[Federal Register Volume 68, Number 150 (Tuesday, August 5, 2003)]
[Rules and Regulations]
[Pages 46286-46358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19106]



[[Page 46285]]

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Part II





Federal Communications Commission





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47 CFR Part 73



Broadcast Ownership Rules, Cross-Ownership of Broadcast Stations and 
Newspapers, Multiple Ownership of Radio Broadcast Stations in Local 
Markets, and Definition of Radio Markets; and Definition of Radio 
Markets for Areas Not Located in an Arbitron Survey Area; Final Rule 
and Proposed Rule

  Federal Register / Vol. 68, No. 150 / Tuesday, August 5, 2003 / Rules 
and Regulations  

[[Page 46286]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MB Docket 02-277, and MM Dockets 01-235, 01-317, and 00-244; FCC 03-
127]


Broadcast Ownership Rules, Cross-Ownership of Broadcast Stations 
and Newspapers, Multiple Ownership of Radio Broadcast Stations in Local 
Markets, and Definition of Radio Markets

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document completes the Commission's biennial review of 
its broadcast ownership rules. The Commission replaces its absolute 
prohibition on common ownership of daily newspapers and broadcast 
outlets in the same market and its restrictions on common ownership of 
radio and television outlets in the same market with Cross Media 
Limits. The Commission also revises the market definition and the way 
it counts stations for purposes of the local radio rule, revises the 
local television multiple ownership rule, modifies the national 
television ownership cap from a 35% national audience reach limit to a 
45% reach limit, and retains the dual network rule. The action is taken 
in response to section 202(h) of the Telecommunications Act of 1996, 
which requires the Commission to review its broadcast ownership rules 
on a biennial basis to determine whether the rules remain ``necessary 
in the public interest.'' The action is necessary to comply with this 
legislative mandate.

DATES: Effective September 4, 2003, except for Sec. Sec.  73.3555 and 
73.3613 which contains information collection requirements that are not 
effective until approved by the Office of Management and Budget. The 
Commission will publish a document in the Federal Register announcing 
the effective date of these sections. A separate notice will be 
published in the Federal Register soliciting public and agency comments 
on the information collections, and establishing a deadline for 
accepting such comments.

FOR FURTHER INFORMATION CONTACT: Mania Baghdadi, Deputy Division Chief, 
Industry Analysis Division, Media Bureau, 202-418-2133. For further 
information concerning the information collection requirements 
contained in this Report and Order, contact Les Smith, Federal 
Communications Commission, 202-418-0217, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (R&O) in MB Docket No. 02-277 and MM Docket Nos. 01-235, 01-
317, and 00-244; FCC 03-127, adopted June 2, 2003, and released July 2, 
2003. The complete text of the R&O and the Final Regulatory Flexibility 
Analysis is available on the Commission's Internet site, at 
www.fcc.gov., and is also available for inspection and copying during 
normal business hours in the FCC Reference Information Center, 
Courtyard Level, 445 12th Street, SW., Washington, DC. The text may 
also be purchased from the Commission's copy contractor, Qualex 
International, Portals II, 445 12th Street, SW., CY-B4202, Washington, 
DC 20554 (telephone 202-863-2893).

Synopsis of the Report and Order

    1. This R&O brings to completion the Commission's third biennial 
ownership review of all six broadcast ownership rules. The Commission 
addresses these rules in light of the mandate of section 202(h) of the 
Telecommunications Act of 1996 (1996 Act), which requires the 
Commission to reassess and recalibrate its broadcast ownership rules 
every two years. (Telecommunications Act of 1996, Public Law 104-104, 
110 Stat. 56 (1996).)
    2. The Notice of Proposed Rulemaking (NPRM) in this proceeding (67 
FR 65751, October 28, 2002), initiated review of four ownership rules: 
the national television multiple ownership rule;\1\ the local 
television multiple ownership rule;\2\ the radio-television cross-
ownership rule; \3\ and the dual network rule.\4\ The first two rules 
have been reviewed and the proceedings remanded to the Commission by 
the U.S. Court of Appeals for the District of Columbia Circuit. (Fox 
Television Stations, Inc. v. FCC, 280 F.3d 1027, 1044 (D.C. Cir. 2002) 
(Fox Television), rehearing granted, 293 F. 3d 537 (D.C. Cir. 2002) 
(Fox Television Re-Hearing) addressing the national TV ownership rule, 
and Sinclair Broadcast Group, Inc. v. FCC, 284 F.3d 148 (DC Cir. 2002), 
(Sinclair) addressing the local TV ownership rule.) After the 
Commission issued the NPRM, the Commission issued 12 Media Ownership 
Working Group (MOWG) studies for public comment. A summary of the 
studies, a public notice, and the text of the studies may be found at 
www.fcc.gov/ownership.
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    \1\ 47 CFR 73.3555(e).
    \2\ 47 CFR 73.3555(b).
    \3\ 47 CFR 73.3555(c).
    \4\ 47 CFR 73.658(g).
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    3. In this R&O, the Commission examines the legal context within 
which this review is conducted, identifies and describes the public 
interest policy goals that guide our decision, assesses changes in the 
media marketplace over time, repeals some rules, modifies others, and 
adopts some new rules. In consideration of the record and our statutory 
charge, the Commission concludes that neither an absolute prohibition 
on common ownership of daily newspapers and broadcast outlets in the 
same market (the newspaper/broadcast cross-ownership rule) nor a cross-
service restriction on common ownership of radio and television outlets 
in the same market (the radio-television cross-ownership rule) remains 
necessary in the public interest. With respect to both of these rules, 
the Commission finds that the ends sought can be achieved with more 
precision and with greater deference to First Amendment interests 
through our modified Cross Media Limits (CML). The Commission also 
revises the market definition and the way it counts stations for 
purposes of the local radio rule, revises the local television multiple 
ownership rule, modifies the national television ownership cap, and 
retains the dual network rule.
    4. The Commission, in the R&O, adopts limits both for local radio 
and local television station ownership. Both of these rules are 
premised on well-established competition theory and are intended to 
preserve a healthy and robust competition among broadcasters in each 
service. As explained in the R&O, however, because markets defined for 
competition purposes are generally more narrow than markets defined for 
diversity purposes, the Commission's ownership limits on radio and 
television ownership also serve our diversity goal. By ensuring that 
several competitors remain within each of the radio and television 
services, the Commission also ensures that a number of independent 
outlets for viewpoint will remain in every local market, thereby 
protecting diversity. Further, though, because local television and 
radio ownership limits cannot protect against losses in diversity that 
might result from combinations of different types of media within a 
local market, the Commission adopts a set of specific cross-media 
limits.
    5. Similarly, by virtue of the staff's extensive information 
gathering efforts and the voluminous record assembled in this 
rulemaking docket, the Commission has, for the first time substantial 
evidence regarding the localism effects of our national broadcast 
ownership rules. The

[[Page 46287]]

Commission can, therefore, with more confidence than ever, establish a 
reasonable limit on the national station ownership reach of broadcast 
networks. In addition, under our dual network rule, the Commission 
continues to prohibit a combination between two of the largest four 
networks primarily on competition grounds, but the beneficial effects 
of this restriction also protect localism. In combination, the 
Commission's new national broadcast ownership reach cap and our ``dual 
network'' prohibition will ensure that local television stations remain 
responsive to their local communities.

I. Legal Framework

    6. The Commission conducts this biennial ownership review within 
the framework established by section 202(h) of the 1996 Act, which 
provides: ``The Commission shall review its rules adopted pursuant to 
this section and all of its ownership rules biennially as part of its 
regulatory reform review under section 11 of the Communications Act of 
1934 and shall determine whether any of such rules are necessary in the 
public interest as the result of competition. The Commission shall 
repeal or modify any regulation it determines to be no longer in the 
public interest.'' 1996 Act, section 202(h).
    7. Two aspects of this statutory language are particularly 
noteworthy. First, as the court recognized in both Fox Television and 
Sinclair, ``Section 202(h) carries with it a presumption in favor of 
repealing or modifying the ownership rules.'' That is, Section 202(h) 
appears to upend the traditional administrative law principle requiring 
an affirmative justification for the modification or elimination of a 
rule. Second, Section 202(h) requires the Commission to determine 
whether its rules remain ``necessary in the public interest.''
    8. The Commission concludes that in its current form only the dual 
network rule remains necessary in the public interest as a result of 
competition. The Commission also concludes that the other ownership 
rules should be modified as described in the R&O.
    9. The ownership rules adopted in the R&O must be consistent not 
only with the legal standard in section 202(h), but also with the First 
Amendment rights of affected media companies and consumers. The 
Commission concludes, based on the decisions in the Fox Television and 
Sinclair cases, that the rational basis standard is the correct First 
Amendment standard to apply to the broadcast ownership rules.
    10. The Commission rejects, as did the court, the application of 
the intermediate scrutiny (O'Brien) standard applicable to cable 
operators or the strict scrutiny standard applicable to the print media 
and to content-based regulations. Under O'Brien, government regulation 
of speech will be upheld only if: (1) It furthers an important or 
substantial governmental interest; (2) the interest is unrelated to the 
suppression of free expression; and (3) the incidental restriction on 
alleged First Amendment freedom is no greater than is essential to the 
furtherance of that interest. In general, ownership limits on cable 
operators have been subject to the O'Brien test. The Supreme Court has 
determined that ``promoting the widespread dissemination of information 
from a multiplicity of sources'' is a government interest that is not 
only important, but is of the ``highest order'' and is unrelated to the 
suppression of free speech. Turner Broadcasting System, Inc. v. FCC, 
512 U.S. 622, 662-63 (1984); Turner Broadcasting System v. FCC, 520 
U.S. 180 (1997). On the other hand, the Commission may not burden cable 
operators' speech with ``illimitable restrictions in the name of 
diversity.''
    11. Strict scrutiny First Amendment analysis would require the 
Commission to demonstrate that its rules are the ``least restrictive 
means available of achieving a compelling state interest.''
    12. Under the rational basis standard, the Commission's broadcast 
regulations satisfy the First Amendment if they are ``a reasonable 
means of promoting the public interest in diversified mass 
communications.'' FCC v. National Citizens Committee for Broadcasting, 
436 U.S. 775, 802 (1978) (NCCB). As the court has noted, there is no 
unabridgeable First Amendment right to hold a broadcast license; would-
be broadcasters must satisfy the public interest by meeting the 
Commission criteria for licensing, including demonstrating compliance 
with any applicable ownership limitations.
    13. In applying the rational basis test, the Fox and Sinclair 
courts relied on longstanding Supreme Court precedent which also 
supports our decision. NCCB, 436 U.S. at 802. In NCCB, the Supreme 
Court applied the rational basis test to the Commission's newspaper/
broadcast cross-ownership rules, finding that they ``are a reasonable 
means of promoting the public interest in diversified mass 
communications; thus they do not violate the First Amendment rights of 
those who will be denied broadcast licenses pursuant to them.'' The 
NCCB Court explained that the rational basis test is the appropriate 
standard to govern our broadcast ownership regulations because spectrum 
scarcity requires ``Government allocation and regulation of broadcast 
frequencies'' and because these regulations are not content related. 
The rational basis standard therefore governs the Commission's 
broadcast ownership regulations, whether they govern those that own 
only broadcast outlets or those that might seek to combine ownership of 
a broadcast outlet with a newspaper.
    14. First Amendment interests are implicated by any regulation of 
media outlets, including broadcast media. The Commission endeavors to 
be sensitive to those interests and to minimize the impact of our rules 
on the right of speakers to disseminate a message. As discussed below, 
our decision today to eliminate the newspaper/broadcast cross-ownership 
rule and the radio-television cross-ownership rule, and to modify our 
other local ownership rules and our national audience reach cap, turns 
in part on our determination that these rules in their current form are 
not a reasonable means to accomplish the public interest purposes to 
which they are directed. The Commission turns next to identifying the 
policy goals that will inform this determination.

II. Policy Goals

    15. The Commission, in the NPRM, identified diversity, competition 
and localism as longstanding goals that would continue to be core 
agency objectives that would guide its actions in regulating media 
ownership. To fulfill our biennial review obligation, the Commission 
will first define our goals and the ways it will measure them. The 
Commission can then assess whether our current broadcast ownership 
rules are necessary to achieve these goals.

A. Diversity

    16. There are five types of diversity pertinent to media ownership 
policy: viewpoint, outlet, program, source, and minority and female 
ownership diversity.
    17. Viewpoint Diversity. Viewpoint diversity refers to the 
availability of media content reflecting a variety of perspectives. A 
diverse and robust marketplace of ideas is the foundation of our 
democracy. Consequently, ``it has been a basic tenant of national 
communications policy that the widest possible dissemination of 
information from diverse and antagonistic sources is essential to the 
welfare of the public.'' This policy is given effect, in part, through 
regulation of broadcast ownership. Because outlet owners select the 
content to be disseminated, the Commission has traditionally assumed 
that there is a positive correlation

[[Page 46288]]

between viewpoints expressed and ownership of an outlet. The Commission 
has sought, therefore, to diffuse ownership of media outlets among 
multiple firms in order to diversify the viewpoints available to the 
public. Prior Commission decisions limiting broadcast ownership 
concluded that a larger total number of outlet owners increased the 
probability that their independent content selection decisions would 
collectively promote a diverse array of media content. The Commission 
sought comment on whether this longstanding presumed link between 
ownership and viewpoint could be established empirically. After 
reviewing studies and comments, the Commission adheres to its 
longstanding determination that the policy of limiting common ownership 
of multiple media outlets is the most reliable means of promoting 
viewpoint diversity. The balance of evidence, although not conclusive, 
appears to support the Commission's conclusion that outlet ownership 
can be presumed to affect the viewpoints expressed on an outlet. The 
Commission therefore continues to believe that broadcast ownership 
limits are necessary to preserve and promote viewpoint diversity. A 
larger number of independent owners will tend to generate a wider array 
of viewpoints in the media than would a comparatively smaller number of 
owners.
    18. Further, owners of media outlets clearly have the ability to 
affect public discourse, including political and governmental affairs, 
through their coverage of news and public affairs. Even if the 
Commission's inquiry were to find that media outlets exhibited no 
apparent ``slant'' or viewpoint in their news coverage, media outlets 
possess significant potential power in our system of government. The 
Commission believes sound public policy requires it to assume that 
power is being, or could be, exercised.
    19. The Commission does not pass judgment on the desirability of 
owners using their outlets for the expression of particular viewpoints. 
Indeed, the Commission has always proceeded from the assumption that 
they do so and that its rules should encourage diverse ownership 
precisely because it is likely to result in the expression of a wide 
range of diverse and antagonistic viewpoints. The Commission merely 
observes here that evidence from a variety of researchers and 
organizations appears to disclose a meaningful connection between the 
identity of the outlet owner and the content delivered via its 
outlet(s). This evidence provides an additional basis to reaffirm the 
Commission's longstanding conclusion that regulating ownership is an 
appropriate means to promote viewpoint diversity.
    20. The Commission's conclusion also should not be read to suggest 
that each and every incremental increase in the number of different 
outlet owners can be justified as necessary in the public interest. To 
the contrary, there certainly are points of diminishing returns in 
incremental increases in diversity. Moreover, such increases may, in 
some instances, harm the public interest in localism and competition. 
The balancing of these interests are addressed in the sections below 
dealing with individual rules.
    21. Measuring viewpoint diversity. Viewpoint diversity is a 
paramount objective of this Commission because the free flow of ideas 
under-girds and sustains our system of government. Although all content 
in visual and aural media have the potential to express viewpoints, the 
Commission finds that viewpoint diversity is most easily measured 
through news and public affairs programming. Not only is news 
programming more easily measured than other types of content containing 
viewpoints, but it relates most directly to the Commission's core 
policy objective of facilitating robust democratic discourse in the 
media. Accordingly, the Commission has sought in this proceeding to 
measure how certain ownership structures affect news output.
    22. Nonetheless, the Commission agrees with Fox and CFA that 
content other than traditional newscasts also contributes to a 
diversity of viewpoints. Television shows such as 60 Minutes, Dateline 
NBC, and other newsmagazine programs routinely address matters of 
public concern. In addition, as Fox points out, entertainment 
programming such as Will & Grace, Ellen, The Cosby Show, and All in the 
Family all involved characters and storylines that addressed racial and 
sexual stereotypes. In so doing, they contributed to a national 
dialogue on important social issues.
    23. Although the Commission agrees that entertainment programs can 
contribute to its goal of viewpoint diversity, it will focus on the 
news component of viewpoint diversity where the record permits it to do 
so. The Commission's objective of promoting program diversity in this 
proceeding subsumes the viewpoint diversity contained within 
entertainment programming. Finally, the Commission concludes that the 
diversity of viewpoints by national media on national issues is greater 
than that regarding local issues. This is principally due to the vast 
array of national news sources available on the Internet, cable 
television and DBS.
    24. Program Diversity. The Commission concludes that program 
diversity is a policy goal of broadcast ownership regulation. Program 
diversity refers to a variety of programming formats and content. With 
respect to television, this includes dramas, situation comedies, 
reality shows, and newsmagazines, as well as targeted programming 
channels such as food, health, music, travel, and sports. With respect 
to radio, program diversity would be reflected in a variety of music 
formats such as jazz, rock, and classical as well as all-sports and 
all-news formats. Programming aimed at various minority and ethnic 
groups is an important component of program diversity for both 
television and radio. In general, the Commission finds that program 
diversity is best achieved by reliance on competition among delivery 
systems rather than by government regulation. The rules adopted in this 
proceeding will ensure competition in the delivered video and radio 
programming markets.
    25. Outlet Diversity. Outlet diversity means that, in a given 
market, there are multiple independently-owned firms. The Commission 
has previously found that outlet diversity has not been viewed as an 
end in itself, but a means through which the Commission seeks to 
achieve our goal of viewpoint diversity. The Commission finds that 
independent ownership of outlets by multiple entities in a market 
contributes to our goal of promoting viewpoints.
    26. The Commission's review of the record persuades us that outlet 
diversity within radio broadcasting continues to be an important aspect 
of the public interest that the Commission should seek to promote. The 
Commission is committed to establishing a regulatory framework that 
promotes innovation in the field of broadcasting. Because new entrants 
are often a potent source of innovation, the Commission seeks to 
preserve opportunities for new entry in radio which remains one of the 
most affordable means for entering the media business.
    27. The Commission believes that one benefit of outlet diversity is 
the promotion of public safety. In an emergency, the separation of 
broadcast facilities and personnel among multiple independent broadcast 
companies in a given market will avoid any possibility that the failure 
of one broadcast company to transmit critical public safety information 
will not leave that area without other broadcast owners to perform that 
service.

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    28. Source Diversity. Source diversity refers to the availability 
of media content from a variety of content producers. The record before 
us does not support a conclusion that source diversity should be an 
objective of the Commission's broadcast ownership policies. In light of 
dramatic changes in the television market, including the significant 
increase in the number of channels available to most households today, 
the Commission finds no basis in the record to conclude that government 
regulation is necessary to promote source diversity. Given the 
explosion of programming channels now available in the vast majority of 
homes today, and in the absence of evidence to the contrary, the 
Commission cannot conclude that source diversity should be a policy 
goal of our broadcast ownership rules.
    29. Minority and Female Ownership Diversity. Encouraging minority 
and female ownership historically has been an important Commission 
objective, and the Commission reaffirms that goal here. NABOB 
recommends that the Commission should maintain our current ownership 
rules; use Arbitron markets to define radio markets; give greater 
consideration to the promotion of viewpoint diversity and minority 
ownership when the Commission reviews assignment of license and 
transfer of control applications; eliminate our policy of granting 
temporary waivers of our multiple ownership rules (which allow merging 
broadcasters 6-24 months to come into compliance with the rules); adopt 
a bright-line test to limit radio ownership consolidation; and urge 
Congress to reinstate the minority tax certificate policy.
    30. IPI argues that maintenance of broadcast ownership caps will 
best serve the distinct programming preferences of minority groups. 
AWRT asks us to include the goal of increasing the number of female-
owned broadcast businesses as the Commission considers changes to its 
broadcast ownership rules. UCC urges the Commission to ``explicitly 
advance through its ownership rules'' the policy goal of promoting 
broadcast ownership opportunities for women, minorities and small 
businesses.
    31. MMTC proposes business and regulatory initiatives that ``would 
go a long way toward increasing entry into the communications industry 
by minorities.'' MMTC's initiatives include: (1) Equity for specific 
and contemplated future acquisitions; (2) enhanced outreach and access 
to debt financing by major financial institutions; (3) investments in 
institutions specializing in minority and small business financing; (4) 
cash and in-kind assistance to programs that train future minority 
media owners; (5) creation of a business planning center that would 
work one-on-one with minority entrepreneurs as they develop business 
plans and strategies, seek financing, and pursue acquisitions; (6) 
executive loans, and engineers on loan, to minority owned companies and 
applicants; (7) enhanced access to broadcast transactions through 
sellers undertaking early solicitations of qualified minority new 
entrants and affording them the same opportunities to perform early due 
diligence as the sellers afford to established non-minority owned 
companies; (8) nondiscrimination provisions in advertising sales 
contracts; (9) incubation and mentoring of future minority owners; (10) 
enactment of tax deferral legislation designed to foster minority 
ownership; (11) examination of how to promote minority ownership as an 
integral part of all FCC general media rulemaking proceedings; and (12) 
ongoing longitudinal research on minority ownership trends, conducted 
by the FCC, NTIA, or both; (13) sales to certain minority or small 
businesses as alternatives to divestitures. The Commission has received 
many creative proposals to advance minority and female ownership. 
Clearly, a more thorough exploration of these issues, which will allow 
us to craft specifically tailored rules that will withstand judicial 
scrutiny, is warranted. The Commission will issue a Notice of Proposed 
Rulemaking to address these issues and incorporate comments on these 
issues received in this proceeding into that proceeding.
    32. The Commission sees significant immediate merit in one 
commenter's proposal regarding the transfer of media properties that 
collectively exceed our radio ownership cap. Minority Media & 
Telecommunications Council (MMTC) recommends that the Commission 
generally forbid the wholesale transfer of media outlets that exceed 
our ownership rules except where the purchaser qualifies as a 
``socially and economically disadvantaged business.'' The Commission 
agrees with MMTC that a limited exception to a ``no transfer'' policy 
for above-cap combinations would serve the public interest. The 
Commission also agrees with MMTC that the benefits to competition and 
diversity of a limited exception allowing entities to sell above-cap 
combinations to eligible small entities outweigh the potential harms of 
allowing the above-cap combination to remain intact.
    33. The Commission intends to refer the question of how best to 
ensure that interested buyers are aware of broadcast properties for 
sale to the Advisory Committee on Diversity for further inquiry and 
will carefully review any recommendations this Committee may proffer. 
As soon as the Commission receives authorization to form this committee 
it will ask it to make consideration of this issue among its top 
priorities.

B. Competition

    34. From its inception, the Commission has sought to ensure that 
transfers and assignments of station licenses remain consistent with 
the policy of free competition embodied in the Communications Act. The 
Commission sees nothing in the 1996 Act that signifies a retreat from 
our deep and abiding interest in promoting and preserving competition 
in broadcasting. It is clear that competition is a policy that is 
intimately tied to our public interest responsibilities and one that 
the Commission has a statutory obligation to pursue. The Commission 
affirms our longstanding commitment to promoting competition by 
ensuring pro-competitive market structures. Consumers receive more 
choice, lower prices, and more innovative services in competitive 
markets than they do in markets where one or more firms exercises 
market power. These benefits of competition can be achieved when 
regulators accurately identify market structures that will permit 
vigorous competition.
    35. In limiting broadcast ownership to promote economic 
competition, the Commission also takes major strides toward protecting 
and promoting its separate policy goal of protecting competition in the 
marketplace of ideas. In many markets, the record evidence shows that 
the Commission's competition-based ownership limits more than 
adequately protect viewpoint diversity in a large number of markets. 
Nonetheless, the Commission's analysis of the record leads it to 
conclude that preserving competitive markets will not, in all cases, 
adequately protect viewpoint diversity. The Commission finds that 
certain combinations in smaller markets would unreasonably threaten 
viewpoint diversity even if they would not result in competitive harms.
    36. Measurement of competition. Historically the Commission has 
relied on assessments of competition in advertising markets as a proxy 
for consumer welfare in media markets.
    37. Although advertising markets continue to be a reasonable basis 
on

[[Page 46290]]

which to evaluate competition among media companies, in this R&O the 
Commission will rely more heavily on other metrics. In the past, 
television stations generally faced economic competition from other 
television stations, and radio stations from other radio stations. The 
television and radio markets relied principally on advertising revenues 
to fund their businesses. Today, a large portion of the revenue in the 
television business consists of direct payment by consumers. Eighty-
five percent of American households subscribe to television programming 
supplied by cable or direct broadcast satellite. Therefore, in 
analyzing markets comprised of both free over-the-air broadcasters as 
well as subscription delivery systems, the Commission will look to 
audience share as one metric for assessing the state of competition. 
The Commission will not discard advertising market analysis where 
appropriate, but it limits its reliance to discrete markets where it 
believes the foregoing analysis is inapplicable.
    38. The Commission's public interest focus must be first and 
foremost on the interest, the convenience, and the necessity of the 
public, and not on the interest, convenience, or necessity of the 
individual broadcaster, or the advertiser. Thus, in evaluating the 
Commission's interest in preserving competitive broadcast markets, it 
will consider the ultimate effect that a diminution in competition 
would have on the consuming public. The Commission has a public 
interest responsibility to ensure that broadcasting markets remain 
competitive so that all the benefits of competition--including more 
innovation and improved service--are made available to the public. In 
setting its local television and local radio ownership caps, the 
Commission will rely, where possible, on measures other than shares of 
advertising markets in order to reflect the decreasing relevance of 
advertising market shares as a barometer of competition.
    39. Innovation. The Commission concludes that it should seek to 
promote innovation through its broadcast ownership limits. Where a 
market such as broadcasting is characterized by a significant degree of 
non-price competition, it may be particularly important for the 
Commission to focus on how its ownership rules affect innovation 
incentives. Innovation, over longer periods of time, may represent a 
critical driver of consumer welfare.
    40. The transition from analog to digital services by broadcasters 
represents a potentially significant enhancement to consumer welfare. 
Digital transmission of video and audio programming by television and 
radio stations may facilitate new services for consumers by permitting 
more efficient bandwidth utilization. With respect to local televisions 
stations, this additional bandwidth could be used to transmit high-
definition programming; to transmit one or more additional program 
streams; or to deliver entirely new services. NAB/NASA has argued that 
local television ownership structures are very likely to affect 
stations' ability to proceed with the ongoing digital transition. NAB 
contends that the fixed costs associated with digital television 
equipment upgrades fall disproportionately on stations in smaller 
markets and that station combinations will speed the transition. In 
addition, the introduction of digital transmission by radio stations 
may permit greater competition and innovation in radio markets by 
facilitating improved signal quality and by permitting stations to 
deliver data along with audio to users' receivers.
    41. In sum, the Commission concludes that it should seek to promote 
innovation through its broadcast ownership limits. Consumer welfare is 
likely to be enhanced when, all else being equal, the Commission 
permits broadcast market structures that encourage innovation. The 
Commission agree with IPI, however, that multiple factors influence the 
pace of innovation, only one of which is market structure. The 
Commission will therefore make ownership decisions that promote 
innovation in media markets based principally on evidence that 
particular market structures or firm characteristics tend to encourage 
innovation.

