC, CBS, and NBC affiliates in the Top 50 PTAR 
Markets. These networks and their affiliates display or ``distribute'' 
television programming to viewers and sell air time to customers 
seeking to advertise. In program distribution, networks and their 
affiliates compete with programs broadcast by independent stations. The 
list of economic substitutes for network broadcasts may also include 
cable programs, programs over satellite television systems, 
videocassette rentals, and other alternatives. For purposes of its 
review of PTAR, the Commission will focus on program distribution 
comprising only broadcast television station operators and their 
networks. This is a conservative, perhaps overly narrow, approach given 
that a good case can be made that, from the viewers' perspectives, 
cable system operators inter alia are economically relevant alternative 
distributors of video programming. Since PTAR constrains the market 
activities of affiliates of the three major networks in the Top 50 PTAR 
Markets, the Commission's primary focus in this section is whether 
these network affiliates would be able to exercise undue market power 
in the delivery of video programming in their respective local markets.
    9. Based on the record, it is clear that, in the Top 50 PTAR 
Markets, the three original networks and their affiliates face more 
competition for viewers than they did in 1970 or even in 1980. There 
are substantially greater numbers of television stations than there 
were in 1970. For example, the number of independent stations has grown 
by 450 percent during this time. The effects of this competition are 
readily apparent in examining the networks' audience shares over the 
years. Looking at prime time alone, the time period when the networks' 
viewing shares are the highest, each network's average share of the 
prime time audience declined from a 31.1 viewing share during the 1971/
72 season to a 20.2 share during the 1993/94 season, a loss of almost 
one-third of each network's audience. ABC, CBS, NBC, and Fox had 
individual 1993/94 prime-time audience shares of 20.1 , 22.7, 17.8 and 
11.4 percent, respectively. The Commission's calculation of affiliate 
audience shares in each of the Top 50 PTAR Markets is consistent with 
network audience shares nationally. No single network or network 
affiliate would seem to have the ability to dominate video programming 
distribution in any of these local markets.
    10. Nor is it likely that affiliates in a local Top 50 PTAR Market 
would dominate as a group since video programming distribution is only 
moderately concentrated. In its 1993 decision setting a timetable for 
repeal of the fin/syn rules, the Commission stated that ``inter-network 
competition for programming is `intense.''' Nothing in the record 
before us calls this conclusion into doubt, as the networks continue to 
wage a ratings war that has only been heightened with the emergence of 
the Fox network.
    11. The Commission thus concludes that, even focusing narrowly on 
local broadcast video programming distribution, the three networks and 
their affiliates cannot singly or jointly dominate video program 
distribution in the Top 50 PTAR Markets. This is a strong conclusion 
because the inclusion of additional television alternatives such as 
cable, satellite systems, video dialtone, etc., would serve to make 
domination by the networks and their affiliates even less likely.

B. The Video Programming Production Market

    12. Defining the relevant video programming production market 
begins by focusing on the products produced by beneficiaries of PTAR. 
Entertainment series, news magazine shows, and game shows are examples 
of the programs sold by independent producers and syndicators of prime-
time programs to network affiliates and independents. The list can be 
extended to include movies (whether for television, theatrical 
presentation, or cassette rental), sports programs, talk shows, news 
programming (local and national), musical variety, dramas, arts 
presentations, etc. Suppliers of these programs include not only those 
suppliers that actually are employed in a given year to produce 
programming for network prime time but also those producers willing and 
able to produce such programming in the event that market price 
increased above the competitive level. The list of suppliers will 
include television networks, independent syndicators, Hollywood movie 
studios, and international video producers. Buyers of such programming 
are not limited to television broadcasters but will include other 
purchasers of video programming such as cable networks and operators, 
direct broadcast satellite operators, videocassette distributers and, 
most recently, video programming affiliates of local telephone 
companies, which propose to offer video dialtone service. This market 
is clearly national and perhaps international in scope, because 

[[Page 44775]]
television broadcasters obtain a large portion of their programs from 
national providers.
    13. There is no evidence in the record that the networks exercise 
monopsony or oligopsony power in the video programming production 
market, i.e., that one (monopsony) or several firms (oligopsony) 
artificially restrict the consumption of programming and depress the 
market price paid for programming. Aside from the growth in the 
broadcast industry described above, there are nearly 150 national and 
regional cable networks, most of which transmit original, non-network 
programming. Also, other nonbroadcast video program distributors--such 
as cable, wireless cable, and satellite services--have grown. Finally, 
first-run syndicators are quite active as buyers (and sellers). 
According to the record, in 1994 the video entertainment programming 
purchased by each of the three networks accounted for approximately 9.4 
percent of aggregate expenditures on video programming in the United 
States, after taking into account distribution fees associated with 
syndicated programming and home videos. These market shares indicate 
that demand for video programming is not concentrated, and that the 
networks clearly cannot be said to exercise undue market power in the 
video programming production market, either individually or together. 
The record also shows that the supply side of the video programming 
production market is no more concentrated than the demand side.
    14. The Commission therefore concludes that no buyers or sellers, 
acting alone or together, are likely to be able to exercise undue 
market power in the video programming production market. In addition, 
entry barriers are low. In particular, it is unlikely that the three 
networks will be able to exercise market power in the video programming 
production market, either on the demand or supply side, if PTAR is 
repealed.

C. The National Television Advertising Market

    15. Several proponents of PTAR argue that the three networks 
dominate the television advertising market. But these parties do not 
present sufficient evidence to support this argument. Moreover, PTAR 
was not adopted to address the structure or performance of the 
advertising industry. This is why the Notice did not explicitly seek 
information on television advertising markets. The Commission adopted 
PTAR due to concerns that the three networks dominated the production 
and delivery of television programming. Examination of video 
programming distribution and the video programming production market is 
thus directly relevant to whether PTAR is necessary under today's 
market conditions. The Commission cannot say the same for the 
television advertising market, nor are we persuaded that PTAR is the 
appropriate mechanism for addressing the networks' role in these 
markets.
II. The Costs of PTAR

    16. In assessing the continuing need for PTAR, the Commission must 
take into account the costs the rule imposes on the networks, their 
affiliates, producers of network programming, television viewers, and 
the efficient functioning of the market. One obvious cost of the rule 
is that it restricts the programming choices of Top 50 Market 
Affiliates. They cannot air either network or off-network programming 
during the access period. One set of comments describes how the off-
network restriction interferes with the smooth functioning of the 
network-affiliate relationship by raising the overall costs of network 
broadcasting. With PTAR in place, the affiliate must either make 
investments to produce programs itself, or it must purchase first-run 
programs from syndicators. In the latter case, the affiliate bears the 
transaction costs of establishing relationships with syndicators and 
independent programmers. In either case, the affiliate bears the added 
risk of how first-run programming will perform relative to known-to-be 
popular network reruns. As a result of these higher costs, the total of 
net revenues to be shared among networks and affiliates is made smaller 
by PTAR.
    17. PTAR harms not only networks and affiliates, but the producers 
of network programming. The off-network restrictions has had the 
unintended effect of discouraging investment in prime-time programming. 
Producers rely to a great extent on their ability to sell reruns of 
their programs--i.e., off-network programs--to recoup their costs and 
to earn a profit. The license fee the networks pay for the right to air 
prime-time entertainment programs often does not cover the costs of 
producing these programs. The off-network restriction, however, 
diminishes producers' ability to recoup unrecovered costs by 
artificially restraining the prices of off-network programming. It does 
so by eliminating the Top 50 Market Affiliates from the range of 
potential purchasers of this programming. By reducing demand, the 
prices for off-network shows are reduced. The Commission believes that 
PTAR produces costs and inefficiencies to viewers that are larger than 
the benefits, if any, of PTAR to viewers.
    18. In addition, PTAR as a whole prevents the networks and their 
affiliates from taking advantage of network efficiencies during the 
access hour. Networks can deliver large audiences to advertisers, which 
in turn allows the networks and their affiliates to provide higher cost 
programming that is quite popular among audiences during prime time. 
While the parties dispute the size of the economic cost due to the loss 
of network efficiencies, the Commission concludes that this cost far 
exceeds PTAR's economic benefits.