C. Localism

    42. The Commission agrees that localism continues to be an 
important policy objective. Localism is rooted in Congressional 
directives to this Commission and has been affirmed as a valid 
regulatory objective many times by the courts. The Commission hereby 
reaffirms its commitment to promoting localism in the broadcast media. 
Today, the Commission seeks to promote localism to the greatest extent 
possible through market structure that take advantage of media 
companies' incentive to serve local communities.
    43. Federal regulation of broadcasting has historically placed 
significant emphasis on ensuring that local television and radio 
stations are responsive to the needs and interests of their local 
communities. In the Communications Act of 1934, Congress directed the 
Commission to ``make such distribution of licenses, frequencies, hours 
of operation, and power among the several States and communities as to 
provide a fair, efficient, and equitable distribution of radio service 
to each of the same.'' In the legislative history of the 1996 Act, 
Congress strongly reaffirmed the importance of localism.
    44. The courts too have long viewed localism as an important public 
interest objective of broadcast regulation. In NBC v. United States, 
the Supreme Court wrote: ``Local program service is a vital part of 
community life. A station should be ready, able, and willing to serve 
the needs of the local community.'' Last year the DC Circuit affirmed 
the legitimacy of Commission regulation to preserve localism, stating: 
``[T]he public interest has historically embraced diversity (as well as 
localism) * * * and nothing in section 202(h) signals a departure from 
that historic scope.''
    45. Measurement of Localism. The Commission remains firmly 
committed to the policy of promoting localism among broadcast outlets. 
Today the Commission seeks to promote localism to the greatest extent 
possible through market structures that take advantage of media 
companies' incentives to serve local communities. In addition, the 
Commission seeks to identify characteristics of those broadcasters that 
have demonstrated effective service to individual local communities and 
to encourage their entry into markets currently prohibited by our 
existing rules. To measure localism in broadcasting markets, the 
Commission will rely on two measures: the selection of programming 
responsive to local needs and interests, and local news and public 
affairs programming quantity and quality. The Commission decided long 
ago that local station licensees have a responsibility to air 
programming that is suited to the tastes and needs of their community 
and that the station licensee, not a network or any other party, must 
decide what programming will best serve those needs. Program selection, 
then, is a means by which local stations respond to local community 
interests, and the Commission will use it as one measure of localism. 
Its second measure of localism can serve as a useful measure of a 
station's effectiveness in serving the needs of its community. As 
discussed below, this measure of service to local markets is relevant 
to the Commission's consideration of both the national television cap 
and its local broadcast rules.

[[Page 46291]]

D. Regulatory Certainty

    46. The Commission considered both a case-by-case analysis and 
bright line rules to determine the particular regulatory framework that 
would best achieve our policy goals. Based on the record and our own 
experience administering structural ownership rules, the Commission 
concludes that the adoption of bright line rules, on balance, continue 
to play a valuable role in implementing the Commission's goals. The 
Commission has also decided to retain our existing framework of 
targeted, outlet-specific, multiple ownership rules, that cover the 
various media and perceived areas of potential competition and 
diversity concerns rather than adopting a single rule to cover all 
media.
    47. The Commission is required to examine any proposed transfer of 
a broadcast license and must affirmatively find that the transfer is in 
the public interest. In the context of broadcast transactions, the 
Commission's analysis is simplified by the extensive body of structural 
rules it adopts herein. Thus, the extensive rulemaking proceeding used 
to develop these broadcast ownership rules takes full account of the 
Commission's public policy goals of diversity, competition, and 
localism. These rules squarely embody the Commission's public interest 
goals of limiting the effect of market power and promoting localism and 
viewpoint diversity.
    48. The bright line rules the Commission establishes in this Order 
will protect diversity, competition, and localism while providing 
greater regulatory certainty for the affected companies than would a 
case-by-case review. Any benefit to precision of a case-by-case review 
is outweighed, in the Commission's view, by the harm caused by a lack 
of regulatory certainty to the affected firms and to the capital 
markets that fund the growth and innovation in the media industry. 
Companies seeking to enter or exit the media market or seeking to grow 
larger or smaller will all benefit from clear rules in making business 
plans and investment decisions. Clear structural rules permit planning 
of financial transactions, ease application processing, and minimize 
regulatory costs.
    49. The Commission recognizes that bright line rules preclude a 
certain amount of flexibility. A case-by-case analysis would allow the 
Commission to reach decisions by taking into account particular 
circumstances of every case. For instance, bright line rules may be 
over-inclusive, by preventing transactions that would result in 
increased efficiencies, or under-inclusive, by allowing transactions 
that would raise concerns, if the circumstances of the case were 
reviewed. However, the Commission's experience with the current case-
by-case analysis used for radio transactions leads it to believe that 
this approach in the area of media ownership is fraught with 
administrative problems. Currently, any radio transaction that proposes 
a radio station combination that would provide one station group with a 
50% share of the advertising revenue in the local radio market, or the 
two station groups with a 70% advertising revenue, undergoes additional 
public interest analysis. For each of these transactions, the staff 
conducts an individual competitive analysis and may request additional 
information from the parties if it is necessary in order to reach a 
decision on a particular transaction. The administrative time and 
resources required for such an undertaking are considerable. Moreover, 
such an approach hinders business planning and industry investment for 
all radio firms falling within the ambit of our case-by-case review. 
The Commission is not persuaded that this approach is necessary in 
order to administer its ownership rules effectively.
    50. The bright line rules adopted today have been developed based 
upon the Commission's review of the media marketplace and our 
assessment of what ownership limits are necessary in order to promote 
our goals in applying ownership rules. The Commission is confident that 
the modified rules will reduce the chances of precluding transactions 
that are in the public interest or, alternatively, permitting 
transactions that are not in the public interest. In addition, the 
Commission has discretion to review particular cases, and the 
Commission is obligated to give a hard look both to waiver requests, 
where a bright line ownership limit would proscribe a particular 
transaction, as well as petitions to deny.

III. Modern Media Marketplace

A. Introduction--The Evolution of Media

    51. Today's media marketplace is characterized by abundance. 
Traditional modes of media have greatly evolved since the Commission 
first adopted media ownership rules in 1941, and new modes of media 
have transformed the landscape, providing more choice, greater 
flexibility, and more control than at any other time in history. In 
short, the number of outlets for national and local news, information, 
and entertainment is large and growing.\5\
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    \5\ Today, there are more than 308 non-broadcast networks 
available for carriage by cable systems, whereas ten years ago in 
1993, there were only 106 non-broadcast programming services 
available for carriage.
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    52. Section 202 (h) requires the Commission to consider whether any 
of its broadcast ownership rules are ``necessary in the public interest 
as a result of competition.'' This R&O confronts that challenge by 
determining the appropriate regulatory framework for broadcast 
ownership in a world characterized not by information scarcity, but by 
media abundance. This section tracks the history of the modern media 
marketplace to illustrate the rapid evolution of media outlets over the 
past sixty years.

B. History of the Modern Media Marketplace

    53. The Age of Radio. At the time commercial broadcast radio was 
introduced during the early 1920s, newspapers were the primary source 
of news and information, with circulation reaching nearly 28 million 
readers. By 1926, just six years after the first official commercial 
broadcasts, there were 528 stations and 5.7 million radio sets, 
generating a weekly radio audience of 23 million listeners. Unlike 
today's targeted, niche programming, however, a typical radio station's 
programming in the early 1930's was largely ``variety'' format, 
including a small amount of many different types of programming. 
Notable and newsworthy events were, of course, the exception to the 
variety format. During World War II, radio proved a vital asset in the 
dissemination of news and public-service messages, and it boosted the 
morale of those remaining on the home-front.
    54. The Introduction of Television. Although General Electric began 
regular television broadcasting in 1928, it was not until 1941 that the 
first commercial television station was introduced. In addition to a 
proliferation of new programming, many radio stars began to move their 
acts to television in the late 1940's. With World War II over, and the 
Depression behind them, Americans began to accept television as a 
cogent means of receiving information and entertainment. In 1951, just 
ten years after television's introduction to the public, there were 
more than 108 stations on the air and more than 15 million households 
with television sets.
    55. The Multimedia Landscape I--1960's. By 1960, a multi-media 
landscape began to form, though media at that time was still dominated 
by broadcast radio and television. Forty

[[Page 46292]]

years after the introduction of commercial broadcast radio, and 19 
years after the introduction of commercial broadcast television, there 
were 4,086 radio stations and 573 television stations. Approximately 45 
million homes had a television in 1960, and about six million of those 
had more than one television. Relatively few markets had cable systems 
in 1960, and nationwide there were only about 750,000 cable 
subscribers. There were approximately 1,700 daily newspapers in 1960 
with a total circulation of about 58 million readers. According to MOWG 
Study No. 1, the number of outlets per market in 1960 varied largely by 
size of the market.\6\ The smallest markets had few choices, while 
large markets had comparatively more outlets for news, information, and 
entertainment.
---------------------------------------------------------------------------

    \6\ This market definition is not necessarily consistent with 
the market definition of the Commission's rules.
---------------------------------------------------------------------------

    56. An informal analysis \7\ of the news and public interest 
programming available to the public over television in 1960, revealed 
that, in most markets, there was less than one-hour of national news 
programming broadcast daily by all the stations combined in a given 
market. Programming characterized as ``public interest programming'' 
\8\ on average was aired for about two to three hours per-station, per-
day (or approximately six to nine hours of public interest programming 
produced per-day by all stations combined in the markets it reviewed).
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    \7\ In this analysis, Commission staff examined current and 
historic TV Guide magazines to determine the amount of differing 
types of programming (local news, national news and public interest 
programming) provided by stations in markets of differing sizes. The 
study examined the amount of programming available in a sample day 
in three cities, New York, Little Rock, and Terre Haute, selected 
from the larger group of ten cities represented in MOWG Study No. 1. 
The three cities chosen for this particular informal study were each 
chosen to respectively represent small, medium, and large television 
markets. Programming schedules for between the hours of 6 am and 
midnight on July 1st of the given year were examined for each city 
to determine how much of each type of programming was available to 
consumers in the selected market. (``Three City Study'').
    \8\ Public Interest Programming is defined for these purposes as 
programming of cultural, civic, children's, family, public affairs 
and educational interest.
---------------------------------------------------------------------------

    57. Television Evolves. Between 1960 and 1963, several historical 
events were broadcast over television, changing the very medium itself 
and its role in society. The use of television by John F. Kennedy and 
Richard M. Nixon during the Presidential election of 1960, ushered in a 
new era in American politics and a new era for television as an 
important medium of communications. Television coverage of Martin 
Luther King Jr.'s ``I Have a Dream'' speech provided activists 
nationwide the information and the inspiration on which to mobilize 
America into one of the most turbulent and progressive eras in its 
history. And when word of President Kennedy's assassination was 
announced in 1963, an estimated 180 million Americans watched their 
television sets almost continuously for four days, witnessing the same 
tragic event in unison.
    58. The Introduction of Non-Broadcast Networks. From its beginnings 
in 1948, through the late 1960's, cable television extended the reach 
of broadcast television. Early cable systems were born out of the need 
to carry television signals into areas where over-the-air reception was 
either non-existent or of poor quality because of interference. The 
creation of nationally distributed, non-broadcast cable programming 
enabled cable to become a competitive medium for the dissemination of 
news, information, and entertainment. Unlike the general interest, 
``variety'' programming of the broadcast television networks, many non-
broadcast basic cable networks provided highly specialized programming 
and provided it on a 24-hour basis. Thus, the inclusion of non-
broadcast networks in the array of media choices gave the public 
continuous access to national news, information, and entertainment.
    59. In 1980, with the addition of numerous pay-TV and basic cable 
networks, there were more than 19.2 million subscribers, an increase of 
95.3%. But as a competitor to broadcast radio and television, cable's 
appeal was primarily national in orientation. Although some regional 
and local non-broadcast networks were distributed during the 1970's and 
1980's, the banner offerings of cable systems during that period were 
nationally-distributed networks.
    60. The Introduction of Home-Use Satellite Television Technology. 
Home satellite dish (``HSD'') technology was based on the same system 
used by cable operators to receive network signals from satellites for 
delivery over their terrestrial cable systems. HSD systems could gain 
access to hundreds of channels of programming further enhancing 
consumer access to non-broadcast television programming, much the same 
way cable served to enhance broadcast television service in its early 
years.
    61. The Multimedia Landscape II--1980's. By 1980, traditional media 
still dominated mainstream use, but the public did have other options. 
Many could now choose among both broadcast and non-broadcast television 
programming to access news, information and entertainment. In addition 
to the traditional broadcast television stations offered over-the-air 
and via cable systems, there were also approximately 20 nationally-
distributed non-broadcast networks available to the public nationwide 
and an unknown number of regionally distributed non-broadcast networks. 
The number of media outlets per market varied in 1980 based on market 
size, as they had in 1960. Overall, however, most markets seemed to 
have at least doubled the number of television stations and station 
owners than they had in 1960.
    62. The Commission's informal analysis of the news and public 
interest programming available to the public via television revealed 
that, on average, most television stations in the markets it reviewed 
were airing more local news programming in1980 than they did in 1960, 
though some small market stations were airing less local news 
programming. In addition, in the large market that the Commission 
studied, New York, there were more television broadcast stations 
available to the public than there were in 1960, resulting in a greater 
total amount of local news produced in these markets, on a given day. 
In addition, a non-broadcast television network, CNN, aired national 
news programming for 24-hours per day, and was available to all those 
with access to cable or HSD systems. More broadcast television stations 
aired public interest programming in 1980 than in 1960, particularly in 
large and medium-sized markets In addition, there were several new non-
broadcast television networks providing public interest programming on 
a 24-hour basis. In short, the addition of nationally distributed non-
broadcast television networks, an increase in the number independent 
and affiliate broadcast television stations and in the number of hours 
broadcast per station, resulted in an increase in the news and public 
interest programming available in markets of all sizes between 1960 and 
1980.
    63. Competitive Pressure Builds: A Crowded Programming Market. The 
amount of competitive programming available on cable continued to 
increase during the eighties and into the nineties. The concise format 
of a majority of non-broadcast programming networks was attractive to 
audiences who were developing a preference for scanning quickly through 
the many new channel offerings available to them. While some non-
broadcast networks were providing general interest fare in the mold of 
the traditional broadcast networks, many

[[Page 46293]]

provided programming geared towards a particular audience interest. 
Regionally distributed non-broadcast networks also flourished in the 
1980's through the 1990's. Some provided regional sports, while others 
provided regional and local news or general regional-interest 
programming.
    64. When the Fox broadcast network launched as a challenger to the 
``Big Three'' networks in 1985, it entered the market building on the 
niche concept employed by the non-broadcast networks. Fox provided 
general interest fare, like its broadcast competitors, but targeted its 
programming to the teenage demographic. Later, in January 1995, 
Paramount and Warner Brothers launched the UPN and WB networks, 
respectively, both building on similar demographics on which Fox had 
initially entered the market.
    65. Significant Technological Advances: Recorded Media, Digital 
Compression, and the Internet. Several significant advances in 
technology during the 1980's and 1990's supplied the footing for 
increased competitive pressure on the media marketplace. The video-
cassette recorder (``VCR'') empowered the public with the ability to 
stray from the pre-set video programming schedule inherent in broadcast 
television content. Furthermore, content not available over other video 
media, or content which had been previously available over broadcast 
television was created specifically for VCR consumption. By 1986, more 
than 13 million VCRs had been sold in the United States.
    66. Digital technology was used in the development of advanced 
satellite distribution systems. Direct broadcast satellite systems 
(``DBS'') provided an all-digital transmission of video programming, 
employing a small satellite dish, practical for both rural and urban 
deployment. DBS provides more than 200 channels of video programming to 
subscribers. The presence of DBS in the market for the delivery of 
subscription video programming has expanded the market, such that now 
almost all televisions households have access to subscription video. In 
addition, the competitive presence of DBS has forced cable television 
services to expand channel capacity and service options. At the end of 
1994, DBS services had approximately 600,000 subscribers. Today there 
are more than 18 million subscribers.
    67. As a result of the widespread acceptance of DBS, cable 
television operators began replacing much of their original 
infrastructure, and began employing digital technology to transmit 
high-quality video signals to their customers. Digital technology also 
expanded the channel capacity of the networks, enabling cable operators 
to provide vastly more channels of video programming, and furthered the 
ability of cable operators to implement advanced two-way services.
    68. Digital versatile disc (``DVD'') players were introduced in 
1997, and the personal video recorder (``PVR'') was introduced in 1999. 
PVR's use a hard disk drive, software, and other technology to 
digitally record and access programming. In addition to these other 
significant technological advancements of the 1980's and 1990's, the 
Internet has spawned an entirely new way of looking at media. Today the 
Internet affects every aspect of media, from video and audio, to print 
and personal communications. Whereas other forms of media allow for 
only a finite number of voices and editorially-controlled viewpoints, 
the Internet provides the forum for an unlimited number of voices, 
independently administered. Furthermore, content on the Web is multi-
media; it can be read, viewed, and heard simultaneously. Since Web 
pages are stored on Web-hosting file servers, accessing Web content is 
a highly individualized activity, and any individual with access to a 
Web browser can access all available Web content 24-hours a day 
throughout the world.
    69. Virtually every major media company has a corresponding Web 
site, today, and any individual with access to a Web-hosting file 
server can create a Web site for public access. As such, the Web 
provides an unrestrained forum for the dissemination and consumption of 
ideas. News and information are available on the Internet like they 
have never been available to the public before. Internet users can view 
the news source of their own choosing, or can use a news gathering 
service which presents information culled from thousands of news 
sources worldwide. Furthermore, Internet users can access content that 
may have appeared in print or on broadcast television at an earlier 
time, giving them greater control over traditionally available content.
    70. The Multimedia Landscape III--2000. Since the 1960's, there has 
been tremendous growth in the media market. By 2000, American consumers 
had access to a multitude of media outlets, hundreds of channels of 
video programming, and enormous amounts of content not available just 
twenty, or even ten years earlier. There were more than 12,615 radio 
stations in 2000, and 1,616 broadcast television stations.
    71. Approximately 100.8 million homes had a television in 2000 and 
76.2 million of those had more than one television. There were 68.5 
million cable subscribers in 2000, approximately 14.8 million DBS 
subscribers and 1.2 million HSD subscribers. There also were 1,480 
daily newspapers in 2000 with a total circulation of 55.8 million 
readers. In addition to the traditional broadcast television stations 
offered over-the-air and via cable systems, there were 281 nationally-
distributed non-broadcast networks available in 2000 and 80 regional 
non-broadcast networks. Approximately 42.5 million households 
subscribed to an Internet access provider in 2000.
    72. The number of outlets per market also grew significantly 
between 1960 and 2000. The number of radio outlets grew by 142% from 
1960 to 2000 and the number of independent radio station owners grew by 
74% in that same time period. The number of television outlets grew by 
217% from 1960 to 2000 and the number of independent television station 
owners grew by 150% in that same time period. The number of daily 
newspapers declined by 9% from 1960 to 2000 and the number of newspaper 
owners was the same in 2000 as it was in 1960.
    73. The number of hours of news and public interest programming has 
also grown significantly since 1980. Although in most markets, only a 
few stations increased the amount of national news programming 
available from 1980, when national news was aired for about thirty to 
forty five minutes per station per day, there were more broadcast 
stations airing national news in 2003, and several non-broadcast news 
networks airing national news programming on a 24-hour a day basis. 
Public interest programming also has proliferated. Although television 
broadcast stations in various markets were airing about the same amount 
of public interest programming per-station in 2003 as they were in 
1980, in 2003, there are more television broadcast stations per-market 
and numerous new non-broadcast networks providing such programming.
    74. The Current Competitive Landscape and Developments Since 2000. 
Non-broadcast television programming continues to proliferate. We are 
moving to a system served by literally hundreds of networks serving all 
conceivable interests. Today, there are more than 308 satellite-
delivered national non-broadcast television networks available for 
carriage over cable, DBS and other multichannel video program 
distribution (``MVPD'')

[[Page 46294]]

systems. Of the 102 channels received by the average viewing home, the 
four largest broadcast networks have an ownership interest in 
approximately 25% of those channels.
    75. Since its inception, non-broadcast programming has gained 
significantly in popularity as compared with broadcast programming. In 
2002, for the first time, cable television collectively had more 
primetime viewers on average over the course of the year than broadcast 
programming. In June 2002, cable networks for the very first time 
collectively exceeded a 50% share for the month, while the broadcast 
networks collectively registered a 38% primetime share.
    76. Broadcasters are currently experimenting with, and beginning to 
commercially deploy, digital and high-definition television (``DTV'' 
and ``HDTV''). Digital television offers improved picture quality, the 
ability to provide such additional enhancements as HTDV, multicasting, 
and interactivity. Cable operators and DBS service providers are also 
beginning to provide DTV and HDTV options.
    77. Today's media marketplace also provides choices to the public 
on an entirely new, personal level. In addition to the Web, for 
example, video-on-demand (``VOD'') is the newest technology being 
developed and deployed by cable and DBS operators. VOD services provide 
advertising-free material on a program-by-program basis. In addition, 
satellite radio became available in 2001, providing subscribers over 
100 channels of commercial-free, digital audio.
    78. In short, there are far more types of media available today, 
far more outlets per-type of media today, and far more news and public 
interest programming options available to the public today than ever 
before. Although many of these new outlets are subscription-based the 
competitive pressure placed upon free, over-the-air media has led to 
better quality and in some cases, an increase in the quantity of some 
types of content. In the next five to ten years, it expects more free, 
over-the-air content to become available as new technologies are 
applied to these traditional media.

IV. Local and National Framework

    79. The Commission, in the R&O, adopts limits both for local radio 
and local television ownership. Both of these rules are premised on 
well-established competition theory and are intended to preserve a 
healthy and robust competition among broadcasters in each service. As 
explained in the R&O, however, because markets defined for competition 
purposes are generally more narrow than markets defined for diversity 
purposes, the Commission's limits on radio and television ownership 
also serve our diversity goal. By ensuring that several competitors 
remain within each of the radio and television services, the Commission 
also ensures that a number of independent outlets for viewpoint will 
remain in every local market, thereby ensuring that our diversity goal 
will be promoted. Further, though, because local television and radio 
ownership limits cannot protect against losses in diversity that might 
result from combinations of different types of media within a local 
market, the Commission adopts a set of specific cross-media limits.
    80. Similarly, by virtue of the staff's extensive information 
gathering efforts and the voluminous record assembled in this 
rulemaking docket, the Commission has, for the first time substantial 
evidence regarding the localism effects of our national broadcast 
ownership rules. The Commission can, therefore, with more confidence 
than ever, establish a reasonable limit on the national station 
ownership reach of broadcast networks. The Commission continues to 
prohibit a combination between two of the largest four networks 
primarily on competition grounds, but the beneficial effects of this 
restriction also protect our interest in preserving localism. In 
combination, the Commission's new national broadcast ownership reaches 
cap and our ``dual network'' prohibition will ensure that local 
television stations remain responsive to their local communities. In 
sum, the modified broadcast ownership structure the Commission adopts 
in the R&O will serve our traditional goals of promoting competition, 
diversity, and localism in broadcast services. The new rules are not 
blind to the world around them, but reflective of it; they are, to 
borrow from our governing statute, necessary in the public interest.