III. Analyzing the Public Interest Need for PTAR

A. Increasing Opportunities for Independent Programmers

    19. PTAR's principal purpose was to promote source diversity by 
strengthening existing independent television program producers and 
encouraging entry of new producers. In adopting PTAR, the Commission 
predicted that the rule would increase the net amount of diverse 
programming available to the viewing public and induce the entry of new 
program suppliers into the market.
    20. A number of parties argue that PTAR has failed to promote these 
goals. They point out that four companies--Paramount, Warner Brothers, 
Fox, and King World--distribute over 95 percent of the first-run 
syndicated programming aired during the PTAR access period. Putting 
aside the question of who distributes access period programming, 
opponents of the rule also argue that PTAR has failed to increase 
diversity in terms of who produces such programming. Moreover, the rule 
has been criticized for actually lowering program quality and 
diversity. Without judging the quality of particular programs, the 
Commission agrees that PTAR, by eliminating network programming during 
the access hour, may have resulted in the loss of efficiencies that the 
networks and their affiliates may have enjoyed in the absence of the 
rule. The Commission notes, however that there are many variables that 
affect the number of program producers and program types in the market, 
with or without PTAR. Nevertheless, we recognize the limits of 
regulatory efforts to promote program diversity, and realize that PTAR 
prevents the use of network efficiencies during the access hour.
    21. Mindful of these issues, the Commission turns to the critical 
question of whether PTAR is necessary today as a means of promoting the 


[[Page 44776]]
growth of independent programmers and source diversity. In answering 
this question, it is important to remember that in adopting PTAR, the 
Commission cautioned that it was not its intention to carve out a 
competition free haven for syndicators or to smooth the path for 
existing syndicators. Rather, the central objective of the rule was to 
provide opportunity for the competitive development of alternate 
sources of television programs. The Commission no longer believes PTAR 
is necessary to provide this opportunity under today's market 
conditions. The Commission reached a similar conclusion in eliminating 
the fin/syn rules' restriction on network acquisition of financial 
interest and syndication rights in network prime time entertainment 
programming. In reaching this conclusion, the Commission dealt with the 
same source diversity concerns and stated that if profits are 
competitive, then the only reason to employ regulatory devices to 
protect producer profits is if we determined that, for some reason, the 
public required a greater array of producers than the market would 
normally bear. As in the fin/syn proceeding, no party has provided any 
reasoned justification for such a result here.
    22. Repeal of PTAR will subject suppliers of first-run syndicated 
programming to greater competition during the access period. This 
competition in today's marketplace can provide incentives to provide 
more innovative, higher quality programming, all of which benefits the 
consumer. Repeal of PTAR will also eliminate the costs generated by the 
rule. Most importantly, prices for off-network programming will no 
longer be artificially constrained, which we expect will encourage 
investment in the production of network programming.
    23. Proponents of the rule have not provided any evidence to 
support their claims that this competition will destroy the market for 
first-run non-network syndicated programming. The record indicates that 
first-run programming is often quite popular among audiences, and may 
very well be carried by network affiliates during the access hour in 
the Top 50 PTAR markets even after repeal of the rule. To the extent 
off-network or network programming would displace first-run syndicated 
programs from the Top 50 Market Affiliates, first-run programs should 
be able to find a place on independent stations, not to mention other 
outlets such as cable.

B. Fostering the Growth of Independent Stations and New Networks

    24. PTAR provides independent stations greater access to off-
network programming and prevents them from having to compete against 
network programming during the access hour. Proponents of PTAR argue 
that the rule is necessary to promote the Commission's outlet diversity 
goals by fostering the growth of independent stations and new networks. 
But the record does not conclusively show that repeal of either the 
off-network provision or the network restriction of PTAR will undo the 
growth of independent stations since the rule was adopted. Nor will 
repeal of the rule likely undermine the development of new broadcast 
networks, or otherwise harm the Commission's outlet diversity goals.
    25. The number of independent television stations has grown by 
almost 450 percent since PTAR was adopted, from 82 stations in 1970 to 
over 450 today. The record indicates that advances in television 
design, the growth of cable penetration, and the growth in demand for 
television advertising all have strengthened independent television. 
Independents also have a robust supply of programming to turn to under 
today's market conditions. The repeal of PTAR is unlikely to threaten 
these advancements. Nor is there sufficient basis in the record to 
conclude that repeal will so undermine the ratings and profits of 
independent stations that our outlet diversity goals will be 
implicated. It is likely that repeal of the rule will subject these 
stations to greater competition in acquiring off-network programming 
and in attracting audiences during the access hour and prime time. But 
there is not sufficient evidence in the record to support the claims 
that this competition will result in dramatic ratings declines and 
revenue losses to an extent that threatens the overall viability of 
independent stations and their ability to satisfy their public interest 
obligations. Relatedly, there is no reliable evidence to indicate that 
repeal of PTAR will jeopardize the station base of the new networks or 
threaten their further development.
    26. The Commission consequently concludes that PTAR is not 
warranted as a means of ensuring the growth of independent television 
stations or new networks. This is especially the case given the costs 
of the rule. The off-network provision discourages investment in 
network programming. Moreover, it is becoming increasingly inequitable 
to provide a competitive advantage to independent stations over network 
affiliates in today's marketplace. The networks and their affiliates, 
like independents, face growing competition from non-broadcast media.
    27. The Commission reaches this conclusion by addressing three 
questions raised by the commenters: First, does the record show that 
the ``UHF handicap'' warrants affording independent stations a 
competitive advantage in the form of PTAR? Second, does the record 
demonstrate that PTAR is needed to support independent television 
stations' ratings and profitability and that repeal of PTAR would 
significantly harm outlet diversity? Third, does the record support the 
argument that the repeal of PTAR will frustrate the development of new 
networks?
1. The UHF Handicap
    28. Proponents of the rule seek to justify PTAR by pointing to the 
signal reach disadvantage of UHF stations relative to VHF stations. 
They maintain that this ``UHF handicap'' places independent stations at 
a structural disadvantage since most of them are in the UHF band. 
Affiliates of the three major networks are predominantly VHF stations.
    29. The Commission's review of the record, however, as well as 
Commission findings in other proceedings, leads it to conclude that the 
UHF handicap has been reduced to some extent. First, Congress and the 
Commission have taken a number of steps over the years to ameliorate 
this handicap by requiring television equipment improvements. Second, 
the growth of cable has resulted in a reduction in the UHF handicap 
with respect to those viewers that subscribe to cable. However, 
although cable has reduced the UHF handicap, the Commission understands 
that it may still affect some portion of viewers who are not cable 
subscribers.
    30. While the UHF disparity continues for some viewers, we do not 
think the public interest is served by tying PTAR to its complete 
elimination. The rule does not and cannot address the technical 
disparities that still exist between some stations. Moreover, the rule 
has never been tailored to the UHF/VHF distinction. Rather, PTAR 
provides a competitive advantage to independent stations by limiting 
the programming options available to Top 50 Market Affiliates, even in 
cases where the affected network affiliates are themselves UHF 
stations. The Commission does not believe this is appropriate given 
today's market 