V. Local Ownership Rules

A. Local TV Multiple Ownership Rule

    81. The current local TV ownership rule allows an entity to own two 
television stations in the same DMA, provided: (1) The Grade B contours 
of the stations do not overlap; or (2)(a) at least one of the stations 
is not ranked among the four highest-ranked stations in the DMA, and 
(b) at least eight independently owned and operating commercial or non-
commercial full-power broadcast television stations would remain in the 
DMA after the proposed combination (``top four-ranked/eight voices 
test''). Only those stations whose Grade B signal contours overlap with 
the Grade B contour of at least one of the stations in the proposed 
combination are counted as voices under the rule.
    82. Having examined the competitive impact of other video 
programming outlets on television broadcast stations, the Commission 
concludes, in light of the myriad sources of competition to local 
television broadcast stations, that our current local TV ownership rule 
is not necessary in the public interest to promote competition. The 
Commission also concludes that media other than television broadcast 
stations contribute to viewpoint diversity in local markets. Because 
our current local TV ownership rule is premised on the notion that only 
local TV stations contribute to viewpoint diversity and does not 
account for the contributions of other media, the Commission concludes 
the current rule is not the best means to promote our diversity goal. 
Moreover, the Commission concludes that retaining our current rule does 
not promote, and may even hinder, program diversity and localism. 
However, the Commission finds that some limitations on local television 
ownership are necessary to promote competition. Accordingly, the 
Commission modifies our local TV ownership rule.
    83. The Commission's modified local TV ownership rule will permit 
an entity to have an attributable interest in two television broadcast 
stations in markets with 17 or fewer television stations; and up to 
three stations in markets with 18 or more television stations. To 
further ensure that no single entity possesses excessive market power, 
however, the Commission will prohibit combinations which would result 
in a single entity acquiring more than one station that is ranked among 
the top four stations in the market based on audience share. As a 
result, no combinations will be permitted in markets with fewer than 
five television stations. Because the Commission has determined that 
Nielsen DMAs are the relevant geographic market, common ownership of 
stations in the same market will be subject to this standard without 
regard to whether the affected stations have overlapping contours, and 
the Commission eliminated the provision of its local TV ownership rule 
that permits same-market combinations where there is no Grade B contour 
overlap. The Commission also modifies our existing standard for waiver 
of the local TV ownership rule.
    84. The Current Rule Cannot Be Justified Under Section 202(h). 
Under Section 202(h), the Commission

[[Page 46295]]

considers whether the local TV ownership rule continues to be 
``necessary in the public interest as a result of competition.''
    85. Competition. The Commission concludes that the current local TV 
ownership rule is not necessary to protect competition. By limiting 
common ownership of television stations in local markets where at least 
eight independently owned TV stations would remain post-merger, the 
current rule prohibits mergers that would increase efficiency in small 
and mid-sized markets--mergers that would thereby promote competition. 
In addition, by limiting common ownership to no more than two 
television stations, the current rule prohibits efficiency enhancing 
mergers in the largest markets. The current rule also prohibits mergers 
among the top four-ranked stations.\9\ After reviewing all of the 
record evidence, the Commission concludes that this restriction remains 
necessary to promote competition, so it is retaining a prohibition on 
mergers of the top four-ranked stations in the modified local TV 
ownership rule adopted in the R&O.
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    \9\ ``The `top four-ranked station' component of this standard 
is designed to ensure that the largest stations in the market do not 
combine and create potential competition concerns. These stations 
generally have a large share of the audience and advertising market 
in their area, and requiring them to operate independently will 
promote competition.''
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    86. The NPRM requested comment on the definition of the product and 
geographic markets in which broadcast television stations compete. 
Based on the record, the Commission concludes that broadcast television 
stations operate in three product markets: a market for delivered video 
programming (``DVP''); a video advertising market; and a video program 
production market. Although each of these markets is discussed in the 
R&O, the Commission's primary concern is promoting competition for 
viewers. Therefore, the Commission will focus on competition in the DVP 
market. It is this market that directly affects viewers. The 
advertising market and the program production market are of concern to 
the Commission only to the extent that protecting competition in these 
markets may add an extra level of protection for the public and enable 
all television broadcasters to compete fairly for advertising revenue 
and programming. What is critical to our competition policy goals, 
however, is the assurance of a sufficient number of strong rivals 
actively engaged in competition for viewing audiences. As long as there 
are numerous rival firms in the DVP market, viewers' interests will be 
advanced. The Commission first analyzes the DVP market.
    87. The DVP Market. The evidence in the record suggests that 
television viewers do not consider non-video entertainment alternatives 
and non-delivered video to be good substitutes for watching television. 
In defining the market, the Commission asks whether the availability of 
entertainment alternatives is sufficient to prevent a significant and 
non-transitory increase in price. If they were good substitutes to 
watching television, relative changes in prices or other competitive 
variables should change household consumption of television. The record 
evidence suggests, however, that, while the price of subscribing to 
cable and DBS has increased faster than the rate of inflation, these 
price increases have not resulted in households dropping their 
subscriptions to cable and DBS, or reducing the amount of time 
households spend watching television. Thus, DVP providers have indeed 
been able to impose non-transitory price increases. This suggests that 
the relevant product market is no broader than DVP and should not 
include all entertainment activities.
    88. For most viewers the programming choices offered by local 
broadcast television stations and cable networks represent good 
alternatives for one another. Most households subscribe to cable or DBS 
and receive DVP from cable networks and local broadcast television 
stations. These viewers need only touch their remote control to switch 
between the programming offered by cable networks and that of local 
broadcast television stations. The ease of switching from broadcast to 
cable networks for these households provides strong incentives for 
cable networks and local broadcast television stations to provide 
programs that attract viewers. The Commission thus finds that all the 
broadcast television stations and cable networks available to a 
significant number of cable subscribers in a DMA should be included as 
participants in the market for DVP.
    89. The programming quality delivered to the minority of households 
that do not subscribe to cable or DBS is protected by the majority of 
households that do subscribe. Although non-subscribing households have 
fewer program choices than subscribing households, broadcasters cannot 
reduce the viewer appeal of their programming to non-subscribing 
households, without also reducing the viewer appeal of their 
programming to subscribing households. Broadcasters deliver the same 
programming to both subscribing and non-subscribing households. Thus, 
the majority of households that subscribe to cable or DBS assure that 
non-subscribing households receive appealing programming.
    90. Although viewers easily switch between the programming offered 
by broadcast television stations and the programming offered by cable 
networks, broadcast television stations and cable networks may respond 
differently to changes in local market concentration. Therefore, in 
formulating our revised local broadcast television ownership rules, the 
Commission continues to draw a distinction between television broadcast 
stations and cable networks. It is unlikely that mergers between 
broadcast television stations in any local market would alter the 
competitive strategy of a national cable network. In contrast, local 
broadcast television stations offer a mix of national programming and 
local programming in a geographic area typically no larger than a DMA. 
As such, local broadcast television stations have incentives to respond 
to conditions in local markets. It is the unilateral and coordinated 
responses of local broadcast television stations to mergers between 
local broadcast television stations that may result in potential 
competitive harms. Thus, the Commission focuses on ownership of 
television broadcast stations, not cable networks, to promote 
competition in local television markets.
    91. Geographic Market for DVP. As the Commission evaluates the 
competitive effects of mergers between local broadcast television 
stations, it must define the relevant geographic market for the DVP 
market. Generally, cable systems carry all the broadcast stations 
assigned to the DMA in which they are located, pursuant to the 
Commission's must-carry/retransmission consent requirements. Cable 
systems providing service to the majority of households also carry most 
major cable networks. As such, the relevant geographic market for DVP 
is the DMA for most mergers between local broadcast television 
stations.
    92. Efficiencies of Common Ownership of Television Broadcast 
Stations in DVP Markets. The Commission recognizes that common 
ownership of stations may result in consumer welfare enhancing 
efficiencies. First, common ownership of broadcast television stations 
in a local market can facilitate efficiencies and cost savings. Joint 
operations can eliminate redundant studio and office space, equipment, 
and personnel, and increase opportunities for cross-promotion and 
counter-programming. The Commission's current rule hinders

[[Page 46296]]

the realization of efficiencies by prohibiting common ownership of 
television stations in most DMAs. To enhance the ability of broadcast 
television to compete with cable and DBS in more DMAs, the Commission 
believes that the potential efficiencies and cost savings of multiple 
station ownership should be available to stations in a larger number of 
DMAs than permitted by our current rule.
    93. Common ownership of broadcast television stations in a local 
market may also spur the transition to digital television. In 
developing DTV build-out rules for broadcast stations, the Commission 
has recognized the particular financial challenges faced by stations in 
smaller markets. Nevertheless, many DTV construction costs do not vary 
with market size and thus it still may be relatively more difficult for 
stations in these markets to finance the transition to DTV.
    94. The Commission believes that our modified rule, which permits 
the common ownership of at least two television stations in most 
markets, will have a beneficial impact on the DTV transition. One study 
shows that stations that are commonly owned and stations involved in 
joint operating arrangements are further along in the DTV transition. 
Common ownership could facilitate cost savings by sharing DTV 
equipment. Common ownership would also allow the expertise gained in 
transitioning one station to DTV to be transferred to other commonly 
owned stations.
    95. The Commission's competition goal seeks to ensure that for each 
television market, numerous strong rivals are actively engaged in 
competition for viewing audiences. Although mergers among participants 
in the DVP market would not affect the number of delivered video 
program streams, they might adversely affect the types or 
characteristics of the programming offered by the merged entities to 
the detriment of viewers. The evidence for common ownership of two 
television stations, however, suggests that more viewers prefer the 
post-merger programming. The Commission therefore concludes that our 
current rule, which prohibits common ownership of broadcast television 
stations in most markets, is overly restrictive. Because some 
relaxation of the current rule to permit additional consolidation in 
local television markets would facilitate efficiencies and likely 
result in the delivery of programming preferred by viewers, the 
Commission concludes that our current rule cannot be justified on 
grounds of competition in the market for DVP.
    96. Video Advertising Market. The Commission concludes that the 
current rule is not necessary to promote competition in the video 
advertising mark. The Commission concludes that our local TV ownership 
rule restricts many broadcasters to suboptimal size and, therefore, 
hinders their ability to compete with other media for advertising 
revenue. That said, competitive broadcast television advertising 
markets may require a larger number of owners of DVP than are necessary 
to protect competition in the DVP market. As such, assuring competition 
in video advertising markets may provide the public with an added level 
of protection. A larger number of television station owners in a local 
television market may also lower the potential for the exercise of 
market power by any one broadcaster and, therefore, help smaller or 
non-consolidating broadcasters compete for advertising revenue.
    97. The Commission has determined that broadcast television 
advertising is a relevant product market. Advertisers differ in their 
ability to substitute between alternative media. Although some 
advertisers that use broadcast television stations may consider cable 
networks or the advertising time sold by local cable operators to be 
good substitutes, other advertisers may not consider these alternatives 
to be good substitutes. In addition, most advertisers that use 
broadcast television stations do not consider radio, newspapers, and 
other non-video delivery media to be good substitutes.
    98. Our experience suggests that common ownership of two local 
broadcast television stations has produced efficiencies without 
facilitating the exercise of market power in the broadcast television 
advertising market. In light of evidence detailed in the R&O, that the 
current rule prohibits some consumer welfare enhancing combinations, 
the Commission concludes that the current rule is overly restrictive 
and not necessary to protect competition in the broadcast television 
advertising market.
    99. Video Program Production Market. The Commission concludes that 
the current rule is not needed to protect competition in the video 
program production market. Broadcast television stations, along with TV 
networks, cable networks, program syndicators, and cable and DBS 
operators purchase or barter for video programming. The channel 
capacity of today's cable operators and DBS operators provides many 
more opportunities for sellers of existing and new video programming, 
compared with 20 years ago. Many of the programs sold today are 
specifically targeted to the niche audiences available on cable 
networks. In addition, many video programs initially sold to TV 
networks migrate to cable networks, and a few programs initially sold 
to cable networks migrate to local broadcast television stations. Same-
market combinations are only of concern to the few program syndicators 
that sell their programming directly to individual local television 
stations. These program syndicators would not consider sales to group 
owners of television stations in multiple markets, TV networks, and 
cable networks to be good substitutes for the sale of programming to 
individual stations. These program syndicators play one television 
broadcast station against another in the same market to sell their 
programming. By precluding common ownership of broadcast television 
stations in most markets, our current rule provides for more owners of 
television broadcast stations in most markets than are necessary to 
assure that program syndicators receive a fair price for their 
programming.\10\ The Commission concludes, therefore, that the current 
rule is not necessary to protect competition in the video program 
production market.
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    \10\ The current rule ensures that there are at least eight 
independent owners in all markets with eight or more stations.
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    100. Localism. The adoption of the local TV ownership rule was not 
predicated on promoting localism. To the contrary, the Commission has 
previously recognized that relaxation of the rule was likely to promote 
localism. The primary evidence of ``programming and service'' benefits 
was anecdotal evidence of increases in the amount of local news and 
public affairs programming aired by stations participating in LMAs.
    101. The Commission concludes that our current local TV ownership 
rule poses a potential threat to local programming, and that 
modification of the rule is likely to result in efficiencies that will 
better enable local television stations to acquire content desired by 
their local audiences.
    102. Local Programming Quantity and Quality. On balance, evidence 
presented by commenters concerning the amount and quality of local news 
and public affairs programming suggests that owners/operators of same-
market combinations have the ability and incentive to offer more 
programming responsive to the needs and interests of their communities 
and that in many cases, that is what they do. Thus, modifications to 
the rule that will allow

[[Page 46297]]

for greater common ownership are likely to advance our localism goal.
    103. Effect of Local Market Consolidation on Local Control Over 
Content. Contrary to views expressed by some commenters, the Commission 
has no record evidence linking relaxation of our local ownership rule 
to a reduction in local control over content. The Commission also has 
no means of measuring the extent to which news professionals' fear of 
retribution by their employers is reducing the ability of television 
broadcast stations to offer news focused on the needs and interests of 
their local communities, nor can it connect such concerns to its local 
ownership rules.
    104. News Programming Costs and Viability of Local News Operations. 
Several commenters contend that the rising cost of producing news and 
public affairs programming is forcing broadcasters to reduce news 
production and that relaxation of the local TV ownership rule would 
allow broadcasters to invest in new local news and public affairs 
programming, or at least to maintain existing programming. The 
Commission finds that the current local TV ownership rule is not 
necessary in the public interest to promote localism. More likely, the 
current rule is hindering our efforts to promote localism. Anecdotal 
and empirical evidence in the record demonstrates post-combination 
increases in the amount of local news and public affairs programming 
offered by commonly owned stations. Moreover, rising news production 
costs and other factors may cause broadcasters to turn to less costly 
programming options. Having found that there is a positive correlation 
between same-market combinations and the offering of local news, the 
Commission further agrees with those commenters who contend that 
modifying the local TV rule is likely to yield efficiencies that will 
allow broadcasters to invest in new local news and public affairs 
programming, or at least to maintain existing local programming.
    105. Diversity. Section 202(h) requires that the Commission 
consider whether the local TV ownership rule is necessary in the public 
interest to promote our diversity goal. The current rule measures 
viewpoint diversity largely through its voice test, which ensures that 
all television markets have at least eight independent broadcast 
television voices. The Commission finds that multiple media owners are 
more likely to present divergent viewpoints. Upon review of the record 
in this proceeding as well as its own analysis of local media markets, 
the Commission finds that media other than television broadcast 
stations contribute to viewpoint diversity in local markets. The data 
in the record indicate that the majority of markets have an abundance 
of viewpoint diversity. The Commission therefore concludes that its 
existing local TV ownership rule is not necessary to achieve its 
diversity goal. In order to promote viewpoint diversity, the Commission 
will rely on a combination of its cross media limits as well as revised 
local television and local radio ownership caps. The Commission also 
concludes that the current rule is not necessary to promote program 
diversity.
    106. Viewpoint Diversity. The Commission recognizes that a single 
media owner may elect to present a range of different perspectives on a 
particular political or social issue. It may also be accurate that a 
single owner of multiple media outlets in a local market may have a 
greater incentive to appeal to more viewers by presenting more 
perspectives than do multiple owners of single outlets. Even if a 
single owner of multiple television stations in the same market has an 
enhanced ability and incentive to present a broader range of 
viewpoints, that single owner still retains ``ultimate control over 
programming content, who is hired to make programming decisions, what 
news stories are covered, and how they are covered.'' The Commission 
concludes that it cannot rely exclusively on the economic incentives 
that may or may not be created by ownership of multiple television 
stations to ensure viewpoint diversity. However, because the Commission 
finds that other media contribute to viewpoint diversity in local 
markets, it concludes that the existing local TV ownership rule is not 
necessary to achieve its diversity goal.
    107. Contribution of Other Media to Viewpoint Diversity in Local 
Markets. The local television ownership rule has traditionally focused 
only on the contribution of television broadcast stations to diversity 
in local markets. Based on the evidence in the record, including our 
own evaluation of the media marketplace, the Commission finds that 
media outlets other than television stations contribute significantly 
to viewpoint diversity in local markets, and that our current rule 
fails to account for this diversity.
    108. The Commission finds that television broadcast stations are 
not the only media outlets contributing to viewpoint diversity in local 
markets. The market for viewpoint diversity and the expression of ideas 
is, therefore, much broader than the economic markets in which 
broadcast stations compete. In particular, in focusing on the delivered 
video market alone, the Commission would ignore countless other sources 
of news and information available to the public. As a corollary, 
however, limits imposed on television station combinations designed to 
protect competition in local delivered video markets necessarily also 
protect diversity; indeed they are more protective of competition in 
the broader marketplace of ideas given the difference in market 
definition.
    109. The Commission does not, therefore, necessarily disagree with 
those commenters who maintain that a local television ownership cap can 
help to protect the public's First Amendment interest in a robust 
marketplace of ideas. We disagree, however, to the extent that they 
advocate a diversity-based rule that looks to broadcast-only television 
voices. Accepting this narrowly-defined view would result in a rule 
that is overly restrictive both for competition and diversity purposes, 
because it would fail to include other participants in some relevant 
product markets and in the marketplace of ideas. Such an approach 
cannot be squared with our statutory mandate under section 202(h) or 
our desire to minimize the impact of our rules on the rights of 
speakers to disseminate messages.
    110. Accordingly, by setting our local television ownership caps 
only so high as necessary to protect competition in the delivered video 
market, the Commission will achieve necessary protection for diversity 
purposes without unduly limiting speech. The current rule is not 
necessary to protect competition and, indeed, may be harming 
competition in the delivered video market. It likewise cannot be 
justified on diversity grounds as it is overly restrictive. The 
Commission's modifications to the rule remedy that failing.
    111. Program Diversity. The local TV ownership rule has not 
traditionally been justified on program diversity grounds. However, the 
NPRM sought comment on whether common ownership of multiple stations 
promotes program diversity, and if so, how this affects the need for 
the current local TV ownership rule.
    112. The Commission finds that modification of the current local TV 
ownership rule may enhance program diversity. Program diversity is best 
achieved by reliance on competition among delivery systems rather than 
by government regulation. The Commission's local TV ownership rule will 
ensure robust competition in local DVP markets. As long as these 
markets

[[Page 46298]]

remain competitive, the Commission expects program diversity to be 
achieved through media companies' responses to consumer preferences. 
Nothing in the record seriously calls that conclusion into question.
    113. The Commission shares the concern of Children Now that the 
diversity of children's educational and informational programming could 
be reduced if commonly owned stations in the same market air the same 
children's programming. The Commission therefore clarifies that where 
two or more stations in a market are commonly owned and air the same 
children's educational and informational program, only one of the 
stations may count the program toward the three-hour processing 
guideline set forth in 47 CFR 73.761.
    114. Modification of the Local Television Ownership Rule. Based on 
the Commission's section 202(h) determination that the current local TV 
rule is no longer necessary in the public interest to promote 
competition and diversity, as well as our finding that the current rule 
may hinder achievement of our localism policy goal, the Commission must 
either eliminate or modify our local TV ownership restrictions. The 
Commission concludes that elimination of the rule would result in harm 
to competition in local DVP markets, thereby harming the public 
interest. Elimination of the rule also would adversely affect 
competition in the advertising and program production markets. 
Accordingly, the Commission modifies the rule.
    115. The Commission's modified local TV ownership rule will allow 
ownership combinations that satisfy a two-part test: a numerical outlet 
cap and a top four-ranked standard. Our outlet cap will allow common 
ownership of no more than two television stations in markets with 17 or 
fewer television stations; and up to three stations in markets with 18 
or more television stations. In counting television stations for 
purposes of this outlet cap, the Commission will include full-power 
commercial and noncommercial television broadcast stations assigned by 
Nielsen to a given DMA. For purposes of counting the television 
broadcast stations in the market, the Commission will include only full 
power authorizations (i.e., it will not include Class A TV, LPTV 
stations or TV translators). The Commission also will exclude from our 
count any non-operational or dark stations. Newly constructed 
television stations that have commenced broadcast operations pursuant 
to program test authority will be included in the DMA count. Television 
satellite stations will be excluded from our count of full power 
television stations in the DMA where the satellite and parent stations 
are both assigned by Nielsen to the same DMA. A satellite station 
assigned to a DMA different from that of its parent, however, will be 
included in the TV station count for that DMA. DTV stations will be 
included in our count only if they are operating and are not paired 
with an analog station in the market. For purposes of our local TV 
ownership rule, a station will be considered to be ``within'' a given 
DMA if it is assigned to that DMA by Nielsen, even if that station's 
community of license is physically located outside the DMA. For 
purposes of our local TV ownership rule, geographic areas that are not 
assigned a DMA by Nielsen (i.e., Puerto Rico, Guam, and the U.S. Virgin 
Islands) each will be considered a single market. Our current local TV 
multiple ownership rule does not restrict the number of noncommercial 
television stations that can be owned by one entity. Consistent with 
past practice, our modified rule also will not affect ownership of 
noncommercial television stations. The Commission's top four-ranked 
standard will prohibit combinations which would result in a single 
entity owning more than one station that is ranked among the top four 
stations in the market based on audience share. Hence, same-market 
combinations will not be permitted in markets with fewer than five 
television stations. For purposes of applying the top four-ranked 
standard, a station's rank will be determined using the station's most 
recent all-day audience share, as measured by Nielsen or by any 
comparable professional and accepted rating service, at the time an 
application for transfer or assignment of license is filed, the same 
method as under our current rule.
    116. The contour overlap provision of the rule will be eliminated, 
and the modified rule will be applied without regard to Grade B contour 
overlap among stations. Thus, if two stations in a market do not have 
overlapping contours, they still cannot be combined unless there are 
five or more stations in the market and at least one station in the 
combination is not among the top four. The Commission has determined 
that, because of mandatory carriage requirements, the DMA--not the area 
within a particular station's Grade B contour--is the geographic market 
in which DVP providers compete. Therefore, permitting station 
combinations solely on grounds that they do not have overlapping 
contours would be inconsistent with our market definition. The majority 
of viewers--including those who reside in geographically large DMAs--
have access to television broadcast stations that they could not view 
over-the-air because they can view the stations via cable. 
Increasingly, local stations also are available via DBS. To avoid 
imposing an unfair hardship on parties that currently own combinations 
that do not comply with the modified rule, the Commission will 
grandfather existing combinations. In addition, because the 
Commission's assumption regarding DMA-wide carriage is not universally 
true, and in recognition of the signal propagation limitations of UHF 
signals, the Commission adopts a waiver standard that will permit 
common ownership of stations where a waiver applicant can show that the 
stations have no Grade B overlap and that the stations are not carried 
by any MVPD to the same geographic area.
    117. The public is best served when numerous rivals compete for 
viewing audiences. In the DVP market, rivals profit by attracting new 
audiences and by attracting existing audiences away from competitors' 
programs. The additional incentives facing competitive rivals are more 
likely to improve program quality and create programming preferred by 
existing viewers. The R&O discusses how the Commission's analysis of 
competition in local DVP markets supports the modified rule.
    118. Evaluating Potential Competitive Harms Within Local DVP 
Markets. Consistent with the Commission's competition policy goal, our 
local television ownership rule seeks to preserve a healthy level of 
competition in the market for DVP. The state of competition in this 
market affects the quality and diversity of programming content and 
therefore the overall welfare of DVP viewers. In formulating our local 
TV multiple ownership rule, the Commission must assess the nature of 
this competition and weigh the potential benefits and anticompetitive 
harms that may arise from the increase in market concentration that 
results from a single firm owning multiple broadcast stations in a 
market.
    119. There are two potential competitive harms that may be caused 
by a single firm owning multiple television stations in a market. 
First, ownership of multiple stations may result in ``unilateral 
effects,'' i.e., the firm acquiring multiple licenses may find it 
profitable to alter its competitive behavior unilaterally to the 
detriment of viewers. An example of such an effect would be the 
decision to cancel local