[[Page 44777]]
conditions and the costs imposed by the rule. The handicap has been 
reduced. Affiliates, like independents, are facing increased 
competition in the television marketplace from non-broadcast sources. 
The Commission thus concludes that the UHF handicap that remains does 
not warrant continuation of PTAR.
2. PTAR and the Ratings, Growth, and Profitability of Independent 
Television Stations
    31. The Impact of PTAR on Ratings and Station Growth. Proponents of 
the rule rely on a regression analysis set forth in the comments 
submitted by the Law and Economics Consulting Group (``the LECG 
Study'') to support their claims regarding the importance of PTAR to 
independent stations. The LECG analysis attempts to demonstrate that 
the adoption of each of the two components of PTAR (the three-hour 
network restriction and the off-network restriction) increased the 
ratings of independent stations. The same analysis also seeks to show 
that repealing PTAR will result in a 58 percent drop in access period 
ratings and in a carry-over 67 percent drop in the ratings for the 
first (following) prime-time hour for independent television stations.
    32. After an extensive review of the LECG Study, the Commission 
concludes that the LECG Study, and the arguments advanced by parties 
based on this study, do not provide sufficient evidence to demonstrate 
that repeal of PTAR will result in significant ratings declines for 
independent stations. For the same reasons, the study does not provide 
reliable evidence that PTAR has as a historical matter increased 
independent station ratings. There are numerous flaws in LECG's 
analysis that lead the Commission to this conclusion, including the 
following: (1) LECG does not link its econometric model to an 
underlying conceptual model of behavior in the television industry; (2) 
LECG ignores to problem of hysteresis (i.e., even if PTAR caused 
certain changes in the past, there is no guarantee that its elimination 
will reverse those changes); (3) LECG's statistical methodology links 
changes in independent station's ratings PTAR solely to PTAR, and does 
not take into account other regulations that have benefited these 
stations; (4) There are errors and gaps in LECG's data sets; (5) There 
seem to be problems with LECG's specifications of its equations and 
their estimation; and (6) LECG's analysis reports point estimates for 
regression coefficients without confidence intervals, making it 
impossible to confirm that LECG's predicted ratings decline for 
independent stations are statistically distinguishable from zero.
    33. The Commission further observes that while independent stations 
will be forced to pay competitive prices for off-network programming in 
the absence of PTAR, they will not necessarily be outbid for such 
programming. In market 51-100, 76 percent of syndicated programs aired 
by network affiliates is first-run rather than off-network. Moreover, 
in 1993, two of the top five off-network programs broadcast in markets 
51-100 were aired more often on independent stations than on 
affiliates. It is also unlikely that all network affiliates in a market 
will flock to off-network shows, given the incentive to counter-program 
with different program formats. In addition, in the event the networks 
and their affiliates opt to run network programming during the access 
hour, off-network fare will continue to be available to independents. 
Finally, in the event an off-network program is displaced from an 
independent station, the station can turn to first-run syndicated 
programming. First-run programming can generate higher ratings than 
off-network shows, with associated carryover ratings benefits.
    34. The Commission also notes that the argument advanced in favor 
of giving a competitive advantage to independent stations, taken to its 
logical conclusion, would suggest that PTAR coverage be redefined so 
that it applies to smaller, and less financially secure, markets. Yet 
no party has proposed such a result. To the contrary, PTAR's benefits 
appear to flow mainly to the stronger independent stations in the 
country. In fact, these stations generally have affiliated with one of 
the new networks or are part of a jointly owned station group. 
According to comments submitted by NBC, there is not a single 
independent station in the top 50 markets showing a top-five rated off-
network program that is (1) a UHF station that is (2) not affiliated 
with Fox, UPN, or WB, and/or (3) not owned by a company owning three or 
more stations. Thus, the impact of repeal of the rule may primarily be 
felt by the stronger independent stations. In addition, these stations 
participate in joint purchasing or production arrangements that may 
ameliorate some of the effects of PTAR's repeal on program prices.
    35. Growth in Numbers of Independents. One of the reasons that the 
LECG Study and INTV claim as support for the proposition that repeal of 
PTAR will substantially hurt UHF independent stations is that the 
adoption of PTAR allegedly was responsible for significant growth in 
the number of independent stations, albeit not until 5-15 years later. 
However, a study submitted by Economics, Inc. (``EI''), shows that 
LECG's model can be used to demonstrate that PTAR is not responsible 
for the increase in the number of independent stations. Thus, the 
Commission cannot conclude that PTAR's adoption caused a significant 
increase in the number of independent stations. Nor can the Commission 
therefore conclude that PTAR's repeal will cause the large reduction in 
the number of independent stations claimed by the rule's proponents.
    36. The impact of PTAR on Profits and Programming. Even if the 
Commission assumes that PTAR proponents are correct in their prediction 
of a ratings decline for independent stations in the event PTAR is 
repealed, they have not demonstrated how that would affect independent 
stations and the future development of new networks. In particular, 
LECG has not provided any convincing estimate of how a decline in 
audience share during 1 or 2 hours of prime time, would lead to a large 
decline in station revenues and a resulting decline in station profits. 
Proponents of the rule have thus not provided any reliable basis to 
find that the profits of independent stations would decline 
significantly. More importantly, there is no reliable evidence in the 
record to support these parties' claims that repeal of the rule will so 
affect the financial health of independent stations as to force 
stations off the air or undermine their ability to provide public 
interest programming, including news and other public affairs 
programming.
    37. What the record does show is a generally healthy financial 
picture for independent stations. Profit data published by the National 
Associate of Broadcasters (``NAB'') indicate that the average 
independent station has generally been profitable, at least since the 
mid-1980s. The average UHF station has been profitable since 1992 after 
a number of unprofitable years through the 1980s. This strong financial 
picture extends to the independent stations not affiliated with the 
largest of the new networks, Fox. These stations reported, on average, 
1993 profits of four million dollars per station. UHF non-Fox 
affiliated independents reported average annual profits of $1.5 million 
per station in 1993. Also, these average profits understate 
profitability in the largest markets, those to which PTAR applies.
    38. Conclusions. The Commission thus concludes that PTAR, which has 
become overly broad and inequitable, is not necessary to provide 
independent 

[[Page 44778]]
stations a competitive advantage relative to the Top 50 Market 
Affiliates. Independent stations may face greater competition in 
programming the access hour without PTAR. But there is no reliable 
evidence that this will so jeopardize the financial health of 
independent stations as to implicate public interest concerns, 
particularly those relating to outlet diversity.
3. Repeal of PTAR and New Broadcast Networks
    39. According to proponents of PTAR, one of the major reasons why 
PTAR has been and continues to be important is that by promoting the 
health of independent stations, it has helped create an important and 
necessary condition for the development of the new networks--Fox, UPN 
and WB. Proponents of the rule argue that repeal will severely harm 
independent stations and, in turn, harm the growth of UPN and WB. These 
parties, however, have not demonstrated the link between the asserted 
harm to independent stations as a result of the repeal of PTAR and the 
decreased likelihood of the development of new networks. In their 
analysis concerning PTAR and the improving position of those stations 
and new networks, PTAR proponents seem to suggest that the 
profitability of independent stations has been responsible for the 
growth of newly emerging networks, especially the Fox network. However, 
it is equally plausible that many affiliates of the Fox network owe 
their improved profit position to their affiliation with Fox. 
Regardless of the possible importance of both parts of this 
interaction, parties favoring continuation of PTAR have not 
demonstrated in any convincing way that PTAR itself is ultimately 
responsible for the development of newly emerging networks.
    40. The Commission does not believe that repeal of PTAR will create 
the grounds for failure of newly-launched television networks nor for 
significant slowing in their development. Some independent stations may 
find their profits reduced as the industry adjusts to this change and 
other regulatory and technological changes. However, the Commission 
concludes that the prospects for independent stations and new networks 
overall are good. First, the Commission believes that the UHF signal 
disparity has been reduced, albeit not entirely. This permits 
competition for programming on more even terms between similarly 
situated UHF and VHF stations, most of which are now network 
affiliates. Second, the video programming production market appears to 
be open to entry by large and small firms with many producers actively 
seeking outlets for their programs. Third, the numbers of independent 
stations remain large enough to make it possible for new networks to 
add affiliates and expand audience reach. Finally, at the present time, 
virtually all categories of television broadcast stations are, on 
average, profitable. The repeal of PTAR will reduce costs imposed by 
the rule's restrictions on affiliates, network program producers, and 
viewers who prefer high-cost programming, and will not create 
significant problems for independent stations and new networks.

C. Reducing Network Ability to Dictate Affiliate Programming Choices

    41. PTAR prohibits the Top 50 Market Affiliates from obtaining 
network-provided programs or off-network programs during the access 
period. In 1970, when it adopted PTAR, the Commission concluded that 
this was a reasonable method of protecting affiliates against the power 
of the networks. Under this reasoning, the affiliates did not have 
sufficient bargaining power to refuse to run network programs, even 
when doing so was not in their economic self-interest. Thus, although 
the rule limited the programming options available to affiliates during 
one hour and consequently limited to the same extent the viewing 
options available to viewers, nonetheless the affiliates may have 
believed they were better off with the rule than without the rule, 
given the dominant position of the three networks. The view was that 
while a network would dictate one program shown nationally for the 
access period, the rule would permit the affiliate to choose instead 
from a range of choices (i.e., in-house or independently produced 
programs).
    42. While advocating repeal of the off-network provision of PTAR, 
proponents of the network restriction argue that there are some 
indications that the networks continue to have significant bargaining 
leverage over their affiliates. Prime time clearance levels are very 
high. The record also shows that affiliates rarely preempt prime time 
network programming, and that affiliate agreements are often structured 
to discourage preemption. In addition, the increase in the number of 
independent stations may have increased the demand and competition for 
the most lucrative network affiliations. This may therefore reduce, at 
least to some degree, the increased leverage the network affiliates 
appear to have gained as a result of the emergence of the Fox network. 
Moreover, the WB and UPN networks, only recently launched and presently 
offering a minimal program schedule, may not yet provide a competitive 
alternative to affiliation with one of the other four networks.
    43. On balance, however, the Commission does not believe PTAR's 
network restriction is the appropriate mechanism under current market 
conditions to address the issue of the relative bargaining power 
between networks and affiliates. As an initial matter, high clearance 
rates do not necessarily indicate undue network leverage; they may 
simply reflect the popularity and efficiencies of network programming. 
There is also evidence in the record indicating greater affiliate 
bargaining power today. The emergence of the Fox network certainly can 
be said to have improved affiliate bargaining power by creating a 
viable affiliation alternative to ABC, CBS, and NBC. The networks also 
point to the fact that the total amount of network programming during 
non-prime time dayparts has declined over the years as evidence of the 
inability of networks to dictate to affiliates. Finally, there are 
today many more options for obtaining programming even without having a 
network affiliation.
    44. The Commission notes that it is not concerned with the relative 
bargaining position of networks and their affiliates to the extent it 
merely affects the distribution of profits between the parties. Rather, 
the public interest is implicated where network leverage prevents an 
affiliate from fulfilling its public interest obligations, such as 
broadcasting programming responsive to local interests, or distorts the 
normal market incentive to air programming according to viewer 
preferences.
    45. The Commission thinks these issues are best addressed in the 
context of our rules governing a station's right to reject network 
programming, the filing of affiliation agreements, and its other rules 
regarding the network-affiliate relationship. The Commission has 
initiated a comprehensive review of these rules. In doing so, it will 
address the issues the parties have raised here, including whether 
networks have the capability and the incentive to exercise undue market 
or bargaining power in the absence of these rules and the public 
interest concerns any such capability and incentive would raise. These 
rules, and their corollary rulemaking proceedings, are better tailored 
to weigh these public interest issues and strike the appropriate 
balance regarding regulation of the network-affiliate relationship. 
PTAR, in contrast, is an 