[[Page 46299]]

news programming on one of the commonly-owned channels. Second, the 
acquisition of multiple licenses in a local market by a single firm may 
lead to ``coordinated effects.'' That is, the increase in concentration 
may induce a joint change in competitive behavior of all the market 
participants in a manner that harms viewers.
    120. The Commission recognizes the importance of competition from 
cable networks in the market for DVP. Nevertheless, in formulating our 
revised ownership rules, the Commission continues to draw a distinction 
between television broadcast stations and non-broadcast DVP outlets. 
This is because television broadcast stations and cable programming 
networks have different incentives to react to a change in local market 
concentration, which suggest differing levels of unilateral and 
coordinated effects. In particular, cable networks are almost 
exclusively offering national or broadly defined regional programming. 
Therefore, the profit-maximizing decisions of a national cable 
programmer reflect conditions in the national market. It is improbable 
that a change in concentration in any single local market would affect 
the competitive strategy of a national cable network. In contrast, the 
Commission needs to consider the possible competitive responses from 
other DVP outlets in local markets, which are almost exclusively 
television broadcast stations. Because of the differing footprints of 
cable networks and television broadcast stations, any possible 
competitive harms are more likely to arise from changes in the behavior 
of stations. Thus, the Commission's rules to promote local television 
competition are focused on ownership of television broadcast stations.
    121. Welfare Enhancing Mergers in Local Delivered Video Markets. 
The standard approach to evaluating the competitive harms of an 
increase in horizontal market concentration is outlined in the DOJ/FTC 
Merger Guidelines. The DOJ/FTC Merger Guidelines recognize the HHI 
level of 1800 as the maximum level of ``moderate concentration.'' The 
Commission chooses this threshold rather than the lower limit of 1000 
because it recognizes the competitive pressures exerted by the cable 
networks. The 1800 threshold corresponds to having six equal-sized 
competitors in a given market. The DOJ/FTC Merger Guidelines however, 
are written not for a specific industry, but rather as guidelines 
intended for application across all industries. The Commission's rules 
are formulated for a specific market-the delivery of video programming- 
and are based on an extensive record on the extent of competition in 
this market and the effect of our current local TV ownership rule. This 
record allows the Commission to craft a more finely-tuned rule for this 
industry.
    122. First, the nature of the DVP market is such that there is 
constant product innovation with new program choices each season. In 
such a market, a firm's market share is more fluid and subject to 
change than in other industries. Hence a firm's ``capacity'' to deliver 
programming can be as important a factor in measuring the competitive 
structure of the market as is its current market share. Second, as each 
broadcast station requires a license, the number of licenses that a 
firm controls in a market is the measure of its capacity to deliver 
programming. Therefore, as a starting point, a simple application of 
the DOJ/FTC Merger Guidelines six-firm threshold suggests that, a 
single firm holding three licenses in a market with 18 or more 
licenses, or a firm holding two licenses in a market with 12 or more 
licenses, would not raise competitive concerns. However, given the 
structure of the DVP market, a strict, overly simplistic application of 
the DOJ/FTC Merger Guidelines would potentially prohibit some welfare 
enhancing mergers and allow some anticompetitive mergers.
    123. In local markets, there is a general separation between the 
audience shares of the top four-ranked stations and the audience shares 
of other stations in the market. A review of the audience shares of 
stations in every market with five or more commercial television 
stations (i.e., 120 markets) indicates that in two-thirds of the 
markets, the fourth-ranked station was at least two percentage points 
ahead of the fifth-ranked station. Two percentage points represents a 
significant difference in audience share because for a station to jump 
from, for example, an eight share to a ten share, it would have to 
increase its audience share by 25%. Thus, although the audience share 
rank of the top four-ranked stations is subject to change and the top 
four sometimes swap positions with each other, a cushion of audience 
share percentage points separates the top four and the remaining 
stations, providing some stability among the top four-ranked firms in 
the market. Nationally, the Big Four networks each garner a season to 
date prime time audience share of between ten and 13 percent, while the 
fifth and sixth ranked networks each earn a four percent share. While 
there is variation in audience shares within local markets, these 
national audience statistics are generally reflected in the local 
market station rankings. The gap between the fourth-ranked national 
network and the fifth-ranked national network represents a 60% drop in 
audience share (from a ten share to a four share), a significant 
breakpoint upon which the Commission bases the rule.
    124. The Commission's analysis of the top four local stations is 
related to its analysis of the four leading broadcast networks in 
connection with the dual network rule. There the Commission concludes 
that Big Four networks continue to comprise a ``strategic group'' 
within the national television advertising market. That is due largely 
to those networks' continued ability to attract mass audiences. It is 
this network programming that explains a significant portion of 
continued market leadership of the top four local stations in virtually 
all local markets. Thus the continued need for the Dual Network rule to 
protect competition at the network level also supports our decision to 
separate ownership of local stations carrying the programming of Big 
Four networks.\11\
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    \11\ The local television ownership rule is consistent with a 
key aspect of the Commission's national television ownership rule in 
recognizing competitive disparities among stations. The national 
television ownership cap recognizes competitive disparities between 
stations through use of the UHF discount, while the local television 
ownership cap recognizes competitive disparities between stations by 
prohibiting mergers of the top four-ranked stations in the market. 
The national ownership rule is an audience reach limitation, so it 
makes sense to adjust that limitation based on the diminished 
coverage of UHF stations. The local ownership rule, on the other 
hand, places a limitation on the number of stations that one entity 
may own in a market. Thus, that rule limits mergers of the top four-
ranked stations in a market. Furthermore, in the local television 
ownership rule, we take account of a station's UHF status in 
considering certain waiver requests, as discussed further below. 
Finally, the Commission notes that the top-four merger restriction 
in the local television ownership rule and the UHF discount in the 
national television ownership rule, while analogous, are not 
identical and do not serve exactly the same purpose. The UHF 
discount is premised, in part, on promoting the development of new 
and emerging networks. This rationale does not apply in the local 
television ownership context because ownership of multiple stations 
in a market does not promote development of new networks. The top-
four limitation in the local television ownership rule, in contrast, 
is premised on competition theory, which is not the basis for the 
national television ownership rule.
---------------------------------------------------------------------------

    125. Permitting mergers among top four-ranked stations also would 
generally lead to large increases in the HHI. Although the Commission 
believes that mechanical application of the DOJ/FTC Merger Guidelines 
may provide misleading answers to competitive issues in the context of 
local broadcast transactions, as a general matter, sufficiently large 
HHIs establish a prima

[[Page 46300]]

facie case in antitrust suits. By allowing firms to own multiple 
stations, but prohibiting combinations among the top four-ranked 
stations, the Commission enables the market to realize efficiency gains 
and improve the quality of product in the video programming market 
while mitigating the risk of harmful coordinated or unilateral 
competitive harms.
    126. One reason that combinations involving top four-ranked 
stations are less likely to yield public interest benefits such as new 
or expanded local news programming is that such stations generally are 
already originating local news. Some commenters contend that the 
Commission has never demonstrated that top four-ranked stations are 
generally the market's news providers. Yet the data provided by some of 
these very commenters confirms that this is the case. Further, the 
Commission has determined that, because there are less than four 
stations in some markets, the total number of top four-ranked stations 
is 779. Therefore, fully 85% of top four-ranked stations offer local 
news. Because top four-ranked stations already provide local news 
programming, a combination involving more than one top four-ranked 
station is less likely to result in a new or enhanced local news 
offering than would a combination involving only one top four-ranked 
station.
    127. The Commission has also determined that same-market 
combinations yield efficiencies that may expedite a station's 
transition to DTV. However, combinations involving more than one top 
four-ranked station also are less likely to provide public interest 
benefits in the form of new DTV service. The financial position of top 
four-ranked stations makes the transition to DTV more affordable for 
these stations. Top four-ranked stations also are more likely to have 
made the transition to DTV than other stations. The Commission 
therefore concludes that it is less likely that allowing same-market 
combinations involving more than one top four-ranked station will 
expedite the provision of DTV service to the public.
    128. Permitting combinations among the top four would reduce 
incentives to improve programming that appeals to mass audiences. The 
strongest rival to a top four-ranked station is another top four-ranked 
station. Because top four-ranked stations typically offer programming 
designed to attract mass audiences, as opposed to niche audiences, a 
new popular program offered by one top four-ranked station will have a 
substantial negative impact on the audience shares of the other top 
four-ranked stations. The enormous potential gains associated with new 
popular programs provide strong incentives for top four-ranked stations 
to develop programming that is more appealing to viewers than the 
programming of their closest rivals. The large number of viewers 
looking for new programs with mass audience appeal are the direct 
beneficiaries of this rivalry. When formerly strong rivals merge, they 
have incentives to coordinate their programming to minimize competition 
between the merged stations. Such mergers harm viewers.
    129. The Commission's decision to allow common ownership of two 
television stations in markets with fewer than twelve television 
stations will result in levels of concentration above our 1800 HHI 
benchmark in markets with fewer than 12 television stations. The 
Commission permits this additional concentration because the economics 
of local broadcast stations justify graduated increases in market 
concentration as markets get smaller.\12\ The record demonstrates that 
owners of television stations in small and mid-sized markets are 
experiencing greater competitive difficulty than stations in larger 
markets. Moreover, Congress and the Commission previously have allowed 
greater concentration of broadcast properties in smaller markets than 
in larger markets precisely because the fixed costs of the broadcasting 
business are spread over fewer potential viewers. The limits the 
Commission adopts in the R&O for local television ownership replicate 
this graduated tradeoff between optimal competition in the delivered 
video market (six station owners) and recognition of the challenging 
nature of broadcast economics in small to mid-sized markets.
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    \12\ For purposes of applying the Commission's cross media 
limits, which are diversity based, it found that markets with nine 
or more television stations have a sufficiently large number of 
media outlets that viewpoint diversity will be protected by its caps 
on local television and local radio ownership. Measuring the extent 
of diversity in a market is a separate question from measuring the 
extent of competition among a particular class of outlets, such as 
local television stations. Thus, a market with ten television 
stations can be characterized as ``large'' from a viewpoint 
diversity standpoint because of the substantial number of media 
outlets available in such markets, but ``small to mid-sized'' when 
considering solely competition in the delivered video market (which 
excludes outlets such as radio, newspaper, and the Internet).
---------------------------------------------------------------------------

    130. Thus, the Commission must avoid an oversimplified application 
of the DOJ/FTC Merger Guidelines. In particular, the analysis suggests 
that anticompetitive harms may result from allowing the largest firms 
to merge, and that the Commission might lose welfare enhancing 
efficiency gains by disallowing mergers between stations with large 
audience shares and stations with small audience shares. To allow the 
market to realize these efficiency gains and prevent potential harms 
from undue increases in concentration, the Commission therefore allow 
combinations of two stations provided they are not both among the top 
four-ranked broadcast stations in the local market. In markets with at 
least 18 television stations, the Commission further allows a firm to 
own up to three stations (thus ensuring a minimum of six owners) 
provided that only one of them is ranked among the top four.
    131. Proposals to Retain the Existing Rule in its Current Form or 
With Minor Modifications. A number of commenters urge the Commission to 
retain the existing rule, or make minor modifications. Children Now 
proposes that the Commission modify the existing rule by prohibiting 
common ownership of television stations with overlapping Grade B 
contours in the same market, as it did prior to its 1999 revisions to 
the rule. Other commenters urge the Commission to retain the existing 
rule, but to count only those voices that actually provide local 
programming. Children Now, among others, states that if the Commission 
chooses to revise the current rule by expanding the types of media 
voices that are considered for purposes of the local television 
ownership rule, it should raise the threshold voice count required to 
form a same-market combination.
    132. The Commission has determined that retaining our current rule 
does not comport with our statutory mandate under section 202(h) on 
competition, diversity, or localism grounds. For the same reasons, the 
Commission disagrees with commenters who contend that an equally 
restrictive or more restrictive ownership rule is necessary in the 
public interest. Although our modified rule does not rely upon a 
``voice test,'' it calculates the number of stations one can own in a 
market based, in part, on the number of stations within that market. 
However, our decision to ``count'' only broadcast television stations 
is based on the likely responses of participants in the DVP market to 
changes in local market concentration, and is aimed at achieving 
competition in local markets.
    133. Another commenter proposes that if the Commission relaxes the 
rule, it should prohibit common ownership of more than one station 
affiliated with a top four network. The Commission's revised rule 
prohibits common ownership of stations that are among the top four in 
terms of audience share. Although such stations are often

[[Page 46301]]

affiliated with top four networks, the Commission concludes that 
audience share rank is a more accurate measure of market power than 
network affiliation. Therefore, the Commission does not adopt the 
proposal to prohibit common ownership of more than one station 
affiliated with a top four network.
    134. Another commenter asserts that while the Commission has ample 
justification for retaining the current rule, if it chooses to revise 
the rule, it should apply an ``HHI-adjusted voice count'' to local TV 
ownership. Under this proposal, the Commission would calculate the 
market shares of television broadcast stations in the relevant 
geographic market, which would be either the DMA or a ``weighted 
average DMA,'' calculated to account for the fact that certain stations 
do not have cable carriage throughout the market. This commenter 
proposes that the Commission define highly concentrated markets as 
those with fewer than six equal-sized voices or a four-firm 
concentration ratio above 60%. Moderately concentrated markets would be 
those with between six and ten equal-sized voices or a four-firm 
concentration ratio of 40-60%. They further urge the Commission to 
prohibit any combination that would result in a highly concentrated 
market. Where a combination would result in moderate concentration, the 
commenter proposes that the Commission permit the combination only if 
it finds that the merger will serve the public interest and if the 
owner of the merging stations agrees to retain separate news and 
editorial departments in different subsidiaries of the merged entity.
    135. The Commission's modified local TV ownership rule will ensure 
that there are at least six firms in significant number of markets 
(i.e., all markets with 12 or more television stations), much like the 
commenter's proposal. The proposal does not, however, adequately 
address record evidence of differences in the economics of broadcast 
stations in smaller markets. Much like the strict application of the 
DOJ/FTC Merger Guidelines, the proposed test would prohibit certain 
mergers that will result in welfare enhancing efficiencies. 
Accordingly, the Commission declines to adopt this proposal. With 
regard to the commenter's waiver proposal, the Commission does not 
agree that conditioning assignments/transfers on retention of separate 
news departments within separate subsidiaries of a merged entity is 
necessary to advance our diversity, competition or localism goals. 
Requiring compliance with our rules, rather than conducting case-by-
case evaluations or imposing merger conditions, is a more effective way 
to achieve these goals.
    136. Entravision does not take a position on whether the rule 
should be relaxed, but proposes that if the rule is relaxed, the 
Commission should require periodic certification by owners of same-
market combinations that they are not engaged in certain types of 
anticompetitive conduct that would adversely affect smaller 
broadcasters in their markets. The Commission does not agree with 
Entravision that modifying the local TV ownership rule will increase 
the likelihood of anticompetitive conduct by broadcasters that own more 
than one station in a market, or that a certification requirement is 
necessary to protect against such conduct. Certainly, if broadcasters 
engage in anticompetitive conduct that is illegal under antitrust 
statutes, remedies are available pursuant to those statutes. In 
addition, an antitrust law violation by a licensee would be considered 
as part of our character qualifications review in connection with any 
renewal, assignment, or transfer of a license.
    137. Proposals to Eliminate or Substantially Modify the Rule. 
Several commenters propose that the Commission eliminate the current 
rule or substantially modify the rule in order to permit more same-
market combinations. Among these are a proposal to allow common 
ownership of two television stations in all markets with four or more 
stations, a proposal to eliminate the top four-ranked standard, a 
proposal to eliminate the voice test provision of the rule but to 
retain the top four-ranked restriction, NAB's proposed ``10/10'' 
standard, and Hearst-Argyle's AMI proposal.
    138. The Commission does not agree with commenters who propose that 
it eliminate all local television ownership restrictions. The 
Commission believes that the public is best served when numerous rivals 
compete for viewing audiences. In the DVP market, rivals profit by 
attracting new audiences and by attracting existing audiences away from 
competitors' programs. Monopolists, on the other hand, profit only by 
attracting new audiences; they do not profit by attracting existing 
audiences away from their other programs. The additional incentives 
facing competitive rivals are more likely to improve program quality 
and create programming preferred by viewers. Most commenters proposing 
elimination of the rule believe that antitrust authorities will protect 
against any public interest harms that may result from combined 
ownership of multiple television stations in a market. The Commission 
does not agree with commenters who urge us to eliminate our rules and 
defer all competition concerns to the antitrust authorities.
    139. The Commission concludes that, as compared to the modified 
rule, the rule modification proposals advanced by commenters are more 
likely to result in anomalies and inconsistencies, or will otherwise 
fail to serve our policy goals. For example, by proposing that the 
Commission permit common ownership of two television stations in all 
markets with four or more stations, Nexstar attempts to account for the 
differing economics of stations in small markets. However, unlike our 
modified rule, the Nexstar proposal does not protect against 
combinations of the market participants with the largest audience 
shares, combinations that are more likely to cause competitive harms. 
It also permits extremely high concentration levels in the very 
smallest markets--there could be as few as two competitors in markets 
with four television stations. The Commission finds that the levels of 
concentration permitted by the Nexstar proposal are likely to result in 
harm to competition in local DVP markets.
    140. Similar competitive harms would result if the Commission were 
to adopt proposals to eliminate or modify the top four-ranked standard. 
Several commenters claim that the top four-ranked standard cannot be 
justified on diversity or competition grounds. The Commission is not 
relying on the top four-ranked provision of our modified local TV 
ownership rule to promote diversity, although the Commission recognizes 
that because the marketplace for ideas is broader than the DVP market, 
rules intended to promote competition also will promote diversity. The 
Commission disagrees with commenters' claims that the top four-ranked 
standard is not justified on competition grounds. At the time of our 
last review of the local TV ownership rule, the Commission lacked 
sufficient record data concerning competitors to local television 
stations. In the instant proceeding, the Commission faces no such 
shortage of evidence concerning which media compete with local TV. 
Having determined that television competes with all providers of DVP, 
the Commission has crafted a rule that appropriately takes account of 
competition from other sources of DVP, and will ensure competition in 
local DVP markets. The Commission does not agree that elimination of 
our top four-ranked standard, use of a top three-ranked standard, or 
use of a tiered system that would ban mergers among

[[Page 46302]]

top four-ranked stations only in the largest markets and permit certain 
top four-ranked combinations in smaller markets, would serve the public 
interest. The top four-ranked combinations are likely to harm 
competition in the DVP market, and are less likely to produce 
offsetting public interest benefits.
    141. The Commission believes that a more targeted approach to 
account for possible harms of application of the top four-ranked 
restriction is to establish a waiver standard tailored to the top four-
ranked restriction. This approach will preserve competition in the DVP 
market while accommodating those instances where application of the top 
four-ranked restriction would harm the public interest.
    142. Belo takes a nearly opposite approach, proposing that the 
Commission permit same-market combinations provided that they satisfy 
our top four-ranked standard, but eliminate our voice test. The 
Commission agrees that, as it is used in our modified rule, a top four-
ranked prohibition is an appropriate means of protecting against 
combinations that would have an enhanced ability or incentive to engage 
in anticompetitive conduct.
    143. NAB proposes that the Commission permit combinations where at 
least one of the stations has had, on average over the course of a 
year, an all day audience share of ten or less (the ``10/10'' 
proposal). NAB asserts that the audience share data used for this 
calculation should include viewing of out-of-market broadcast stations 
and cable networks, to account for competition from these sources. NAB 
proposes that the Commission treat the 10/10 standard as a presumption, 
and urges us to consider proposed combinations that do not meet this 
standard (including same-market combinations of three stations) on a 
case-by-case basis, considering factors which the Commission discusses 
along with other waiver proposals. NAB urges the Commission to allow 
broadcasters to transfer combinations created pursuant to the 10/10 
standard even if one or both stations has increased its viewing share 
above the ten threshold at the time of such transfer. NAB asserts that 
requiring licensees to find separate purchasers will be disruptive and 
will tend to discourage investment in broadcast stations. Of the 
commenters who support the 10/10 proposal, some support the proposal as 
advanced by NAB; others support it with modifications; others suggest 
it be used only as a safe harbor, allowing for many other types of 
combinations.
    144. The record in this proceeding supports a rule that will allow 
financially weak stations to combine with each other or with stronger 
stations in order to realize efficiencies. The 10/10 proposal, however, 
would permit mergers between financially strong stations, including top 
four-ranked stations, in a significant number of markets. Neither the 
record nor standard competitive analysis justifies a rule that will 
permit such mergers. The Commission's analysis suggests that 
combinations among the top four rated broadcast stations would create 
welfare harms. The Commission also finds that the proposal does not 
adequately justify the use of ten as a threshold. The record 
demonstrates that in many markets ten is the average share for any 
given station, sometimes even the very highest rated stations, in the 
market. In addition, the proposal provides no clear rationale to 
justify why, for example, a combination involving two stations with 
respective audience shares of 25 and 9 should be permitted, although a 
combination involving two stations with respective audience shares of 
12 and 11 should be prohibited. For these reasons, the Commission 
rejects the 10/10 approach.
    145. Hearst-Argyle advances an alternative proposal that would 
permit common ownership of any number of television stations in the 
same market provided that the stations' combined audience share does 
not exceed 30%. Combinations that would result in an audience share 
above 30% would be subject to an Audience Market Index (``AMI'') cap 
that is calculated in a manner similar to an HHI, but uses audience 
share data rather than advertising share data. If a combination would 
result in AMI below 1000, the combination would be permitted, 
regardless of the increase in concentration. A combination resulting in 
an AMI between 1000 and 1800 would be permitted if the increase in AMI 
is less than 100 points, and a combination resulting in an AMI above 
1800 would be permitted only if it increases AMI by less than 50 
points. Hearst-Argyle asserts that by using an audience share metric, 
its proposal objectively measures and protects both diversity and 
competition. Hearst-Argyle contends that its proposal also is likely to 
survive judicial scrutiny because its 30% hard cap and AMI analysis are 
both based on antitrust law and analysis. In addition, Hearst-Argyle 
contends that its proposal avoids several pitfalls of the NAB 10/10 
proposal.
    146. The Commission does not agree with Hearst-Argyle that simply 
because courts have accepted presumptions of 30% market share as 
demonstrating market power in the context of the antitrust statutes, it 
should establish a presumption that 30% is an appropriate audience 
share limit. The Hearst-Argyle proposal does not place specific limits 
on the number of broadcast television stations an entity could own in a 
local market. An entity could acquire any combination of stations in a 
local market as long as its audience share is 30 percent or less, and 
the AMI cap is satisfied. In many markets, this approach would permit 
an entity to own four, five, six or more stations. The Commission does 
not believe that consolidation in a market of a large number of 
stations with low audience share is in the public interest. Although an 
individual station may currently have a small audience share in the DVP 
market, each station's audience share has the potential to change over 
time. The number of stations a firm owns is a measure of its capacity 
to deliver programming. This capacity can be as important a factor in 
measuring the competitive structure of the market as is its current 
audience share. Moreover, much like the 10/10 proposal, the AMI test 
will frequently result in common ownership of stations ranked among the 
top four in the market. It will also permit common ownership of three 
stations in many more markets than will our modified rule--including 
some very small markets. As shown by one of Hearst-Argyle's own 
examples, under certain circumstances, the AMI test would even permit 
common ownership of three of the top four-ranked stations in a market 
with just five full-power television stations. Because of the 
anticompetitive harms that would result from combinations allowed by 
the AMI test, the Commission will not adopt Hearst-Argyle's AMI 
proposal.
    147. NAB proposes an alternative that would combine the 30% 
audience share cap of the AMI test with a ban on common ownership of 
more than three stations in any market, and a ban on common ownership 
of more than two top four-ranked stations in the same market. For 
similar reasons, the Commission does not accept this proposal. The 
Commission believes that (1) a ban on combinations among the top four-
ranked stations is necessary to promote competition; (2) a 30% share 
cap would permit combinations that undermine that goal; and (3) 
ownership of three television stations in markets with fewer than 18 
stations would harm competition by consolidating capacity in the hands 
of too few owners. The Commission's modified rule better

[[Page 46303]]

effectuates our goal of promoting competition in local DVP markets.
    148. Waiver Standard. In the Commission's Local TV Ownership Report 
and Order, it established a waiver standard for purposes of our local 
TV ownership rule. The standard permits a waiver of the current rule 
where a proposed combination involves at least one station that is 
failed, failing, or unbuilt. The Commission defines a ``failed 
station'' as one that has been dark for at least four months or is 
involved in court-supervised involuntary bankruptcy or involuntary 
insolvency proceedings. The Commission's ``failing'' station standard 
provides that it will presume a waiver is in the public interest if the 
applicant satisfies each of the following criteria: (1) One of the 
merging stations has had low all-day audience share (i.e., 4% or 
lower); (2) the financial condition of one of the merging stations is 
poor; and (3) the merger will produce public interest benefits. The 
Commission's unbuilt station waiver standard presumes a waiver is in 
the public interest if an applicant meets each of the following 
criteria: (1) The combination will result in the construction of an 
authorized but as yet unbuilt station; and (2) the permittee has made 
reasonable efforts to construct, and has been unable to do so. For each 
type of waiver, the Commission also requires that the waiver applicant 
demonstrate that the ``in-market'' buyer is the only reasonably 
available entity willing and able to operate the subject station, and 
that selling the station to an out-of-market buyer would result in an 
artificially depressed price for the station. Any combination formed as 
a result of a failed, failing, or unbuilt station waiver may be 
transferred together only if the combination meets our local TV 
ownership rules or one of our three waiver standards at the time of 
transfer.
    149. The Commission's rationale for adopting these waiver criteria 
was that failed, failing and unbuilt stations could not contribute to 
competition or diversity in local markets, and that the public interest 
benefits of activating a dark or unbuilt station, or preventing a 
failing station from going dark, outweighed any potential harm to 
competition or diversity. Most commenters addressing the waiver 
standard urge us to relax or eliminate the standard.
    150. The Commission concludes that tightening our waiver standard 
would not promote our public interest goals. Moreover, the Commission 
agrees with the NAB and other commenters who urge us to expand our 
waiver standard to include consideration of combinations that will 
yield other public interest benefits. The Commission's treatment of 
waivers will follow the competition principles established in the DOJ/
FTC Merger Guidelines, with a specific focus on the industry at hand. 
In particular, as in the DOJ/FTC Merger Guidelines, the Commission will 
consider combinations that involve firms that are not failing but that 
could better serve the public interest through a merger not otherwise 
permitted by our rules. The Commission also will consider a waiver of 
our local TV ownership rule where a proposed combination involves 
stations that do not engage in head-to-head competition because they do 
not have overlapping Grade B contours and are not carried by MVPDs in 
the same geographic areas.
    151. First, for failed, failing, and unbuilt stations, the 
Commission retains the existing waiver standard with one exception. We 
remove the requirement that a waiver applicant demonstrate that it has 
tried and failed to secure an out-of-market buyer for the subject 
station. In many cases, the buyer most likely to deliver public 
interest benefits by using the failed, failing, or unbuilt station will 
be the owner of another station in the same market. The Commission 
believes that the efficiencies associated with operation of two same-
market stations, absent unusual circumstances, will always result in 
the buyer being the owner of another station in that market.
    152. Otherwise, however, a failed, failing, or unbuilt station 
clearly cannot contribute to localism, competition or diversity in 
local markets. Nothing in the record in the instant proceeding leads us 
to find otherwise. The Commission concludes that the public interest 
benefits of activating a dark or unbuilt station outweigh the potential 
harm to competition or diversity. Therefore, if it can be shown that, 
absent the transfer, the licensee's assets will exit the market, then 
the transfer is not likely to either enhance market power or facilitate 
its exercise. In such cases, the granting of a waiver would not be 
inconsistent with our competition goal.
    153. The record also suggests that local television stations 
outside the largest markets may, in some cases, better serve the public 
interest through station combinations not permitted by our local 
television ownership rules. The Commission's new rules allow one 
company to own two stations in a market provided both are not ranked in 
the top four in ratings. This top four-ranked prohibition promotes 
competition by preventing the strongest competitors in each market from 
combining. The top four restriction is premised on evidence that the 
four leading stations in each market are already the strongest 
competitors and that combinations among them would harm the public 
interest by diminishing competition in the DVP market. However, NAB 
data shows that, as a class, smaller market stations (including both 
top four and other stations) are less effective competitors in the DVP 
market relative to stations in large markets. Therefore, the Commission 
allowed station combinations that would not be permitted in larger 
markets. However, our concern for the economics of broadcast television 
in small markets does not lead us to relax the top four prohibition 
generally because the Commission concluded that this restriction 
remains necessary to promote competition in the DVP market. 
Nonetheless, the Commission does recognize that there may be instances 
where application of this top four restriction will disserve the public 
interest by preventing marginal--but not yet ``failing''--stations from 
effectively serving the needs of their communities. Such stations may 
not be financially capable of producing the amount of news and local 
affairs programming that they would like to provide their communities, 
which in turn may make them less competitive in the local marketplace. 
Accordingly, in order to effectuate our goals of diversity, localism, 
and competition, the Commission will consider waivers of the top four-
ranked restriction in markets with 11 or fewer television stations. 
Those are the markets in which the Commission has already recognized 
that the economics of broadcast television justify relatively greater 
levels of station consolidation and better serve the public interest.
    154. In considering waivers of our top four-ranked restriction, the 
Commission will consider a number of factors. For instance, mergers 
between stations that reduce a significant competitive disparity 
between the merging stations and the dominant station in the 
marketplace are particularly likely to be pro-competitive. Accordingly, 
waiver applicants should supply television ratings information for the 
four most recent ratings periods for all local stations so that the 
Commission may assess the competitive effect of the merger.
    155. Second, the Commission also will evaluate the effect of the 
proposed merger on the stations' ability to complete the transition to 
digital television. Waiver applicants claiming that the merger is 
needed to facilitate

[[Page 46304]]

the digital transition should provide data supporting this assertion.
    156. The Commission also will consider the effect of the proposed 
merger on localism and viewpoint diversity. Waiver applicants should 
submit information about current local news production for all stations 
in the local market and the effect of the proposed merger on local news 
and public affairs programming for the affected stations. Applicants 
stating that the merger is needed to preserve a local newscast should 
document the financial performance of the affected news division. 
Applicants for waiver of our top four-ranked restriction must 
demonstrate that the proposed combination will produce public interest 
benefits. As in the context of failing station waivers, the Commission 
will require that, at the end of the merged stations' license terms, 
the owner of the merged stations must certify to the Commission that 
the public interest benefits of the merger are being fulfilled. This 
certification must include a specific, factual showing of the program-
related benefits that have accrued to the public. Cost savings or other 
efficiencies, standing alone, will not constitute a sufficient showing. 
Finally, the Commission's review of waiver requests will account for 
the diminished reach of UHF stations. As discussed in our national 
television ownership rule section, UHF stations reach fewer households 
than VHF stations because of UHF stations' weaker broadcast signals. 
Reduced audience reach diminishes UHF stations' impact on diversity and 
competition in local markets. Accordingly, the Commission will consider 
whether one or both stations sought to be merged are UHF stations.
    157. The revised local TV ownership rule no longer permits 
combinations involving stations that do not have overlapping Grade B 
contours, on grounds that, because of statutory mandatory carriage 
requirements, most stations compete with each other on a DMA-wide 
basis. However, the Commission recognizes that certain stations are not 
carried throughout their assigned DMAs, and thus do not compete with 
each other within their assigned markets. Accordingly, the Commission 
will consider waivers of our local TV ownership rule where a party can 
demonstrate that the signals of the stations in a proposed combination: 
(a) Do not have overlapping Grade B contours; and (b) have not been 
carried, via DBS or cable, to any of the same geographic areas within 
the past year.
    158. With respect to a licensee's ability to transfer or assign a 
combination involving a station acquired pursuant to a waiver, the 
Commission does not find support in the record for permitting such 
transfers where they do not comply with our rules. The transfer or 
assignment of such a combination must comply with our rules or waiver 
standards at the time an application to transfer or assign the station 
is filed.
    159. Satellite Stations. Television satellite stations retransmit 
all or a substantial part of the programming of a commonly owned parent 
station. Satellite stations are generally exempt from the Commission's 
broadcast ownership restrictions. The Commission believes that 
continued exemption of satellite stations from the local TV ownership 
rule is appropriate. Our satellite station policy rests on such factors 
as the questionable financial viability of the satellite as a stand-
alone facility, and establishment of service to underserved areas. By 
adding stations to local television markets where stations otherwise 
would not have been established, the policy advances the same goals as 
those underlying our local TV ownership restrictions. Since these 
stations are licensed only if they cannot survive as standalone, 
independently operated stations, the Commission finds that exempting 
them from the local TV ownership rule will not harm competition or 
diversity.
    160. Transferability of Combinations Under Modified Rule. If an 
entity acquires a second or third station that complies with the 
Commission's modified rule, it will not later be required to divest if 
the number of stations in the market subsequently declines below the 
level consistent with our outlet cap, or if more than one commonly 
owned station subsequently becomes a top four-ranked station in the 
market. The impact of such a ``springing'' rule would be highly 
disruptive to the market. Like our other rules, however, the Commission 
will not ignore the public interest underpinnings at the time of a 
subsequent sale of the combination. Thus, absent a waiver, a 
combination may not be assigned or transferred to a new owner if the 
combination does not satisfy our local TV ownership cap at the time of 
the proposed assignment or transfer.

B. Local Radio Ownership Rule

    161. The local radio ownership rule limits the number of commercial 
radio stations overall and the number of commercial radio stations in a 
service (AM or FM) that a party may own in a local market. In the 1996 
Act, Congress directed the Commission to revise those limits to provide 
that: (1) In a radio market with 45 or more commercial radio stations, 
a party may own, operate, or control up to 8 commercial radio stations, 
not more than 5 of which are in the same service (AM or FM); (2) in a 
radio market with between 30 and 44 (inclusive) commercial radio 
stations, a party may own, operate, or control up to 7 commercial radio 
stations, not more than 4 of which are in the same service (AM or FM); 
(3) in a radio market with between 15 and 29 (inclusive) commercial 
radio stations, a party may own, operate, or control up to 6 commercial 
radio stations, not more than 4 of which are in the same service (AM or 
FM); and (4) in a radio market with 14 or fewer commercial radio 
stations, a party may own, operate, or control up to 5 commercial radio 
stations, not more than 3 of which are in the same service (AM or FM), 
except that a party may not own, operate, or control more than 50 
percent of the stations in such market.
    162. The Commission concludes that the numerical limits in the 
local radio ownership rule are ``necessary in the public interest'' to 
protect competition in local radio markets. The Commission concludes, 
however, that the rule in its current form does not promote the public 
interest as it relates to competition because (1) its current contour-
overlap methodology for defining radio markets and counting stations in 
the market is flawed as a means to protect competition in local radio 
markets, and (2) the current rule improperly ignores competition from 
noncommercial radio stations in local radio markets. To address those 
concerns, the Commission modifies the rule to replace the contour-
overlap market definition with an Arbitron Metro market and to count 
noncommercial stations in the radio market; and the Commission 
initiates a new rulemaking proceeding as part of this item to define 
markets for areas of the country where Arbitron Metros are not defined. 
Although the Commission primarily relies on competition to justify the 
rule, the Commission recognizes that localism and diversity are 
fostered when there are multiple, independently owned radio stations 
competing in the same market; its competition-based rule, therefore, 
will also promote those public interest objectives. The Commission also 
conclude that, consistent with our focus on competition, joint sales 
agreements (``JSAs'') will result in attribution of the brokered 
station to the brokering party under certain conditions.
    163. Section 202(h) Determination. Under section 202(h), the 
Commission considers whether the local radio

[[Page 46305]]

ownership rule continues to be ``necessary in the public interest as a 
result of competition.'' In determining whether the rule meets that 
standard, the Commission considers whether the rule serves the public 
interest, which, in radio broadcasting, traditionally has encompassed 
competition, localism, and diversity. The Commission examines each of 
these public interest objectives in turn.
    164. Competition. In the Policy Goals section, the Commission 
explained how the public interest is served by preserving competition 
in relevant media markets. Although limits on local radio ownership are 
generally necessary to serve the public interest, the Commission 
concludes that the current local radio ownership rule does not serve 
the public interest as it relates to competition for two reasons. 
First, the current rule uses a methodology for defining radio markets 
and counting the number of radio stations in a market that has not 
protected against undue concentration in local radio markets. Second, 
the current rule fails to account for the competitive presence of 
noncommercial stations in a market. Accordingly, the Commission 
modifies the rule to address these concerns.
    165. The Product Market Definition. To measure the state of 
competition in radio broadcasting, the Commission first must determine 
the relevant product markets in which radio stations compete and the 
other media, if any, that compete in those markets. The Commission 
concludes that radio broadcasters operate in three relevant markets: 
radio advertising, radio listening, and radio program production.
    166. The Radio Advertising Market. The Commission concludes that 
advertisers do not view radio stations, newspapers, and television 
stations as substitutes. A number of commenters have argued that there 
is little substitution between advertising on broadcast TV and 
newspapers. Further, empirical studies confirm that advertisers do not 
view ads in newspapers and broadcast radio as substitutes. The 
Commission acknowledges that the studies discussed in the full text of 
the R&O focus on national advertising markets. Nothing has been 
submitted in the record, however, that suggests that local advertisers 
are better able to substitute between radio and other media than are 
national advertisers, and the studies' results are consistent with the 
results of MOWG Study No. 10, which did examine local advertisers.
    167. The Radio Listening Market. The Commission concludes that 
radio listening is a relevant product market. There is no evidence that 
radio listeners consider non-audio entertainment alternatives to be 
good substitutes for listening to the radio. The Commission therefore 
disagrees with commenters who argue that the relevant market should be 
broadened from radio listening to include non-audio entertainment 
options. The Commission also disagrees with commenters who argue that 
the relevant product market should be broadened to include other 
delivered audio media, such as Internet audio streaming and satellite 
radio. Internet audio streaming may be a substitute for broadcast radio 
when listening takes place while working on a computer or in a small 
office environment. A significant portion of audio listening, however, 
occurs while driving or otherwise outside of the office or home. Since 
most people do not access Internet audio from a mobile location, the 
Commission concludes that Internet audio streaming is not a substitute 
for broadcast radio for a significant portion of audio listening. 
Similarly, satellite radio may be a substitute for broadcast radio for 
the fewer than 600,000 people that subscribe to satellite radio. But 
the vast majority of the population does not subscribe to a satellite 
radio service. Accordingly, the Commission concludes that satellite 
radio is not yet a good substitute for broadcast radio for most 
listeners.
    168. Preserving competition for listeners is of paramount concern 
in the Commission's public interest analysis. Although competition in 
the radio advertising market and the radio program production market 
indirectly affects listeners by enabling radio broadcasters to compete 
fairly for advertising revenue and programming--critical inputs to 
broadcasters' ability to provide service to the public--it is the state 
of competition in the listening market that most directly affects the 
public. When that market is competitive, rivals profit by attracting 
new audiences and by attracting existing audiences away from 
competitors' programs. Monopolists, on the other hand, profit only by 
attracting new audiences; they do not profit by attracting existing 
audiences away from their other programs. Because the additional 
incentives facing competitive rivals are more likely to improve program 
quality and create programming preferred by existing listeners, it is 
critical to the Commission's competition policy goals that a sufficient 
number of rivals are actively engaged in competition for listening 
audiences. Limits on local radio ownership promote competition in the 
radio listening market by assuring that numerous rivals are contending 
for the attention of listeners.
    169. Radio Program Production Market. Radio stations seek to 
acquire audio programming from a variety of audio program producers. 
Many sellers of audio programming do not have adequate substitutes for 
local radio stations. The record indicates that radio stations are an 
important mechanism by which the American public is made aware of new 
music. Moreover, the record suggests no reasonable alternative 
available to producers of radio talk shows--a type of radio programming 
that has become increasingly popular in the last decade. To the extent 
that the radio stations in a local community are owned by one or a few 
firms, those firms could constitute a bottleneck that would impede the 
ability of radio programming producers to make their programming 
available to consumers in that community. Accordingly, the Commission 
concludes that radio programming constitutes a separate relevant 
product market.
    170. Geographic Market Definition. There is no serious dispute that 
the relevant geographic market for the product markets in which radio 
stations compete is local. The parameters of the local market, however, 
have been a source of considerable debate and controversy. The 
Commission currently uses a contour-overlap methodology for defining 
radio markets and determining the number of radio stations that are in 
those markets. That methodology has been subject to intense criticism 
for producing unrealistic and irrational results. Based on the record 
and our own experience, the Commission now concludes that the contour-
overlap system should be replaced by a more rational and coherent 
methodology based on geographically-determined markets to promote more 
effectively our competition policy goals.
    171. Problems with the Existing Radio Market Definition and 
Counting Methodologies. The Commission currently relies on the 
principal community contours of the commercial radio stations that are 
proposed to be commonly owned to determine the relevant radio market in 
which those stations participate and to count the other radio stations 
that are in the market. We first consider whether an area of overlap 
exists among the principal community contours of all of the stations 
proposed to be commonly owned. If no such overlap area exists, then the 
radio stations involved are presumed to be in separate radio

[[Page 46306]]

markets, and the local radio ownership rule is not triggered. If one or 
more areas of contour overlap exist, however, the rule is triggered, 
and the Commission must determine whether the proposed combination 
complies with the limits specified in the rule.
    172. The Commission first asks how many stations a party would own 
in the relevant radio market (i.e., the ``numerator'' of the fraction 
upon which the numerical limits in the local radio ownership rule are 
based). Under our current methodology, the Commission deems the radio 
stations whose principal community contours mutually overlap to be in 
the same market, and it deems those stations to be the only stations 
owned by the common owner in that market. In some instances, a radio 
station's principal community contour will overlap some, but not all, 
of the principal community contours of other commonly owned radio 
stations. In those cases, separate radio markets will be formed from 
the mutual contour overlaps of different subsets of commonly owned 
radio stations. We nevertheless apply the same rule: In each of those 
separate markets, it deems the radio stations whose principal community 
contours mutually overlap to be in the same market, and it deems those 
stations to be the only stations owned by the common owner in that 
market.
    173. After calculating the numerator for a particular radio market, 
the Commission next determines the size of the market. To do this, the 
Commission again relies on principal community contours. The Commission 
counts as being in the relevant radio market the radio stations that 
are included in the numerator. We add to this number every other 
commercial radio stations whose principal community contour overlaps 
the principal community contour of at least one of the stations counted 
in the numerator. The total represents the size of the market against 
which the number of commonly owned stations is evaluated to determine 
whether the proposed combination complies with the local radio 
ownership rule.
    174. One significant problem with the current contour-overlap 
system is what is known as the ``Pine Bluff'' problem, or the 
``numerator-denominator'' inconsistency. A party is deemed to own only 
those stations that are represented in the numerator. In calculating 
the denominator, however, any radio station whose principal community 
contour overlaps the principal community contour of at least one of the 
radio stations in the numerator is counted as being in the market, 
regardless of who owns that station. As a result, the denominator may 
include radio stations that are owned by the same party that owns the 
radio stations represented in the numerator. Because those stations are 
counted in the denominator, they are by definition ``in'' the market, 
but they would not count against the party's ownership limit in that 
market unless their principal community contours overlap the principal 
community contours of all of the radio stations in the numerator.
    175. The numerator-denominator inconsistency has two potential and 
interrelated effects that highlight the problems with our current 
methodology. First, by counting commonly owned stations in the 
denominator that are not counted in the numerator, a party may be able 
to use its own radio stations to increase the size of the radio market 
and thereby ``bump'' itself into a higher ownership tier. Second (and 
more commonly), the inconsistency enables a party to own radio stations 
that are in the relevant radio market (as determined by our rules) 
without having those stations count against the party's ownership limit 
in that market. The current system of counting radio stations thus 
enables a party, by taking advantage of the effects of the numerator-
denominator inconsistency, to circumvent our limits on radio station 
ownership, which are intended to protect against excessive 
concentration levels in local radio markets.
    176. The Commission cannot fix the problems associated with our 
current methodology merely by excluding commonly owned stations from 
the denominator or including those stations in the numerator. If the 
Commission excludes commonly owned stations from the denominator, then 
it would be determining which radio stations are in the market based on 
who owns those stations, a distinction that would be both unprincipled 
and unprecedented in the history of competition analysis. If the 
Commission includes in the numerator commonly owned stations 
represented in the denominator, a party's ownership level in a 
particular market may be overly inflated by outlying stations far from 
the area of concentration. Each of these proposals thus would create 
new ``reverse'' anomalies to cancel out the effects of the numerator-
denominator inconsistency.
    177. The Commission's experience with the current contour-overlap 
methodology leads us to the conclusion that it is flawed as a means to 
preserve competition in local radio markets, and that the Commission 
should take an entirely new approach to market definition. As is clear 
from our description of the current market definition and counting 
methodologies, the size of a radio market under our current system is 
unique to the proposed combination being evaluated. A different 
combination of radio stations, or the addition or subtraction of a 
radio station from the combination, has the potential to change the 
area covered by the principal community contours of the combination 
and, thus, to change the number of commercial radio stations that are 
counted as being in the market. This is a singular and unusual method 
for determining the size of a market. Under traditional antitrust 
principles, the ``relevant geographic market'' is used to identify the 
parties that compete in that market. Our contour-overlap methodology, 
in contrast, uses the outlets of one party--commonly owned stations 
with mutually overlapping principal community contours--to define the 
local radio market and identify other market participants. This is an 
inherent aspect of the contour-overlap methodology that is not in line 
with coherent and accepted methods for delineating geographic markets 
for purposes of competition analysis.
    178. The conceptual problems with the contour-overlap methodology 
have significant implications for our ability to guard against undue 
concentration in local radio markets. Because radio stations with 
larger signal contours are more likely to reach a wider audience, 
consolidation of these radio stations in the hands of one or a few 
owners increases the potential for market power in local radio markets. 
Yet the contour-overlap system actually encourages consolidation of 
powerful radio stations because stations with larger signal contours 
are more likely to create larger radio markets, which make it more 
likely that a party would be able to acquire additional radio stations 
in that market. Thus, by creating this perverse incentive, the contour-
overlap methodology may undermine the primary public interest rationale 
for the local radio ownership rule.
    179. Other aspects of our contour-overlap methodology also limit 
its usefulness in protecting and promoting competition. The method for 
determining which stations are in a market often does not reflect the 
area of true competition among radio stations. The Commission currently 
counts a radio station as being a competitor in a radio market if its 
principal community contour overlaps any one of the principal community 
contours that form the market boundary. Those radio stations may be too 
distant to serve effectively either the listeners or the

[[Page 46307]]

advertisers in the geographic area in which concentration is occurring, 
but they are included in the market because of the happenstance of the 
size, shape, or location of one or more of the principal community 
contours of the radio stations involved.
    180. The contour-overlap methodology also makes it difficult to 
measure concentration levels in local radio markets accurately. As 
currently implemented, the methodology does not examine the number of 
radio station owners in a market; it only considers how many radio 
station signals cross the market boundary created by the principal 
community contours of commonly owned stations with mutually overlapping 
contours. Those signals may be owned by only one other party; indeed, 
because of the numerator-denominator inconsistency, those radio 
stations may be owned by the same party. The current methodology simply 
does not take ownership into account, which makes an accurate measure 
of local radio concentration difficult to achieve.
    181. Consistency suffers as well. Under the contour-overlap 
methodology, every combination operates in a radio market that is 
unique to that combination. Thus, there is no common metric that the 
Commission can use to compare the effect of two different combinations 
on competition. In fact, the Commission cannot even rationally evaluate 
the effect that adding a new radio station to an existing combination 
would have on competition because the relevant radio markets before and 
after the acquisition may be completely different, depending on the 
vagaries of the contour overlaps.
    182. The Commission does not agree that it must demonstrate actual 
harm to move from an irrational market definition to a rational one. 
Any analysis of the potential harms of concentration should be focused 
on the limits on how many stations a party may own in a market, rather 
than on whether a distorted methodology for defining radio markets and 
counting radio stations should be preserved.
    183. In short, the Commission's experience with the contour-overlap 
system leads it to believe that it is ineffective as a means to measure 
competition in local radio markets, and that a different method of 
defining the market will more effectively serve its goals. The 
Commission sees scant evidence in the record to lead it to a different 
conclusion. Some commenters correctly note that any methodology the 
Commission develops may create anomalous situations in certain 
instances. But the Commission cannot agree that its inability to 
achieve perfection in every instance justifies maintaining the current 
system. The Commission concludes that its methodology for defining 
radio markets and counting market participants must be changed.
    184. Statutory Authority. Before explaining our modified market 
definition and counting methodologies, the Commission addresses 
arguments that it lacks the statutory authority to revise those 
methodologies in a way that would prohibit radio station combinations 
that are permissible under the current framework. After reviewing the 
relevant statutory provisions, the Commission finds that argument to be 
without merit. The Communications Act grants us the authority to 
``[m]ake such rules and regulations, .not inconsistent with law, as may 
be necessary to carry out the provisions of'' the Act. 47 U.S.C. 
303(r). The Commission is also authorized to ``make such rules and 
regulations * * * not inconsistent with [the] Act, as may be necessary 
in the execution of [our] functions.'' Id. section 154(i). The Supreme 
Court has held that these broad grants of rulemaking power authorize us 
to adopt rules to ensure that broadcast station ownership is consistent 
with the public interest. The Commission finds nothing in the 1996 Act 
or its legislative history that diminishes that authority. To the 
contrary, section 202(b) contemplated that the Commission would 
exercise our rulemaking authority to make the revisions to the rule 
that Congress required, and section 202(h) contemplates that it will 
exercise our rulemaking authority to repeal or modify ownership rules 
that it determines are no longer in the public interest. The Commission 
accordingly finds that it has the authority to revise the local radio 
ownership rule in a manner that serves the public interest.
    185. Some commenters nevertheless argue that the 1996 Act restricts 
how the Commission may define the ``public interest.'' The Commission 
finds that argument flawed. In Fox Television, 280 F.3d at 1043, the 
court held, in the context of the national television ownership cap, 
that the numbers Congress selected ``determined only the starting 
point'' for analysis and instructed us not ``to defer to the Congress's 
choice'' of numbers in our analysis. Thus, even if Congress believed in 
1996 that section 202(b) set the appropriate radio station ownership 
levels, Fox holds that the Commission retain the authority--indeed, the 
obligation--to determine ourselves whether a change in the rules would 
serve the public interest.
    186. The Commission recognizes that the section 202(h) presumption 
requires it to justify a decision to retain the rule. The purpose of 
the presumption is thus to shift the traditional administrative law 
burden from those seeking to modify or eliminate the rule to those 
seeking to retain it. It would be a substantial leap, however, to read 
this presumption as having the additional effect of limiting the types 
of changes that we may conclude are in the public interest. The 
Commission sees no basis for such a view. Had Congress intended to 
curtail the Commission's regulatory powers so drastically, it would 
have done so in more express terms.
    187. Invocation of the ratification, or reenactment, doctrine does 
not alter the analysis. The Commission finds nothing in the 1996 Act or 
in its legislative history that evidences a congressional intent to 
adopt the market definition and counting methodologies that the 
Commission adopted in 1992. Even if the ratification doctrine could be 
invoked, moreover, that would not ``preclude [an] agency, in the 
exercise of its rulemaking authority, from later adopting some other 
reasonable and lawful interpretation of the statute.'' McCoy v. United 
States, 802 F.2d 762, 766 (4th Cir. 1986). The ratification doctrine 
``does not mean that the prior construction has become so embedded in 
the law that only Congress can effect a change,'' but permits changes 
``through exercise by the administrative agency of its continuing rule-
making power.'' Helvering v. Reynolds, 313 U.S. 428, 432 (1941). 
Because Congress has left the Commission's general rulemaking powers 
intact, the ratification doctrine--even if properly invoked--would not 
bar us from exercising those powers to change the method used to define 
local radio markets and count radio stations for purposes of the local 
radio ownership rule.
    188. Geography-Based Radio Markets. The Commission concludes that a 
local radio market that is objectively determined, i.e. that is 
independent of the radio stations involved in a particular transaction, 
presents the most rational basis for defining radio markets. As 
explained below, the Commission will rely on the Arbitron Metro Survey 
Area (Arbitron Metro) as the presumptive market. The Commission also 
establishes a methodology for counting the number of radio stations 
that participate in a radio market. The Commission initiates below a 
new rulemaking proceeding to define radio markets for areas of the 
country not located in an Arbitron Metro, and adopts a modified 
contour-overlap