[[Page 44779]]
imprecise, indiscriminate response to these concerns.

IV. Summary of Findings and Transition

    46. The record shows that the three networks now face greater 
competition than they did in 1970. There has been dramatic growth in 
the number of independent stations, and broadcasters now must compete 
for audiences with the increasing numbers of non-broadcast outlets, 
especially cable service. The networks can no longer be viewed as a 
funnel through which all television programming must pass. PTAR is thus 
not necessary to promote independent program sources, PTAR's primary 
goal. The record shows that the large number of video programming 
outlets today creates a healthy demand for non-network programs. The 
record further shows that there is no public interest reason for 
continuing PTAR as a means of providing independent stations or new 
broadcast networks a competitive advantage relative to network 
affiliates in programming the access hour. Finally, the Commission 
finds that PTAR is not an appropriate mechanism for safeguarding 
affiliate autonomy. The Commission thus finds that the public interest 
does not warrant the continuation of PTAR, especially given the costs 
the rule imposes.
    47. The Notice sought comment on whether, in the event the 
Commission concluded that PTAR should be eliminated, it should repeal 
the rule immediately or adopt a transition mechanism that would sunset 
the rule after a certain period of time. As noted above, the record 
provides strong support for repeal of the rule. A transition 
consequently is not necessary to take a ``wait and see'' approach in 
order to test, and possibly revisit, the Commission's conclusion to 
repeal the rule. The Commission does, however, believe a short 
transition period is appropriate to allow industry participants to 
adjust to the changing economic conditions that might result from 
repeal of PTAR. The PTAR regulatory scheme has been in place for over 
two decades, during which time members of the industry have come to 
rely on the structure imposed by that scheme. Eliminating that 
structure precipitously may have disruptive effects as the marketplace 
adjusts to the deregulated environment. A one-year transition will give 
parties time to adjust their business plans and contractual 
arrangements prior to repeal of the rule and moderate an unnecessarily 
abrupt impact on affected stations.
    48. The Commission rejects transition proposals that would continue 
PTAR for an indefinite or overly long period of time. Such proposals, 
if adopted, would impose costs that outweigh any possible benefits of a 
longer transition. The record in this proceeding demonstrates that 
continuation of the rule in the public interest; prolonging PTAR simply 
as a means of continuing to confer competitive benefits on independent 
stations therefore cannot be justified.
    49. Nor does the Commission believe the scheduled repeal of the 
remaining fin/syn rules calls for a longer transition period for PTAR. 
A number of the fin/syn rules, including restrictions on network 
acquisition of financial interests in prime time programming, were 
eliminated over two years ago; the marketplace thus should have had 
time to adjust to the elimination of these rules. No party has made a 
convincing case that the upcoming planned repeal of the remainder of 
these rules will lead to any anticompetitive activities by the networks 
or undue disruption of the marketplace so as to warrant postponing PTAR 
repeal beyond a year. The Commission also does not believe it is 
necessary to take a staggered approach to repeal or schedule a final 
review of the rule prior to its scheduled expiration, as it did in the 
fin/syn proceeding. The record in this proceeding clearly supports 
repeal of PTAR, and the three networks can be said to be facing even 
more competition today than they were when the Commission established 
its fin/syn transition in 1993. Phased deregulation is less useful when 
the transition period is used as a means of minimizing disruption in 
repealing a regulation as opposed to taking several cautionary steps in 
order to confirm the planned elimination of an entire rule. The 
transition plan the Commission has adopted is not motivated by any 
uncertainty over its conclusion to repeal PTAR, but rather by a concern 
that immediate repeal could be unnecessarily disruptive. The Commission 
will thus schedule repeal of the rule in its entirety for August 30, 
1996.
    50. Other Issues. Given the Commission's conclusion that PTAR no 
longer serves the public interest and should be repealed, the 
Commission need not address the argument advanced by a number of 
parties that the rule is contrary to the First Amendment. The 
Commission also does not believe it is appropriate to alter the 
definition of ``network'' to include the new networks as urged by some 
parties. The Commission is not persuaded that this definition is 
inequitable or that it causes new networks to curtail their prime time 
offerings in order to evade the application of PTAR. In any event, the 
rule will expire in a year and would have little if any impact on an 
entity that became a ``network'' during that time period given the 
grandfathering provisions presently set forth in the rule. Finally, 
given the Commission's decision to repeal the rule, we will not modify 
the current exemptions to PTAR as proposed by a number of commenters. 
The proposed revisions to the definition of a ``network'' and the 
rule's exemptions are not appropriate for the one-year transition the 
Commission has established. Indeed, modifying these provisions of the 
rule could run directly counter to the purposes of the transition by 
creating uncertainty and disruption during a period that is intended to 
provide parties time to adjust for repeal of PTAR. The Commission will 
consequently retain PTAR in its existing form during the one-year 
transition period.