[[Page 46308]]

approach to ensure the orderly processing of radio station applications 
pending completion of that rulemaking proceeding.
    189. Applicants will be required to demonstrate compliance with the 
rule when filing applications to obtain a new construction permit or 
license, to assign or transfer an existing permit or license, or to 
make certain modifications, such as a change in the community of 
license of a radio station. The Commission makes clear that any radio 
station that is included in the radio market under our methodology will 
also be counted against a station owner's ownership limit in such 
market.
    190. Arbitron Metro Survey Areas. Where a commercially accepted and 
recognized definition of a radio market exists, it seems sensible to 
the Commission to rely on that market definition for purposes of 
applying the local radio ownership rule. Arbitron, as the principal 
radio rating service in the country, has defined radio markets for most 
of the more populated urban areas of the country. The record shows that 
Arbitron's market definitions are an industry standard and represent a 
reasonable geographic market delineation within which radio stations 
compete. Indeed, the DOJ consistently has treated Arbitron Metros as 
the relevant geographic market for antitrust purposes. As NABOB 
succinctly states, ``Radio stations compete in Arbitron markets.'' 
Given the long-standing industry recognition of the value of Arbitron's 
service, we believe there is strong reason to adopt a local radio 
market definition that is based on this established industry standard.
    191. Although Arbitron Metro boundaries do occasionally change, the 
Commission is not convinced that such changes occur with such 
frequency, or that they are so drastic, that we must reject reliance on 
those boundaries in defining the relevant radio markets. The Commission 
believes, moreover, that we can establish safeguards to deter parties 
from attempting to manipulate Arbitron market definitions for purposes 
of circumventing the local radio ownership rule. Specifically, the 
Commission will not allow a party to receive the benefit of a change in 
Arbitron Metro boundaries unless that change has been in place for at 
least two years. This safeguard includes both enlarging the Metro (to 
make a market larger) and shrinking the Metro (to split a party's non-
compliant station holdings into separate markets). Similarly, a station 
combination that does not comply with the rule cannot rely on a change 
in Arbitron Metro definitions to show compliance and thereby avoid the 
transfer restrictions outlined in the grandfathering section of the 
R&O, unless that change has been in effect for two years. The 
Commission also will not allow a party to receive the benefit of the 
inclusion of a radio station as ``home'' to a Metro unless such 
station's community of license is located within the Metro or such 
station has been considered home to that Metro for at least two years. 
A party also may not receive the benefit of changing the home status of 
its own station if such change occurred within the two years prior to 
the filing of an application. The Commission believes these safeguards 
will ensure that changes in Arbitron Metro boundaries and home market 
designations will be made to reflect actual market conditions and not 
to circumvent the local radio ownership rule. To the extent, of course, 
that the Commission determines that, despite these safeguards, an 
Arbitron Metro boundary has been altered to circumvent the local radio 
ownership rule, we can and will consider that fact in evaluating 
whether a radio station combination complies with the rule's numerical 
limits.
    192. Counting Methodology. For each Arbitron Metro, Arbitron lists 
the commercial radio stations that obtain a minimum audience share in 
the Metro. Some of these stations are designated by Arbitron as 
``home'' to the Metro. These ``home'' radio stations usually are either 
licensed to a community within the Arbitron Metro or are determined by 
Arbitron to compete with the radio stations located in the Metro. These 
radio stations are also known as ``above-the-line'' stations because, 
in ratings reports, Arbitron uses a dotted line to separate these 
stations from other radio stations--known as ``below-the-line'' 
stations--that have historically received a minimum listening share in 
a Metro.
    193. The Commission traditionally has relied on BIA's Media Access 
Pro database to obtain information about particular Arbitron Metros. 
The BIA database relies on Arbitron's market definitions and builds 
upon Arbitron's data to provide greater detail about the competitive 
realities in Metro markets. Given our experience with the BIA database 
and its acceptance in the industry, we will count as being in an 
Arbitron Metro above-the-line radio stations (i.e., stations that are 
listed as ``home'' to that Metro), as determined by BIA. The Commission 
also will include in the market any other licensed full power 
commercial or noncommercial radio station whose community of license is 
located within the Metro's geographic boundary. A radio station located 
outside of a Metro occasionally may be included as home to that Metro. 
In such cases, the Commission will count that station as participating 
in the radio market in which its community of license is located in 
addition to the Metro. The Commission believes this simple rule will 
help prevent odd results in cases where a station requests ``home'' 
status in order to be viewed as a participant in another (usually 
larger) Metro. With these rules, our counting methodology will reflect 
more accurately the competitive reality recognized by the radio 
broadcasting industry.
    194. The Commission rejects arguments that we should count below-
the-line stations in determining the size of a Metro's radio market. 
Below-the-line stations can be a considerable distance from the Metro, 
and in many cases serve different population centers, if not altogether 
different Metros, from radio stations located in the market. Although 
the Commission recognizes that, in certain instances, certain below-
the-line radio station may have a competitive impact in the market for 
radio listening, we believe that, on balance, counting every below-the-
line radio station would produce a distorted picture of the state of 
competition in a particular Metro.
    195. Areas Not Located in an Arbitron Metro. Arbitron Metros do not 
cover the entire country. The Commission accordingly will develop radio 
market definitions for non-Metro areas through the rulemaking process. 
The Commission initiates in a separate notice, published elsewhere in 
the Federal Register, a new rulemaking proceeding to seek comment on 
that issue.
    196. While that rulemaking proceeding is pending, the Commission 
will need to process applications proposing radio station combinations 
in non-Metro areas and determine whether such combinations comply with 
the local radio ownership rule. Although we find the contour-overlap 
methodology problematic for the reasons stated above, we conclude that 
its temporary use during the pendency of the rulemaking proceeding 
cannot be avoided. The contour-overlap methodology is, at a minimum, 
well understood, and continuing its use for a few additional months 
would allow for the orderly processing of radio station applications.
    197. Although the Commission finds it necessary to maintain the 
contour-overlap market definition for an additional period of time, we 
will make certain adjustments to minimize the more problematic aspects 
of that system. Specifically, the Commission adopts

[[Page 46309]]

NAB's proposal to exclude from the market radio stations that are 
commonly owned with the stations in the numerator. This will prevent a 
party from ``piggy-backing'' on its own stations to bump into a higher 
ownership tier. The Commission also will adopt NAB's suggestion that we 
exclude from the market any radio station whose transmitter site is 
more than 92 kilometers (58 miles) from the perimeter of the mutual 
overlap area. This will alleviate some of the gross distortions in 
market size that can occur when a large signal contour that is part of 
a proposed combination overlaps the contours of distant radio stations 
and thereby brings them into the market.
    198. The Commission will require parties proposing a radio station 
combination involving one or more stations whose communities of license 
are not located within an Arbitron Metro boundary to show compliance 
with the local radio ownership rule using the interim contour-overlap 
methodology. The interim methodology will be triggered even if a radio 
station is ``home'' to an Arbitron Metro, as long as its community of 
license is located outside of the Metro. In making that showing, 
parties should include in the numerator and denominator radio stations 
that meet the criteria for inclusion under that methodology (as 
modified by the preceding paragraph) regardless of whether they are 
included in Arbitron Metros. The Commission emphasizes, however, that 
the interim contour-overlap methodology may not be used to justify 
radio station combinations in Arbitron Metros that exceed the numerical 
limits of the local radio ownership rule; in all cases, parties must 
demonstrate--using the standards for Arbitron Metros described above--
that they comply with those limits in each Metro implicated by the 
proposed combination.
    199. Modification to The Local Radio Ownership Rule. Having 
discussed the relevant product and geographic markets for radio, the 
Commission now undertakes its obligation under Section 202(h) to 
determine whether the current limits on radio station ownership are 
necessary to promote the public interest in competition. With respect 
to the ownership tiers, the Commission concludes that the current rule 
meets that standard. The Commission finds, however, that the rule 
improperly fails to consider the effect that noncommercial stations can 
have on competition in the local radio market. Accordingly, the 
Commission modifies the rule to count noncommercial radio stations in 
determining the size of the radio market.
    200. The Commission concludes that the ownership tiers in the 
current rule represent a reasonable means for promoting the public 
interest as it relates to competition. In radio markets, barriers to 
entry are high because virtually all available radio spectrum has been 
licensed. Radio broadcasting is thus a closed entry market, i.e., new 
entry generally can occur only through the acquisition of spectrum 
inputs from existing radio broadcasters. The closed entry nature of 
radio suggests that the extent of capacity that is available for new 
entry plays a significant role in determining whether market power can 
develop in radio broadcasting. Numerical limits on radio station 
ownership help to keep the available capacity from becoming ``locked-
up'' in the hands of one or a few owners, and thus help prevent the 
formation of market power in local radio markets.
    201. Although competition theory does not provide a hard-and-fast 
rule on the number of equally sized competitors that are necessary to 
ensure that the full benefits of competition are realized, both 
economic theory and empirical studies suggest that a market that has 
five or more relatively equally sized firms can achieve a level of 
market performance comparable to a fragmented, structurally competitive 
market. The current tiers ensure that, in markets with between 27 and 
51 radio stations, there will be approximately five or six radio 
station firms of roughly equal size. An analysis of the top 100 Metro 
markets indicates that many of them fall within this range.
    202. The Commission finds that the concentration levels permitted 
by the current rule represent a reasonable and necessary balance for 
radio broadcasting that comports with general competition theory, and 
we decline to relax the rule to permit greater consolidation in local 
radio markets. The Commission acknowledges that many radio markets 
currently have more than 6 radio station firms. The Commission also 
considers, however, that radio stations are not all equal in terms of 
their technical capabilities (i.e., each radio station covers a 
population with varying levels of signal quality), and that the 
technical differences among stations can cause radio stations groups 
with similar numbers of radio stations to have vastly different levels 
of market power. Thus, although the top 50 Metros have an average of 
19.9 owners, the top station group in each of those Metros has, on 
average, 35.2% of the revenue share, and the top four groups receive, 
on average, 86.1% of the revenue share. The top four firms also 
dominate audience share. According to the Future of Music Coalition, 
the top four firms receive 77.1% of the audience share in the top 10 
Metros, 84.7% in Metros 11 to 25, and 85.8% in Metros 26-50. Bear 
Stearns' analysis also shows that, in the top 100 radio markets, the 
top three radio groups receive a median of 82.9% of the revenue share 
and 58.9% of the audience share. And MOWG Study No. 4 indicates that 
the increase in concentration in radio markets has resulted in an 
appreciable, albeit small, increase in advertising rates. This data 
suggests that the current numerical limits are not unduly restrictive. 
The Commission sees no significant benefit in tinkering with the basic 
structure of the tiers.
    203. For markets with more than 51 radio stations, the number of 
radio station firms ensured by the rule increases as the size of the 
market increases. Because of this, some parties argue that we should 
raise the numerical limits to permit common ownership of more than 
eight radio stations in larger markets. The Commission rejects that 
argument. There is no evidence in the record that indicates that the 
efficiencies of consolidating radio stations increase appreciably for 
combinations involving more than eight radio stations. On the other 
hand, extremely large radio markets tend to cover a large area 
geographically and also tend to be more ``crowded'' in terms of radio 
signals. As a result, large markets may include a greater number of 
extremely small radio stations, as well as radio stations that are a 
significant distance from each other. Both of these phenomena may make 
a large market appear more competitive than it actually is. By capping 
the numerical limit at eight stations, we seek to guard against 
consolidation of the strongest stations in a market in the hands of too 
few owners and to ensure a market structure that fosters opportunities 
for new entry into radio broadcasting.
    204. The Commission also declines to make the numerical limits more 
restrictive. In the smallest radio markets, the current rule provides 
that one entity may own up to half of the commercial radio stations in 
a market. Although this would be considered highly concentrated from a 
competitive point of view, greater levels of concentration may be 
needed to ensure the potential for viability of radio stations in 
smaller markets. Given these concerns, we find it reasonable to allow 
greater levels of concentration in smaller radio markets, but to 
require more independent radio station owners as the size of the market 
increases and viability concerns become less acute.

[[Page 46310]]

    205. The Commission also reaffirms the AM and FM ownership limits 
in the current rule. Eliminating the service limits would improperly 
ignore the significant technical and marketplace differences between AM 
and FM stations. AM stations have significantly less bandwidth than FM 
stations, and the fidelity of their audio signal is inferior to that of 
FM stations. Unlike FM stations, moreover, AM signal propagation also 
varies with time of day. During the day, AM signals travel through 
ground currents for between 50 to 200 miles; at night, AM signals 
travel further because they are reflected from the upper atmosphere. As 
a result, many AM stations are required to cease operation at sunset. 
These and other technical differences have an effect on radio 
listenership patterns. Radio formats also can be affected. In Los 
Angeles, for example, our analysis indicates that many of the AM 
stations have a news/talk/sports or ethnic format, while music formats 
are more likely on commercial FM stations. The Commission cannot agree, 
therefore, that eliminating the service caps and treating AM and FM 
radio stations equally for purposes of the overall station limit is 
consistent with our interest in protecting competition in local radio 
markets.
    206. Although the Commission reaffirms the ownership tiers in the 
local radio ownership rule, we conclude that it is not necessary in the 
public interest to exclude noncommercial radio stations in determining 
the size of the radio market. Although noncommercial stations do not 
compete in the radio advertising market, they compete with other radio 
stations in the radio listening and program production markets. Indeed, 
noncommercial stations can receive a significant listening share in 
their respective markets. Their presence in the market therefore exerts 
competitive pressure on all other radio stations in the market seeking 
to attract the attention of the same body of potential listeners. In 
television, the Commission has recognized the contribution that 
noncommercial stations can make to competition by counting 
noncommercial stations in determining the size of the television 
market. The Commission sees no reason to treat noncommercial radio 
stations differently.
    207. Rejection of Repeal and Other Modifications. The Commission 
rejects arguments that we should repeal the local radio ownership rule. 
We see nothing in the record that persuades us that the acquisition of 
market power in radio broadcasting serves the public interest. 
Competition breeds innovation in programming and creates incentives to 
continually improve program quality. Because competition--and the 
benefits that flow from it--is lessened when the market is dominated by 
one or a few players, the Commission seeks through its rules to prevent 
that type of market structure from developing.
    208. Without some check, a party could acquire all or a significant 
portion of the limited number of broadcast radio channels in a local 
community, leaving listeners, advertisers, and program producers with 
fewer substitutes. That situation also would raise the cost of entry 
into the market by new entrants because there would be fewer radio 
stations available from which a party could construct a competing 
station group. Because the most potent sources of innovation often 
arise from new entrants, a market structure that significantly raises 
the costs of entry leads to less-than-optimal results in terms of 
innovation and program quality and thereby harms the public interest. 
It is therefore necessary for us to impose limits on the number of 
radio stations a party may own in a local market to preserve 
competition in the relevant markets in which radio stations compete.
    209. The Commission does not dispute that a certain level of 
consolidation of radio stations can improve the ability of a group 
owner to make investments that benefit the public. Our responsibility 
under the statute, however, is to determine the level at which the 
harms of consolidation outweigh its benefits, and to establish rules to 
prevent that situation from developing. Several commenters express 
concern that, in markets with a high level of concentration, small 
radio firms may be forced to ``sell out'' to group owners. 
Specifically, the concern is that, in a concentrated market, dominant 
radio station groups can exercise market power to attract revenue at 
the expense of the small owner. As a result, the small owner has 
greater difficulty obtaining the revenue it needs to develop and 
broadcast attractive programming and to compete generally against the 
dominant station groups. The concerns raised by these commenters 
comport with the competition analysis that underlies this order and 
supports our decision not to repeal the local radio ownership rule.
    210. The Commission also rejects arguments that we incorporate a 
market share analysis into the local radio ownership rule or that we 
continue to ``flag'' applications that propose radio station 
combinations above a certain market share. The Commission recognizes 
that competition analysis generally looks to market share as the 
primary indicator of market power. Market share, however, must be 
considered in conjunction with the overall structure of the industry in 
determining whether market power is present. In radio, the availability 
of a sufficient number of radio channels is of particular importance in 
ensuring that competition can flourish in local radio markets. The 
numerical caps and the AM/FM service limits are designed to address 
that interest, and in our judgment, establishing an inflexible market 
share limit in our bright-line rule would add little, if any, benefit. 
The Commission does not seek to discourage radio firms from earning 
market share through investment in quality programming that listeners 
prefer; our objective is to prevent firms from gaining market dominance 
through the consolidation of a significant number of key broadcast 
facilities. The Commission does not believe that developing a market 
share limit would significantly advance that objective.
    211. The Commission recognizes that its conclusion differs from the 
Commission's view in 1992 that an audience share cap was necessary ``to 
prevent consolidation of the top stations in a particular local 
market.'' But the audience share cap was never intended to be more than 
a ``backstop'' to the new numerical limits the Commission had 
established, which for the first time allowed a party to own multiple 
radio stations in a local market. The audience share cap was eliminated 
as a result of the revisions to the local radio ownership rule that 
Congress mandated in the 1996 Act, which left only the numerical caps 
in place. But because of the problems associated with the contour-
overlap market definition and counting methodologies, the Commission 
could not rely with confidence on those numerical limits to protect 
against undue concentration in local markets. As a result, the 
Commission began looking at revenue share in our ``flagging'' process 
and the interim policy that we established in the Local Radio Ownership 
NPRM. Now that the Commission has established a rational system for 
defining radio markets and counting market participants, it believes 
that the numerical limits will be better able to protect against 
harmful concentration levels in local radio markets that might 
otherwise threaten the public interest. To the extent an interested 
party believes this not to be the case, it has a statutory right to 
file a petition to deny

[[Page 46311]]

a specific radio station application and present evidence that makes 
the necessary prima facie showing that a proposed combination is 
contrary to the public interest.
    212. Localism. The Commission's localism goal stems from our 
interest in ensuring that licensed broadcast facilities serve and are 
responsive to the needs and interests of the communities to which they 
are licensed. In a competitive market, the efficiencies arising out of 
consolidation will be passed on to listeners through greater innovation 
and improved service quality, which in this context contemplates 
programming that is responsive to the needs and interests of the local 
community. In a concentrated market, radio station firms have 
diminished incentive to compete vigorously. Smaller firms, moreover, 
may have insufficient resources to compete aggressively with the 
dominant firms in the market, which makes smaller firms less effective 
in meeting the needs and interests of their local communities. Thus, by 
preserving a healthy, competitive local radio market, the local radio 
ownership rule also helps promote our interest in localism.
    213. Aside from the positive effect on localism that ensues from a 
competitive radio market, we see little to indicate that the local 
radio ownership rule significantly advances our interest in localism. 
In prior rulemaking proceedings, the Commission has not emphasized 
localism as one of the justifications for the local radio ownership 
rule, and the record suggests no reason for adopting a different view 
here. Although some parties suggest that localism has suffered as a 
result of consolidation, the source of the alleged harm appears to be 
the overall national size of the radio station group owner rather than 
the number of radio stations commonly owned in a local market. National 
radio ownership limits are outside the scope of this proceeding.
    214. Viewpoint Diversity. Viewpoint diversity ``rests on the 
assumption that the widest possible dissemination of information from 
diverse and antagonistic sources is essential to the welfare of the 
public.'' Associated Press v. United States, 326 U.S. 1 (1945). Many 
outlets contribute to the dissemination of diverse viewpoints, and 
provide news and public affairs programming to the public. Elsewhere in 
the R&O, the Commission discusses in exacting detail the various 
sources of local news and information that are available to the public. 
Here, it is sufficient to say that media other than radio play an 
important role in the dissemination of local news and public affairs 
information.
    215. That, of course, does not mean that radio broadcasting is 
irrelevant to viewpoint diversity. The Commission recognizes that radio 
can reach specific demographic groups more easily than other forms of 
mass media. Because of this, and because of its relative affordability 
compared to other mass media, radio remains a likely avenue for new 
entry into the media business, particularly by small businesses, women, 
minorities, and other entrepreneurs seeking to meet a market demand or 
provide programming to underserved communities. Our competition-based 
limits on local radio ownership thus promote viewpoint diversity, not 
only by ensuring a sufficient number of independent radio voices, but 
also by preserving a market structure that facilitates and encourages 
entry into the local media market by new and underrepresented parties.
    216. Programming Diversity. In theory, program diversity promotes 
the public interest by affording consumers access to a greater array of 
programming choices. The difficulty is in finding a way to measure 
program diversity in a coherent and consistent manner so that we can 
determine how it is affected by concentration. The record indicates 
that different measures of format diversity produce strikingly 
different results. Overall, the results suggest that consolidation in 
the radio industry neither helped nor hindered playlist diversity 
between radio stations.
    217. The studies on program diversity also do not draw a 
sufficiently reliable causal link between ownership concentration and 
the purported increase in format diversity. After a careful review of 
the economic literature, however, the Commission cannot confidently 
adopt the view that we should encourage more consolidation in order to 
achieve greater format diversity.
    218. In light of this record, the Commission cannot conclude that 
radio ownership concentration has any effect on format diversity, 
either harmful or beneficial. Accordingly, we do not rely on it to 
justify the local radio ownership rule.
    219. Attribution of Joint Sales Agreements. A typical radio Joint 
Sales Agreements (JSAs) authorizes the broker to sell advertising time 
for the brokered station in return for a fee paid to the licensee. 
Because the broker normally assumes much of the market risk with 
respect to the station it brokers, JSAs generally give the broker 
authority to hire a sales force for the brokered station, set 
advertising prices, and make other decisions regarding the sale of 
advertising time, subject to the licensee's preemptive right to reject 
the advertising. Currently, JSAs are not attributable under the 
Commission's attribution rules. Therefore, radio stations subject to 
JSAs do not count toward the number of stations the brokering licensee 
may own in a local market.
    220. Based on the record in this proceeding, and on its experience 
with JSAs and local radio ownership rules, the Commission will now 
count the brokered station toward the brokering licensee's permissible 
ownership totals under the revised local ownership rules. Where an 
entity owns or has an attributable interest in one or more stations in 
a local radio market, joint advertising sales of another station in 
that market for more than 15 percent of the brokered station's 
advertising time per week will result in counting the brokered station 
toward the brokering licensee's ownership caps. The Commission does not 
believe that out-of-market JSAs pose the same economic concerns. 
Therefore, JSAs will not be attributable when a party does not own any 
stations or have an attributable interest in stations in the local 
market in which the brokered station is located.
    221. In considering revisions to our attribution rules, the 
Commission has always sought to identify and include those positional 
and ownership interests that convey a degree of influence or control to 
their holder sufficient to warrant limitation under our ownership 
rules. The Commission finds that the use of in-market JSAs may 
undermine its continuing interest in broadcast competition sufficiently 
to warrant limitation under the multiple ownership rules.
    222. The Commission finds that where one station owner controls a 
large percentage of the advertising time in a particular market, it has 
the ability potentially to exercise market power. Many times, the 
broker will sell advertising packages for the group of stations, offer 
substantial discounts and create incentives not available to other 
broadcasters in the market. In any given radio market, a broker may own 
or have an ownership interest in stations, operate stations pursuant to 
a local marketing agreement, or sell advertising time for stations 
pursuant to a JSA. Control over spot sales by one station affords 
significant power over the other. Thus, JSAs raise concerns regarding 
the ability of smaller broadcasters to compete, and may negatively 
affect the health of the local radio industry generally. JSAs put 
pricing and output decisions in the hands of a single firm.

[[Page 46312]]

Instead of stations competing against one another, a single firm sells 
packages of time for all stations, eliminating competition in the 
market.
    223. The Commission has not previously attributed JSAs based on its 
earlier conclusion that JSAs do not convey sufficient influence or 
control over a station's core operations to be considered attributable. 
Upon reexamination of the attribution issue, the Commission finds that, 
because the broker controls the advertising revenue of the brokered 
station, JSAs convey sufficient influence over core operations of a 
station to raise significant competition concerns warranting 
attribution. Licensees of stations subject to JSAs typically receive a 
monthly fee regardless of the advertising sales or audience share of 
the station. Therefore, licensees of stations subject to JSAs have less 
incentive to maintain or attain significant competitive standing in the 
market.
    224. Although the Commission continues to believe that JSAs may 
have some positive effects on the local radio industry, it finds that 
the threat to competition and the potential impact on the influence 
over the brokered station outweighs any potential benefits and requires 
attribution. The Commission finds that modification of its regulation 
also is warranted given the need for attribution rules to reflect 
accurately competitive conditions of today's local radio markets. It 
would be inconsistent with its rules to allow a local station owner to 
substantially broker a station that it could not own under the local 
radio ownership limits.
    225. The Commission believes that a 15 percent advertising time 
threshold will identify the level of control or influence that would 
realistically allow holders of such influence to affect core operating 
functions of a station, and give them an incentive to do so. At the 
same time, a 15 percent threshold will allow a station the flexibility 
to broker a small amount of advertising time through a JSA with another 
station in the same market without that brokerage rising to an 
attributable level of influence. The Commission believes that the 15 
percent threshold (which is the same threshold used for determining 
attribution of radio and television LMAs) balances these interests.
    226. Under the Commission's modified rules, JSAs currently in 
existence will be attributable. Parties with existing, attributable 
JSAs in Arbitron Metros under the new rules will be required to file a 
copy of the JSA with the Commission within 60 days of the effective 
date of this R&O. Both the licensee and the broker should submit copies 
of their JSAs as supplements to their Ownership Reports on file at the 
Commission. For JSAs involving stations located outside of Arbitron 
Metros, the Commission will require such JSAs to be filed within 60 
days of the effective date of our decision in Docket No. 03-130, unless 
a different date is announced in that decision. In addition, the 
Commission is modifying FCC Application Forms 314 and 315 to require 
applicants to file attributable JSAs at the time an application is 
filed, regardless of whether the markets implicated by the application 
are located in Arbitron Metros.
    227. Existing JSAs. The Commission is aware that attribution of in-
market radio JSAs may affect licensees' compliance with the modified 
local radio ownership rules. In addition, the Commission does not want 
to unnecessarily adversely affect current business arrangements between 
licensees and brokers. Therefore, the Commission will give licensees 
sufficient time to make alternative business arrangements where they 
have in-market JSAs entered into prior to the adoption date of this R&O 
that would cause them to exceed relevant ownership limits. In such 
situations, parties will have 2 years from the effective date of this 
R&O to terminate agreements, or otherwise come into compliance with the 
local radio ownership rules adopted herein. However, if a party sells 
an existing combination of stations within the 2-year grace period, it 
may not sell or assign the JSA to the new owner if the JSA causes the 
new owner to exceed any of our ownership limits; the JSA must be 
terminated at the time of the sale of the stations. JSAs that do not 
cause a party to exceed the modified local radio rules may continue in 
full force and effect and may be transferred or assigned to third 
parties. Finally, parties are prohibited from entering a new JSA or 
renewing an existing JSA that would cause the broker of the station to 
exceed our media ownership limits.
    228. Waiver Standards. The Commission declines at this time to 
adopt any specific waiver criteria relating to radio station ownership. 
Parties who believe that the particular facts of their case warrant a 
waiver of the local radio ownership rule may seek a waiver under the 
general ``good cause'' waiver standard in our rules.

C. Cross Ownership

    229. In this section the Commission addresses (1) the newspaper/
broadcast cross-ownership rule and (2) the radio-television cross-
ownership rule to determine whether they are necessary in the public 
interest pursuant to section 202(h). Based on the record in this 
proceeding, the Commission finds that neither its current nation-wide 
prohibition on common ownership of daily newspapers and broadcast 
outlets in the same market nor its cross-service restriction on 
commonly owned radio and television outlets in the same market, is 
necessary in the public interest. With respect to both rules, the 
Commission concludes that the ends sought can be achieved with more 
precision and with greater deference to First Amendment interests by 
modifying the rules into a single set of cross-media limits.
    230. Newspaper/Broadcast Cross-Ownership Rule. Adopted in 1975, the 
newspaper/broadcast cross-ownership rule prohibits in absolute terms 
common ownership of a full-service broadcast station and a daily 
newspaper when the broadcast station's service contour encompasses the 
newspaper's city of publication.\13\ The rule was intended to promote 
media competition and diversity. Upon review, the Commission now 
concludes that (1) the rule cannot be sustained on competitive grounds, 
(2) the rule is not necessary to promote localism (and may in fact harm 
localism), and (3) most media markets are diverse, obviating a blanket 
prophylactic ban on newspaper-broadcast combinations in all markets. 
Instead, the Commission will review proposed license transfers and 
renewals involving the combination of daily newspapers and broadcast 
properties only to the extent that they would implicate the cross-media 
limits.
---------------------------------------------------------------------------

    \13\ For AM radio stations, the service contour is the 2mV/m 
contour, 47 CFR 73.3555(d)(1); for FM radio stations, the service 
contour is the 1mV/m contour, 47 CFR 73.3555(d)(2); for TV stations, 
the service contour is the Grade A contour, 47 CFR 73.3555(d)(3). A 
daily newspaper is one that is published in the English language 
four or more times per week. 47 CFR 73.3555 n.6.
---------------------------------------------------------------------------

    231. Competition. The Commission first defines the relevant product 
and geographic markets in which broadcasters and newspapers compete, 
and then assess whether the rule is necessary to promote competition in 
these markets. As the Commission noted in the newspaper/broadcast 
proceeding, its focus is on the primary economic market in which 
broadcast stations and newspapers compete: advertising. The Commission 
concludes, based on the record in this proceeding, that most 
advertisers do not view newspapers, television stations, and radio 
stations as close substitutes. The Department of Justice and several 
federal courts have concluded that the local newspaper market is 
distinct from the local

[[Page 46313]]

broadcast market. This conclusion is supported by a number of 
commenters and MOWG Study No. 10. Some commenters criticize MOWG Study 
No. 10 and argue that radio, TV, and newspapers, compete vigorously for 
advertising dollars.
    232. Although the overall evidence appears to suggest little 
substitution between newspapers, broadcast TV, and radio, the 
Commission agrees that there may be a small group of advertisers that 
benefit from using various media to advertise their products.\14\ These 
advertisers could be harmed if owners of newspaper/broadcast 
combinations can identify this group and price discriminate. These 
advertisers, however, are not without remedy. The Department of 
Justice, the Federal Trade Commission, as well as state attorney 
generals, review mergers generally and are concerned about the effects 
in the advertising market. Further, both federal and state antitrust 
laws allow private suits to be brought. In any event, even if the 
Commission were to focus exclusively on the advertising markets alone, 
the potential for harm to advertisers who substitute between various 
media outlets would be greatest if one entity owned all the newspapers 
and all the broadcast facilities. Through the constraining effect of 
the Commission's local radio and TV ownership rules, the Commission 
expects that the majority of the potential newspaper/broadcast 
combinations would continue to face competition from separately owned 
media outlets in the local market.
---------------------------------------------------------------------------

    \14\ There is nothing in the record regarding the number of 
advertisers that may be targeted for such price discrimination, nor 
the magnitude of the potential price increases. The Commission 
believes however, that the number of advertisers that may be 
potential targets of price discrimination would be very small for 
most newspaper/broadcast combinations.
---------------------------------------------------------------------------

    233. Localism. The record indicates that the newspaper/broadcast 
cross-ownership prohibition is not necessary to promote broadcasters' 
provision of local news and information programming. Indeed, evidence 
suggests that the rule actually works to inhibit such programming. Many 
newspapers provide local content that far exceeds that provided by 
local broadcast outlets. Newspapers and broadcast stations--
particularly television stations--continue to be the dominant sources, 
in terms of consumer use, for news and information to local 
communities. The Commission's rules should promote the ability of 
newspapers, television stations, and all other sources of local news 
and information to serve their communities.
    234. While eliminating the rule may not be essential to achieve the 
efficiencies of common ownership--because the rule prohibits only 
ownership of newspapers and broadcast stations serving the same 
market--the breadth and depth of news coverage can be enhanced by 
collocation and the rule's elimination will increase the opportunities 
to realize these benefits by permitting combinations in areas where the 
rule currently prohibits them.
    235. Specifically, MOWG Study No. 7 found that newspaper-owned 
affiliated stations provide almost 50% more local news and public 
affairs programming than do non-network owned network affiliated 
stations. In addition, the study found that the average number of hours 
of local news and public affairs programming provided by the same-
market cross-owned television-newspaper combinations was 25.6 hours per 
week, compared to 16.3 hours per week for the sample of television 
stations owned by a newspaper that is not in the same market as the 
station. For each quality and quantity measure in the Commission's 
analysis, the newspaper network-affiliated stations exceed the 
performance of other, non-newspaper-owned network affiliates.
    236. The benefits of combined ownership are not likely to be 
achieved through joint ventures as opposed to combined ownership. Many 
commenters illustrate how combining a newspaper's local news-gathering 
resources with a broadcast platform contributes to, rather than 
detracts from, the production of local news programming that serves the 
community. These results follow from the particular journalistic 
experience associated with local daily newspapers, as well as the 
tangible economic efficiencies, such as sharing of technical support 
staff, which can be realized through common ownership of two media 
outlets. There are several anecdotes in the record that illustrate how 
efficiencies resulting from cross-ownership translate into better local 
service. Efficiencies not involving the sharing of news staffs may also 
be realized through cross-ownership.
    237. Although the Commission's conclusions pertain to markets of 
all sizes, newspaper-broadcast combinations may produce tangible public 
benefits in smaller markets in particular. In this regard, West 
Virginia Media argues that the rule may have the unintended effect of 
stifling local news by prohibiting efficient combinations that would 
produce better output. We assume that the benefits cited by West 
Virginia Media can benefit small businesses with respect to the 
production of news and public affairs programming.
    238. The Commission disagrees with those who argue that the 
relaxation or elimination of the newspaper/broadcast cross-ownership 
rule will create additional pressures on local news editors and 
directors to curtail coverage of public interest news. Also, the 
Commission does not find it troubling that newspaper owners use their 
media properties to express or advocate a viewpoint. To the contrary, 
since the beginning of the Republic, media outlets have been used by 
their owners to give voice to, among others, opinions unpopular or 
revolutionary, to advocate particular positions, or to defend, 
sometimes stridently, social or governmental institutions. The 
Commission's broadcast ownership rules may not and should not 
discourage such activity. Nor is it particularly troubling that media 
properties do not always, or even frequently, avail themselves to 
others who may hold contrary opinions. Nothing requires them to do so. 
The media are not common carriers of speech. Nor is it troubling that 
media properties may allow their news and editorial decisions to be 
driven by ``the bottom line.'' Again, the need and desire to produce 
revenue, to control costs, to survive and thrive in the marketplace is 
a time honored tradition in the American media. In short, to assert 
that cross-owned properties will be engaged in profit maximizing 
behavior or that they will provide an outlet for viewpoints reflective 
of their owner's interests is merely to state truisms, neither of which 
warrants government intrusion into precious territory bounded off by 
the First Amendment.
    239. Diversity. The Commission adopted the newspaper/broadcast 
cross-ownership rule because it believed that diversification of 
ownership would promote diversification of viewpoint. This proposition 
has been both defended and called into question. Although the 
Commission continues to believe that diversity of ownership can advance 
the Commission's goal of diversity of viewpoint, the local rules that 
it is adopting herein will sufficiently protect diversity of viewpoint 
while permitting efficiencies that can ultimately improve the quality 
and quantity of news and informational programming. Accordingly, the 
Commission will eliminate the newspaper/broadcast cross-ownership 
prohibition and consider any such proposed merger in light of the 
Commission's new rules.
    240. The record indicates that cross-ownership of newspapers and 
broadcast

[[Page 46314]]

outlets creates efficiencies and synergies that enhance the quality and 
viability of media outlets, thus enhancing the flow of news and 
information to the public. Relaxing the cross-ownership rule could lead 
to an increase in the number of newspapers in some markets and foster 
the development of important new sources of local news and information.
    241. Evidence that common ownership can enhance the flow of news 
and information to the public can be found in grandfathered newspaper-
television combinations of which there are 21. The Commission's review 
of the record indicates that such combinations often serve the public 
interest by adding information outlets and creating high quality news 
product. Empirical research confirms that newspaper/television 
combinations frequently do a superior job of providing news and 
informational programming. MOWG Study No. 7 found that network 
affiliated TV stations that are co-owned with a newspaper ``experience 
noticeably greater success under our measures of quality and quantity 
of local news programming than other network affiliates.''
    242. The newspaper/broadcast cross-ownership rule may be preventing 
efficient combinations that would allow for the production of high 
quality news coverage and broadcast programming, including coverage of 
local issues, thereby harming diversity. Newspapers and local over-the-
air television broadcasters alike have suffered audience declines in 
recent years. Given the decline in newspaper readership and broadcast 
viewership/listenership, both newspaper and broadcast outlets may find 
that the efficiencies to be realized from common ownership will have a 
positive impact on their ability to provide news and coverage of local 
issues. The Commission must consider the impact of the Commission's 
rules on the strength of media outlets, particularly those that are 
primary sources of local news and information, as well as on the number 
of independently owned outlets.
    243. As suggested by MOWG Study No. 2, authored by David Pritchard, 
commonly-owned newspapers and broadcast stations do not necessarily 
speak with a single, monolithic voice. Several parties, however, assert 
that ownership affects editorial decisions and, ultimately, viewpoints 
expressed by media outlets. Although there is evidence to suggest that 
ownership influences viewpoint, the degree to which it does so cannot 
be established with any certitude. In order to sustain a blanket 
prohibition on cross-ownership, the Commission would need, among other 
things, a high degree of confidence that cross-owned properties were 
likely to demonstrate uniform bias. The record does not support such a 
conclusion. Indeed, as the market becomes more fragmented and 
competitive, media owners face increasing pressure to differentiate 
their products, including by means of differing viewpoints. While such 
differentiation may occur, however, the Commission's analysis does not 
turn on that premise, and it is not determinative of our decision with 
respect to our current newspaper/broadcast cross-ownership rule. The 
Commission's analysis turns, rather, on the availability of other news 
and informational outlets. Thus, while the Commission does not dispute 
that a particular outlet may betray some bias, particularly in matters 
that may affect the private or pecuniary interest of its corporate 
parent such anecdotes do not show a pattern of bias in the vast 
majority of news comment and coverage where such self-interest is not 
implicated. Nor, moreover, do such incidents mean that the public was 
left uninformed about the situation by other available media.
    244. The record in this proceeding provides ample evidence that 
competing media outlets abound in markets of all sizes--each providing 
a platform for civic discourse. Television and radio stations, both 
commercial and noncommercial, are important media for news, 
information, entertainment, and political speech. Cable television 
systems, which originated as passive conduits of broadcast programming, 
have expanded to carry national satellite-delivered networks. Many also 
carry local public, educational, and governmental channels. Cable 
systems in larger markets are now evolving into platforms for original 
local news and public affairs programming. Daily newspapers, while 
declining in number, continue to provide an important outlet for local 
and national news and expression. The Internet, too, is becoming a 
commonly-used source for news, commentary, community affairs, and 
national/international information.
    245. The Commission disagrees with parties that assert that there 
is little diversity in media markets. The average American has a far 
richer and more varied range of media voices from which to choose today 
than at any time in history. Given the growth in available media 
outlets, the influence of any single viewpoint source is sharply 
attenuated. The Commission concludes that its new local rules will 
protect the diversity of voices essential to achieving its policy 
objectives. A blanket prohibition on newspaper-broadcast combinations, 
however, can no longer be sustained.
    246. In short, the magnitude of the growth in local media voices 
shows that there will be a plethora of voices in most or all markets 
absent the rule. Indeed, the question confronting media companies today 
is not whether they will be able to dominate the distribution of news 
and information in any market, but whether they will be able to be 
heard at all among the cacophony of voices vying for the attention of 
Americans. The Commission's rules should account for these changes and 
promote, rather than inhibit, the ability of media outlets to survive 
and thrive in this evolving media landscape. They must ``give 
recognition to the changes which have taken place and to see to it that 
[they] adequately reflect the situation as it is, not was.''
    247. Conclusion. The Commission finds that a newspaper-broadcast 
combination cannot adversely affect competition in any relevant product 
market and, thus, the Commission cannot conclude that the current 
newspaper-broadcast cross-ownership rule is necessary to promote 
competition.
    248. Similarly, the Commission concludes that the evidence in the 
record of this proceeding demonstrates that combinations can promote 
the public interest by producing more and better overall local news 
coverage and that the current rule is thus not necessary to promote its 
localism goal. Instead, the Commission finds that it, in fact, is 
likely to hinder its attainment. Finally, the record does not contain 
data or other information demonstrating that common ownership of 
broadcast stations and daily newspapers in the same community poses a 
widespread threat to diversity of viewpoint or programming. The 
Commission concludes, therefore, that the current rule is no longer 
necessary in the public interest.\15\
---------------------------------------------------------------------------

    \15\ On March 11, 2003, Media General, Inc., filed a ``Motion to 
Bifurcate and Repeal.'' That Motion asked the Commission to break 
the newspaper/broadcast cross-ownership rule out of the biennial 
review, and repeal the rule, if it could not act in the biennial 
review in the spring of 2003. Because the Commission is acting in 
the biennial review in the spring of 2003 and is repealing the 
subject rule, the Commission dismisses Media General's Motion as 
moot.
---------------------------------------------------------------------------

    249. Radio/Television Cross-Ownership Rule. The radio/television 
cross-ownership rule limits the number of commercial radio and 
television stations an entity may own in a local market. Currently, the 
rule allows a party to own up to two television stations (provided it 
is permitted under the television duopoly rule) and up to

[[Page 46315]]

six radio stations (to the extent permitted under the local radio 
ownership rule) in a market where at least 20 independently owned media 
voices would remain post-merger. Where parties may own a combination of 
two television stations and six radio stations, the rule allows a party 
alternatively to own one television station and seven radio stations. A 
party may own up to two television stations (as permitted under the 
current television duopoly rule) and up to four radio stations (as 
permitted under the local radio ownership rule) in markets where, post-
merger, at least ten independently owned media voices would remain. A 
combination of one television station and one radio station is allowed 
regardless of the number of voices remaining in the market.
    250. Based on the record in this proceeding, the Commission does 
not find that the radio/television cross-ownership rule remains 
necessary in the public interest to ensure competition, diversity or 
localism. The Commission's decision reflects the substantial growth and 
availability of media outlets in local markets, as well as the 
potential for significant efficiencies and public interest benefits to 
be realized through joint ownership. The Commission finds that its 
diversity and competition goals will be adequately protected by the 
local ownership rules adopted herein.
    251. In 1970, the Commission restricted the combined ownership of 
radio and television stations in local markets. The purpose of the rule 
(originally referred to as the one-to-a-market rule) was twofold: (1) 
To foster maximum competition in broadcasting, and (2) to promote 
diversification of programming sources and viewpoints. In 1995, the 
Commission requested comment to determine whether the cross-ownership 
limitations were still warranted in light of the then current market 
conditions. Before the Commission issued a decision, Congress passed 
the 1996 Act. Section 202(d) of the 1996 Act required the Commission to 
extend the radio-television cross-ownership presumptive waiver policy 
to the top 50 television markets ``consistent with the public interest, 
convenience and necessity.'' Prior to implementing the statutory 
change, the Commission issued a Second Further Notice of Proposed 
Rulemaking (61 FR 66978, December 19, 1996) requesting comment on 
whether modification of the rule was warranted beyond the Section 
202(d) requirements. In 1999, the Commission modified the rule to its 
current form.
    252. Under the Commission's statutory mandate pursuant to section 
202(h) of the 1996 Act, the Commission is required to consider 
biennially whether ``to `repeal or modify' any rule that is not 
`necessary in the public interest.' '' In determining whether the rule 
meets this standard, the Commission considers whether it is necessary 
to promote any of its public interest objectives. With respect to 
cross-ownership of radio and television stations in the same market, 
the Commission reexamines the impact of the rule on competition, 
localism and diversity.
    253. Competition. To assess the competitive impact of its radio/
television cross-ownership rule, the Commission needs to determine 
whether radio and television stations compete for sources of revenue 
generation--in this case, advertising.\16\ If the Commission finds that 
they do, i.e., that a significant number of advertisers consider radio 
and television to be good substitutes, then its concern would be that 
elimination or relaxation of the cross-ownership restrictions may 
enable a single firm to acquire sufficient market power to hinder small 
and independent broadcasters' efforts to generate revenue, and thereby 
put their continued viability at risk. However, if radio and television 
are not in the same product market, then the Commission would have 
little concern that elimination or relaxation of the rule would have 
any negative effects on competition.
---------------------------------------------------------------------------

    \16\ The competitive analysis for both the local radio and the 
local television ownership rules focuses on two additional markets, 
delivered programming and programming production. However, in 
analyzing the effects of combined ownership of radio and television 
stations in a local market, neither of the latter product markets is 
relevant. Radio and television broadcasting are distinct programming 
markets with little overlap. The bulk of video entertainment and 
news programming available on commercial television is not suitable 
for radio. Similarly, audio radio programming, which is 
predominately music and talk show formats, cannot be replicated on 
television. Thus, because the essential nature of each medium 
determines the type of programming each medium broadcasts, the 
content is not interchangeable.
---------------------------------------------------------------------------

    254. The Commission concludes that most advertisers do not consider 
radio and television stations to be good substitutes for advertising 
and, therefore, that generally combinations of these two types of media 
outlets likely would not result in competitive harm. In MOWG Study No. 
10, Anthony Bush found weak substitutability between local media, 
including radio and television. Other studies confirm Bush's conclusion 
that advertisers do not consider radio and television to be good 
substitutes. In addition to the empirical evidence, differences between 
radio and television programming and formats suggest that they do not 
compete in the same product market. Radio and television broadcast 
distinct programming. Video is not suitable for radio and vice versa. 
The difference is important for viewers and advertisers alike. The 
essential nature of each medium determines, in large measure, the type 
of programming each will broadcast. Thus, some advertisers may prefer, 
while others avoid, the radio listener as a significant audience to 
target. Additionally, television advertisements typically are more 
expensive than radio ads. In sum, television and radio stations neither 
compete in the same product market nor do they bear any vertical 
relation to one another.\17\ A television-radio combination, therefore, 
cannot adversely affect competition in any relevant product market. 
Accordingly, the Commission cannot conclude that the current 
television-radio cross-ownership rule is necessary to promote 
competition.
---------------------------------------------------------------------------

    \17\ Generally we identify both the product and the geographic 
markets. Because we find that radio and television advertising are 
separate product markets, it is not necessary to define the 
geographic market for these purposes.
---------------------------------------------------------------------------

    255. Localism. The NPRM sought comment on how cross-ownership 
limitations affect localism, as measured by the quantity and quality of 
news and public affairs programming that stations provide to local 
communities. The NPRM sought comment on the quantities of local news 
and public affairs programming provided by radio and television 
combinations as opposed to stand-alone stations in the same markets. 
The NPRM asked whether radio and television combinations produce more, 
less, or the same amount of news programming than stand-alone stations. 
The NPRM also asked commenters to address the implications of any such 
differences. The Commission finds that by prohibiting combinations of 
news gathering resources between radio and television stations, the 
current rule prohibits owners from maximizing local news and 
information production, which would benefit consumers.
    256. There is no compelling or substantial evidence in the record 
that the rule is necessary to protect localism. The record in this 
proceeding includes evidence to the contrary that efficiencies and cost 
savings realized from joint ownership may allow radio and television 
stations to offer more news reporting generally, and more local news 
reporting specifically, than otherwise may be possible. The record in 
this proceeding suggests that station

[[Page 46316]]

owners will use additional revenue and resource savings from 
television-radio combinations to provide new and innovative 
programming, provide more in-depth local interest programming, and 
provide better service to the public, including locally oriented 
services.
    257. The parties arguing to retain the current rule have failed to 
show that the rule remains necessary in the public interest. First, 
isolated anecdotes of changes in news programming schedules following a 
transaction do not provide the kind of systematic empirical evidence 
necessary to support a general allegation that cross-owned stations 
produce lesser quantities of news, or news of lower quality, than do 
non-cross-owned stations. Second, shared support staff and conservation 
of resources does not necessarily mean a reduction in local news. The 
efficiencies derived from some of these practices may in fact, increase 
the amount of diverse, competitive news and local information available 
to the public. Thus, the record does not demonstrate that the current 
rule specifically promotes localism, or that elimination of the rule 
would harm it.
    258. Diversity. The NPRM asked whether the cross-ownership rule is 
necessary to foster viewpoint diversity in today's media marketplace. 
The NPRM sought comment on the types of media that contribute to 
viewpoint diversity and how the cross-ownership rule affects viewpoint 
diversity. The NPRM noted that the current rule counts as a media voice 
commercial and non-commercial broadcast television and radio stations, 
certain daily newspapers, and cable systems. The NPRM asked whether 
additional types of media should also be counted as contributing to 
viewpoint diversity, such as the Internet, DBS, cable overbuilders, 
individual cable networks, magazines, and weekly newspapers.
    259. The Commission has previously concluded that ``the information 
market relevant to diversity includes not only television and radio 
outlets, but cable, other video media and numerous print media as 
well.'' Not only has the Commission seen an increase in the types of 
outlets available, but local markets have also experienced enormous 
growth in broadcast outlets. The record shows that in local broadcast 
markets of all sizes the numbers of radio and television stations have 
increased over the years.
    260. The Commission concludes that the current television/radio 
cross-ownership rule is not necessary to ensure viewpoint diversity. 
The Commission agrees with the commenters that argue that a cross-
ownership rule applicable only to radio and television is ``inequitable 
and outdated.'' Although several commenters argue that retention of the 
radio/television cross-ownership rule is necessary to protect the 
availability of diverse views, information, and local programming, the 
Commission believes that a rule limited to just radio and television 
fails to take into account all of the other relevant media in local 
markets available to consumers.
    261. The Commission agrees with the commenters, however, that 
fostering the availability of diverse viewpoints remains an important 
policy goal, and that diversity of ownership promotes diversity of 
viewpoints. The Commission is adopting modified service-specific local 
ownership rules that will protect and promote competition in the local 
television and radio markets and, as a result, will also protect and 
preserve viewpoint diversity within those services. In addition, the 
Commission is adopting a new cross-media limit rule, described below, 
that is specifically designed to protect diversity of viewpoint in 
those markets in which the Commission believes consolidation of media 
ownership could jeopardize such diversity.
    262. Conclusion. The Commission does not have evidence in the 
record sufficient to support retention of the current radio/television 
cross-ownership rule. From a competitive perspective, radio and 
television are not good substitutes for the same revenue producing 
opportunities, and thus, cannot be regarded as competing in the same 
product market. There is little evidence that the current rule promotes 
localism and, to the contrary, the record indicates that combined 
station groups may be able to achieve cost savings that may accrue to 
the benefit of listeners and viewers. Finally, radio and television 
stations compete with many other electronic and print media in 
providing programming and information to the public, and the targeted 
cross-media limits adopted herein are therefore better designed to 
achieve the Commission's diversity goal in markets where diversity 
could be jeopardized by cross-ownership than the stand-alone radio/
television cross-ownership rule. In addition, the Commission's local 
television and local radio ownership rules, which are designed to 
preserve competition in those markets, will also foster diversity of 
voices. The Commission now turns to a discussion of the Diversity 
Index, which is intended to help us analyze outlets that contribute to 
viewpoint diversity in local markets.
    263. The Diversity Index. In order to provide its media ownership 
framework with an empirical footing, the Commission has developed a 
method for analyzing and measuring the availability of outlets that 
contribute to viewpoint diversity in local media markets. The measure 
the Commission is using, the Diversity Index or DI, accounts for 
certain, but not all media outlets (newspapers, broadcast, television, 
radio, and the Internet) in local markets available to consumers, the 
relative importance of these media as a source of local news, and 
ownership concentration across these media. The DI builds on the 
Commission's previous approach to the diversity goal: The Commission 
retains the principle that structural regulation is an appropriate and 
effective alternative to direct content regulation; the Commission 
retains the principle that viewpoint diversity is fostered when there 
are multiple independently-owned media outlets in a market; the 
Commission retains its emphasis on the citizen/viewer/listener and on 
ensuring that viewpoint proponents have opportunities to reach the 
citizen/viewer/listener. What the Commission adds is a method, based on 
citizen/viewer/listener behavior, of characterizing the structure of 
the ``market'' for viewpoint diversity. The Commission uses the DI as a 
tool to inform its judgments about the need for ownership limits. This 
section explains the rationale for the diversity index and discusses 
calculation methodology.
    264. The DI is based partly on the results of a consumer survey, 
which the Commission acknowledges is not without flaws, and partly on 
its expert judgment and analysis of the local viewpoint diversity 
marketplace. While the Diversity Index is not perfect, nor absolutely 
precise, it is certainly a useful tool to inform the Commission's 
judgment and decision-making. It provides us with guidance, informing 
us about the marketplace and giving us a sense of relative weights of 
different media. It informs, but does not replace, the Commission's 
judgment in establishing rules of general applicability that determine 
where the Commission should draw lines between diverse and concentrated 
markets.
    265. Because of the limitations in the Nielsen survey, and the 
specific assumptions underlying the DI, it is a useful tool only in the 
aggregate. It cannot, and will not, be applied by the Commission to 
measure diversity in specific markets. Indeed, it could not be used on 
a particularized basis to review the diversity available in a specific 
market. For example, in determining the