V. Administrative Matters

    51. Reason for the Action: This action is taken to repeal the prime 
time access rule, 47 C.F.R. Sec. 73.658(k), in response to changes in 
the communications marketplace, and to better adjust to the needs of 
the public.
    52. Objective of this Action: The Commission believes that this 
action will remove barriers to competition in the markets for video 
programming and enhance program diversity for television viewers. The 
rule will be repealed on August 30, 1996, which will give affected 
parties time to adjust their business plans and contractual 
arrangements in order to avoid an unnecessarily abrupt impact 
associated with repeal to viewer and industry structures that have 
developed in the 25 years that the subject rule has been in place.
    53. Legal Basis: Authority for the actions taken in this Report and 
Order may be found in Section 4(i) and 303(r) of the Communications Act 
of 1934, as amended, 47 U.S.C. Section 154(i) and 303(r).
    54. Any Significant Alternatives Minimizing the Impact on Small 
Entities and Consistent with the Stated Objectives: The Commission 
determined that, based on the record developed in this proceeding and 
existing marketplace conditions, the public interest will be served by 
repeal of PTAR. Proponents of retaining the rule failed to establish 
that it remains necessary to ensure the diversity of programming 
sources and outlets contemplated by adoption of PTAR. Moreover, these 
parties have not demonstrated convincingly that PTAR 

[[Page 44780]]
itself is ultimately responsible for the development of newly emerging 
networks or that repeal of the rule will threaten the station base of 
the new networks. Those favoring repeal of the rule established that 
the rule unnecessarily limits the programming choices of network-
affiliated stations in the Top 50 television markets and discourages 
investment in network programming, without off-setting public interest 
benefits.

List of Subjects in 47 CFR Part 73

    Radio broadcasting, Television broadcasting.

Rule Changes

    Part 73 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 73--RADIO BROADCAST SERVICES

    1. The authority citation for Part 73 continues to read as follows:

    Authority: 47 U.S.C. Sections 154, 303, 334.


Sec. 73.658  [Amended]

    2. Section 73.658 is amended by removing and reserving paragraph 
(k).

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-21319 Filed 8-28-95; 8:45 am]
BILLING CODE 6712-01-M