[[Page 46317]]

appropriate weights to apply to the various media, the Commission has 
decided to give no weight to cable television or magazines as sources 
of local news, notwithstanding the results in the Nielsen survey to the 
contrary. The Commission recognizes that consumers in certain markets 
do have access to local news from local magazines, local cable news 
channels, and PEG channels, but the Commission believes that the 
Nielsen survey overstates this influence. On a national basis, the 
Commission believes most consumers either do not have access to such 
sources (such as a local news magazine) or rely very little on them 
(such as PEG channels). In sum, excluding these sources or factors from 
the DI does not undermine the general conclusions the Commission 
reaches about market concentration because the DI is not capable of 
capturing particularized market characteristics; it is intended to 
capture generalized, typical market structures and identify trends.
    266. Rationale for the Diversity Index. Fostering diversity is one 
of the principal goals of the Commission's media broadcast ownership 
rules. In the past, the Commission has described its diversity goal as 
fostering ``competition in the marketplace of ideas.'' Viewpoint 
diversity refers to availability of a wide range of information and 
political perspectives on important issues. Information and political 
viewpoints are crucial inputs that help citizens discharge the 
obligations of citizenship in a democracy. The Commission recognizes 
that the number of political viewpoints or the number of perspectives 
on a particular issue may be greater than the number of media outlets 
in a market. And the Commission recognizes that, in an effort to cater 
to viewer/listener/reader preferences any single outlet may choose to 
present multiple viewpoints on an issue. However, the Commission does 
not expect every outlet to present every perspective on every issue. 
The competition analogy suggests that having multiple independent 
decision-makers (i.e., owners of media outlets) ensures that a wide 
range of viewpoints will be made available in the marketplace.
    267. News and public affairs programming is the clearest example of 
programming that can provide viewpoint diversity. The Commission 
regards viewpoint diversity to be at the core of its public interest 
responsibility, and recognizes that it is a product that can be 
delivered by multiple media. Hence, in contrast to the Commission's 
competition-based rules, diversity issues require cross-media analysis. 
Because what ultimately matters here is the range of choices available 
to the public, the Commission believes that the appropriate geographic 
market for viewpoint diversity is local, i.e., people generally have 
access to only media available in their home market. To assist in its 
analysis of existing media diversity, and to help us determine whether 
any cross-media restrictions are necessary in the public interest, the 
Commission uses a summary index that reflects the general or overall 
structure of the market for diverse viewpoints. By analogy with 
competition analysis, the diversity index is inspired by the 
Herfindahl-Hirschmann Index (HHI) formulation, calculating the sum of 
squared market shares of relevant providers in each local market. The 
HHI measure, however, is particularly attractive for two reasons. 
First, its mathematical properties correspond to the Commission's 
beliefs about the effects a merger would cause. Each possible measure 
of market concentration has benefits and weakness that can be captured 
by the list of mathematical properties, or axioms, that that particular 
measure satisfies. In the case of measuring market concentration, a 
list of reasonable requirements or axioms limit us to the choice of few 
mathematical formulas. Within this class of admissible indices, the HHI 
can be thought of as a very conservative choice in the following sense. 
If the Commission asks ``what is the loss of competition from a 
merger,'' known as the ``delta'' in the antitrust field, the HHI 
measure reflects the assumptions that: (i) An acquisition of a firm 
with given size will lead to a larger harm the larger the acquiring 
firm, and (ii) this harm is proportional to the size of both the 
merging parties.
    268. Applying a similar analysis to the Diversity Index, the Index 
reflects the assumptions that if newspapers have twice the diversity 
importance of television, a newspaper's acquisition of a broadcast 
television station will cause twice the loss of diversity as will a 
merger of two broadcast television stations. Conversely, if radio has 
less diversity weight than television, then a merger of a television 
and a radio station will cause less of a loss of diversity than will a 
merger of two television stations. In contrast, if the Commission were 
to adopt a simple ``voice test,'' for example, then it would be 
assuming that the loss of voice due to a merger is independent of the 
diversity importance of either party. Similarly, if the Commission were 
to adopt a concentration ratio measure, then it would implicitly be 
assuming that the loss of diversity is independent of the size of the 
larger firm in the transaction. It is in this sense--that the size of 
the diversity loss increases as does the diversity importance of either 
merging party--that the Diversity Index developed here is a 
conservative measure, and one which the Commission adopts in the 
interest of prudence. Moreover, the HHI, from which the Commission's 
chosen measure derives, is widely used in economics and in antitrust. 
Thus, the Commission can draw on its experience with the HHI in 
competition policy to determine threshold values for the Diversity 
Index.
    269. The Commission assigns market shares to these providers based 
in part on the results of responses to the Nielsen survey described in 
MOWG Study No. 8. The Diversity Index itself, however, is a blunt tool 
capable only of capturing and measuring large effects or trends in 
typical markets. Thus, the DI change from a particular transaction in a 
particular market might be more or less than the Commission 
anticipates, or that it might result in a market DI higher or lower 
than that suggested by the Commission's examples. This is of no moment 
as the DI is a tool useful only in the aggregate and will not--and 
cannot in its current form--be applied on a particularized basis.
    270. There are several conservative assumptions in the Commission's 
analysis of viewpoint concentration. First, the Commission premises its 
analysis on people's actual usage patterns across media today. The 
Commission's method for measuring viewpoint diversity weights outlets 
based on the way people actually use them rather than what is actually 
available as a local news source. The Commission adopts this approach 
out of an abundance of caution because the Commission is protecting its 
core policy objective of viewpoint diversity. Second, the Commission's 
diversity analysis is based on preserving viewpoint diversity among 
local, not national, news sources. The effect is that the Commission 
excludes, for purposes of measuring viewpoint concentration, the large 
number of national news sources such as all-news cable channels and 
news sources on the Internet and instead focus exclusively on the 
smaller set of outlets that people rely on for local news. Excluding 
those national sources thus leaves us with a smaller set of ``market 
participants'' that the Commission regulates to protect local news 
diversity in a way that might be unnecessary to protect diversity among

[[Page 46318]]

national news sources. Third, the Commission does not include low power 
television and low power radio stations in measuring viewpoint 
diversity. These stations are often operated with the express purpose 
of serving niche audiences with ethnic or political content that larger 
media outlets do not address. These low power outlets promote viewpoint 
diversity in a way that the Commission has not addressed because of 
their more limited reach, but collectively they enhance viewpoint 
diversity beyond the levels that are reflected in the Diversity Index 
measurements.
    271. The Commission concludes that each of these judgments that 
inform its viewpoint diversity analysis are sound, but in each case the 
Commission makes the most conservative assumption possible. Thus, the 
results of the Commission's diversity index analysis can fairly be said 
to understate the true level of viewpoint diversity in any given 
market.
    272. Choice of Media. The Commission has determined which media to 
include in the Diversity Index based on the survey information derived 
from the ``Consumer Survey on Media Usage'' prepared by Nielsen Media 
Research (FCC MOWG Study No. 8). This survey tells us how consumers 
perceive the various media as sources of news and information. The key 
threshold implication of this study is that consumers use multiple 
media as sources of news and current affairs, and hence that different 
media can be substitutes in providing viewpoint diversity.
    273. FCC MOWG Study No. 8 asked respondents to identify the 
sources, if any, ``used in the past 7 days for local news and current 
affairs.'' The same question was posed for national news and current 
affairs. The choices offered were television, newspaper, radio, 
Internet, magazines, friends/family, other, none, don't know, and 
refuse. The survey then asked follow-up questions regarding the first 
five choices. For each one of the five sources, respondents who did not 
mention a source were asked specifically if they used that source for 
local news and current affairs. The survey posed analogous questions 
with regard to national news and current affairs. Based on the initial 
and follow-up questions, the survey presents ``summary data'' on 
sources of local and of national news and current affairs information.
    274. In an ex parte communication filed May 28, 2003, Media General 
submitted a critique of MOWG Study No. 8 by Prof. Jerry A. Hausman. 
Hausman argues that the Nielsen Survey has a number of serious flaws 
and questions its usefulness in any rule-making concerning cross-
ownership of newspapers and broadcast stations. The Commission 
recognizes Professor Hausman's concerns, but the Commission believes 
that the Nielsen survey sample of 3,136 households provides us with 
useful information. In addition, Professor Hausman provides no evidence 
that the sample is, in fact, biased. Concerning Hausman's second point, 
the Commission agrees that answers to hypothetical questions are less 
useful than information about actual behavior. MOWG Study No. 8 
provides a substantial amount of information on reported actual 
behavior. It is this information, not the hypotheticals, on which the 
Commission relies to conclude that media can be substitutes in 
providing viewpoint diversity and to construct its Diversity Index. 
Regarding Hausman's third point, although the Nielsen survey may not 
directly ask respondents for their views concerning specific cross-
ownership scenarios, the Commission finds that the results of the 
survey are useful in a number of areas, such as which forms of media 
are most heavily used for news. While questions could have been posed 
that contained more specificity concerning cross-ownership rules, the 
Commission understands that such complexities could have made the 
survey design more difficult, as well as possibly lowered the response 
rate. Overall, while Hausman claims that the Nielsen survey does not 
``provide a basis for the measurements necessary for the specification 
of policy,'' the survey does, in fact, help us establish an ``exchange 
rate'' for converting newspaper, television, radio, and other media 
into common units so the Commission can measure the extent of 
concentration in the ``market of ideas.'' Finally, the Commission 
emphasizes that it has not relied solely on the results of the Nielsen 
survey, but has used a number of studies and its own expert judgment on 
media in reaching its decision.
    275. The data in the Nielsen study indicate that television, 
newspapers, radio, Internet, and magazines are the leading sources of 
news and current affairs programming. Based on the initial question, 
the average respondent uses two of the five major sources for news and 
current affairs, whether the category is local or national. Taking 
account of the follow-up questions, the average respondent uses three 
of the five major sources for news and current affairs, again 
regardless of whether the category is national or local. These data 
strongly suggest that citizens do use multiple media as sources of 
viewpoint diversity, and that media can be viable substitutes for one 
another for the dissemination of news, information and viewpoint 
expression. On the basis of this finding, the Commission proceeds to an 
analysis of local media markets and whether there are particular kinds 
of cross-media transactions in particular kinds of markets that would 
likely result in high levels of concentration. To assist in making that 
determination, the Commission relies in part on its Diversity Index.
    276. The Commission's Diversity Index focuses on availability of 
sources of local news and current affairs. As the Commission explained 
in the policy goals section of the R&O, it is concerned with promoting 
viewpoint diversity in local media markets. Owners of media outlets 
clearly have the ability to affect public discourse. Consumers have 
numerous sources of national news and information available to them. 
Therefore the Commission does not believe that governmental regulation 
is needed to preserve access to multiple sources of national news and 
public affairs information.
    277. The Diversity Index incorporates information on respondents' 
usage of television, newspapers, radio, and the Internet. Respondents 
also reported getting local news and information from magazines. The 
Commission excludes magazines, however, from its Diversity Index. 
First, as the description above makes clear, most (but not all) news 
magazines have a national rather than a local focus. Nonetheless, the 
decision to exclude magazines will be re-examined in the next biennial 
review, and the Commission will take the opportunity to gather 
additional survey data at that time on magazine usage.
    278. For similar reasons, the Commission also excludes cable from 
its Diversity Index. The Commission is concerned that some consumers 
may have confused broadcast and cable television. Thus, the Commission 
believes some consumers who replied that they receive their local news 
from cable may have been viewing broadcast channels over the cable 
platform. The Commission also recognizes, however, that cable systems 
do provide local news and current affairs information through PEG 
channels and, in some markets, local news channels. However, the 
Commission does not have accurate data for this measure. Because the 
Commission does not have reliable data

[[Page 46319]]

on this point, it excludes cable from the DI to simplify its general 
analysis.\18\
    279. Weighting Different Media. The Commission has concluded that 
various media are substitutes in providing viewpoint diversity, but the 
Commission has no reason to believe that all media are of equal 
importance. Indeed the responses to the survey make it clear that some 
media are more important than others, suggesting a need to assign 
relative weights to the various media. In view of the Commission's 
focus on local news and current affairs, it chooses to base its weights 
on survey responses to the question asking respondents to identify the 
sources, if any, ``used in the past 7 days for local news and current 
affairs.'' The Commission recognizes that this is not a perfect 
measure, and that it requires some adjustment. The Commission justifies 
these adjustments and assumptions, however, by emphasizing that it is 
using the DI only to inform itself of general market trends, not for 
precise measurements.
---------------------------------------------------------------------------

    \18\ As with magazines, we will review this issue in the next 
biennial review, and may collect at that time more accurate survey 
data on consumers' use of cable for local news and current affairs.
---------------------------------------------------------------------------

    280. The average respondent uses three different media for local 
news and current affairs information. It is likely that, for a given 
respondent, the three are not all of equal importance. If media differ 
in importance systematically across respondents then it would be 
misleading to weight all responses equally. Unfortunately, the 
Commission does not have data on this question specifically with regard 
to local news and current affairs. The available ``primary source'' 
data address local and national news together and do show that 
different media have different importance, in the sense that primary 
usage differs across media. Because ``primary source'' data are not 
available for local news and current affairs alone, the Commission uses 
the data identifying sources of local news and public affairs 
programming to weight the various media to reflect relative usage. This 
leads to lower shares for television and higher shares for radio than 
the ``primary source'' shares reflect.
    281. The local response summary data, Table 97 of MOWG Study No. 8, 
include five categories of media--Internet, magazines, radio, 
newspaper, television. Magazines account for 6.8% of responses to the 
questions on source of local news and current affairs. We exclude 
magazines as explained above and normalize the shares of the four 
remaining media to sum to 100%. The resulting weights are television 
(33.8%), newspapers (28.8%), radio (24.9%), and Internet (12.5%).\19\ 
The local response summary data do not break down the television 
responses between broadcast television and cable/satellite television. 
Nor do these data separate out usage of daily and weekly newspapers. We 
make use of other FCC MOWG Study No. 8 questions to apportion the 
newspaper shares further.
---------------------------------------------------------------------------

    \19\ The ``primary use'' weights, excluding magazines, are 
television (57.8%), newspapers (25.8%), radio (10.3%), and Internet 
(6.1%). When magazines are included their weight is 0.6%.
---------------------------------------------------------------------------

    282. Although the responses to one question in MOWG Study No. 8 
suggests that cable is a significant source of local news and current 
affairs, other data from the study casts some doubt on this result. The 
following discussion explains the reasoning that leads us to exclude 
cable/satellite television from the current analysis of local news and 
current affairs for diversity purposes. DBS currently provides little 
or no local nonbroadcast content. The Commission will review the status 
of cable as a local news provider in the 2004 biennial review. The 
Commission's review will include a follow-up to MOWG Study No. 8, which 
will include more detailed questions regarding the use of nonbroadcast 
video media for local news and current affairs.
    283. With regard to newspapers, MOWG Study No. 8 indicates that 
61.5% of those who cite newspapers as a source of local news and 
current affairs acquire that information from dailies only, 10.2% from 
local weeklies only, and 27.3% from both. The next biennial review will 
provide the Commission with an opportunity for re-examination of the 
role of weekly newspapers. Accounting for the additional information on 
newspapers results in a revised set of weights. They are: broadcast 
television 33.8%, daily newspapers 20.2%, weekly newspapers 8.6%, radio 
24.9%, and Internet 12.5%.
    284. The most detailed analysis of MOWG Study No. 8 comes from the 
Consumer Federation of America (CFA). CFA agrees that citizens get 
viewpoint diversity from multiple media. Their comments refer to the 
``two dominant political media--daily newspapers and television,'' 
although CFA asserts that these media ``appear to play very different 
roles.'' Television has the largest weight in the DI (33.8%) and daily 
newspapers also loom large at 20.2%. Although the radio weight is 
somewhat higher at 24.9%, the fact that markets generally have far more 
radio stations than daily newspapers make the Commission's weights 
consistent with CFA's conclusion that newspapers are among the two most 
influential media. CFA finds that the Internet plays a small but 
growing role in citizen acquisition of news and information, a finding 
not inconsistent with the relatively low weight of Internet in the 
Commission's DI. CFA quotes statistics on daily use of television, 
newspapers, radio, and Internet that yield usage shares not too 
different from the Commission's DI weights. Drawing on two surveys, CFA 
suggests that people spend 4 minutes per day on average gathering news 
from the Internet, 25 minutes reading newspapers, 15 minutes listening 
to radio news, and ``over half an hour'' watching television news. 
Ascribing half an hour to television leads to shares of 40.5% for 
television, 33.8% for newspapers, 20.3% for radio, and 5.4% for 
Internet. These are fairly close to the Commission's DI weights of 
33.8%, 28.8%, 24.9%, and 12.5% for television, newspapers, radio, and 
Internet, respectively.
    285. Although CFA does not dispute the proposition that different 
media address the same issues and stories, it asserts that they do so 
in different ways, suggesting, inter alia, that television is ``the 
primary source for breaking news,'' that newspapers have a larger role 
in ``the follow-up function,'' and that talk shows are a new and 
significant element of radio's role in disseminating viewpoints. 
Although CFA does not discuss the role of radio as a source of breaking 
news, the Commission acknowledges that different media do present 
information in different ways. Thus, CFA appears to conclude that media 
are substitutes for some citizens and complements for others.
    286. The Commission disagrees with CFA's conclusion that the DI is 
invalid because some citizens may consider certain media outlets 
complements rather than substitutes. In the technical economic sense, 
two goods are substitutes if an increase in the price of good A (which 
leads to a decrease in consumption of good A) leads to an increase in 
the consumption of good B. In the context of the Commission's diversity 
goal, the Commission is concerned with the question of what happens 
when one or more media outlets refuses to transmit a particular 
viewpoint. If most citizens accessed only one type of outlet, e.g., 
radio but not newspapers or television, then its diversity goal would 
prompt us to analyze separately the structure of the ``radio 
marketplace of ideas.'' If, on the other hand, most citizens access 
multiple media, then the Commission can rely on the reasonable 
probability that, if, e.g., the local newspaper refused

[[Page 46320]]

to cover a particular story, citizens would be exposed to that story 
via independently-owned other media, such as radio or television. In 
other words, evidence that media are complements in the sense that, for 
at least some citizens, there is a positive correlation between use of 
one medium and use of another, does not invalidate the premise 
underlying the DI.
    287. Weighting Outlets Within the Same Medium. Having decided on 
relative weights for the various media, the Commission next confronts 
whether and how to weight different media outlets within each category. 
The decision of whether to do weighting turns on whether the 
Commission's focus is on the availability of outlets as a measure of 
potential voices or whether it is on usage (i.e., which outlets are 
currently being used by consumers for news and information). The 
Commission has chosen the availability measure, which is implemented by 
counting the number of independent outlets available for a particular 
medium and assuming that all outlets within a medium have equal shares. 
In the context of evaluating viewpoint diversity, this approach 
reflects a measure of the likelihood that some particular viewpoint 
might be censored or foreclosed, i.e., blocked from transmission to the 
public. The case for a usage measure is that it reflects actual 
behavior. However, current behavior is not necessarily an accurate 
predictor of future behavior. Moreover, in order to implement a usage 
measure accurately, it would be necessary for us to define which 
content should be considered local news and current affairs. Current 
behavior, e.g., viewing or listening to a broadcast station, is based 
on the content provided by the station in question. However, media 
outlets can change the amount of news and current affairs that they 
offer, perhaps in response to competitive conditions in the ``viewpoint 
diversity'' marketplace. Such changes are unpredictable, so current 
market shares (e.g., of viewing or listening) may not be good 
predictors of future behavior.
    288. If the Commission were to adopt a usage measure designed to 
reflect its concern with local news and current affairs, it would need 
information on viewing/listening/reading of local news and current 
affairs material. To implement this procedure, it would be necessary 
first to determine which programming constituted news and current 
affairs. The Commission believes that this type of content analysis 
would present both legal/Constitutional and data collection problems. 
News and current affairs content is not necessarily limited to 
regularly-scheduled news programs. So the Commission could be faced 
with deciding which other programs were news and current affairs, 
whether some portion of a program not primarily news should count as 
news, and, indeed, whether portions of a news report devoted, e.g., to 
movie reviews should count as news. Ultimately, the Commission's goal 
is not to prescribe what content citizens access, but to ensure that a 
wide range of viewpoints have an opportunity to reach the public. This 
goal, the limitations of current usage as a predictor of future usage, 
and the content classification requirements for implementing a usage 
measure all lead us to adopt an ``equal share'' approach to weighting 
outlets within the same medium.
    289. The Commission deviates from this approach only in the case of 
the Internet. The Commission used subscription shares to divide the 
Internet category among the two current significant sources of Internet 
access--telephone companies and cable companies. The Commission thinks 
it prudent to use subscriber figures to calculate how to divide the 
Internet category between cable and telephone companies.
    290. Table 78 of FCC MOWG Study No. 8 provides information on 
Internet access. If the Commission takes the 99.7 percent of 
respondents who picked cable, DSL, or telephone line as the base, and 
if the Commission combines telephone and DSL, the resulting shares are 
19 percent cable and 81 percent telephone. The Commission recognizes 
that, given the relatively small share of Internet in the total 
diversity market (12.5% weight), using subscriber shares rather than 
equal availability for Internet providers has a very small impact on 
its Diversity Index calculation.\20\ In this regard, however, the 
Commission rejects the argument made by some commenters that the 
Commission should not include the Internet at all because people only 
utilize the Internet to access their newspapers' and local broadcast 
stations' Web sites and, therefore, the Internet does not add to 
diversity. Although many local newspapers and broadcast stations 
maintain Web sites with news content, that does not begin to plumb the 
extent of news sources on the Internet.
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    \20\ As explained in the section Calculation Methodology of the 
R&O, the diversity index is calculated by squaring relevant market 
shares. If the Commission assumes that the two Internet sources have 
equal shares, the contribution to the index of Internet would be 78 
points. The assumption leads to a contribution to the index of 109 
points. We do not attribute common ownership to Internet Service 
Providers. We will assume (subject to examination at the next 
biennial review and to future findings), that ISPs do not restrict 
subscriber access to Internet content based on the identity of the 
content provider. The Commission is looking at the availability of 
news and information sources generally--and Web sites particularly--
not their popularity.
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    291. Calculation Methodology. The Diversity Index is structured 
like an HHI, i.e., it is simply the sum of squared market shares. As 
explained above, squaring market shares, unlike measures based on the 
``raw'' market shares, permits construction of an index that takes 
account of the market shares of all providers in the ``market'' for 
viewpoint diversity. As noted above, the geographic market the 
Commission is using is local. The Commission currently defines 
television markets in terms of the Nielsen DMA. DMAs are exhaustive 
classifications, covering the entire United States, and it is 
straightforward to count the number of television stations in a DMA. 
The Commission is including public as well as commercial stations. The 
Commission chooses not to include television stations from outside the 
DMA in question, even if they obtain a measurable audience share in the 
DMA. The Commission's focus is on local news and current affairs and it 
is not reasonable to assume that stations outside of the DMA in 
question will devote significant resources to news and current affairs 
programming targeted to that DMA. The Commission's cable television 
signal carriage rules generally permit a television broadcast station 
within a DMA to obtain cable carriage throughout the DMA, and its DBS 
signal carriage rules generally ensure that all television stations 
within a DMA are treated the same with respect to satellite 
retransmission. For this reason, the Commission assumes that all 
television broadcast stations in a DMA are available throughout the 
DMA. Each broadcast television station receives an equal share of the 
broadcast television weight.
    292. The Commission combines the television stations in each DMA 
with the radio stations in the Arbitron radio metro with which the DMA 
is paired. There are 287 Arbitron radio metros in the country. Each one 
is smaller than the DMA within which it lies.\21\ Arbitron radio metros 
do not cover the entire country. More sparsely populated areas are not 
included in radio metros; approximately one-half of radio stations are 
not in a metro market. As explained below in the cross-media limits 
section

[[Page 46321]]

of this Order, the Commission uses the Diversity Index to help it 
identify markets that are ``at risk'' for excessive concentration in 
the ``viewpoint diversity market.'' Once those markets have been 
identified, and cross-media limits imposed, the actual implementation 
of the cross-media diversity limits will not require information on a 
local radio market, only on the television market (DMA) within which 
the radio stations are located that are part of a proposed merger. As 
detailed in the cross-media limits section, the analysis that the 
Commission uses to identify at-risk markets is based on examination of 
a substantial sample of the 287 Arbitron radio metro markets.
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    \21\ Most radio metros lie wholly within a single DMA; virtually 
all of the others are predominantly within a single DMA.
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    293. Daily newspaper publication and circulation data are not 
collected based on Arbitron radio metros. A different market concept, 
developed by the Department of Commerce, is used by the industry. The 
basic building block is the ``Metropolitan Statistical Area,'' or 
``MSA.'' The Department of Commerce recognizes 318 metropolitan areas, 
which include 248 MSAs, 58 ``PMSAs'' (primary metropolitan statistical 
areas), and 12 ``NECMAs (``New England county metropolitan statistical 
areas''). For Diversity Index calculation purposes, these areas are 
matched to Arbitron radio metros. Each daily newspaper that is locally 
published in the metropolitan area is included in the market. The daily 
newspaper share of the Diversity Index is divided evenly among all 
daily newspapers included in the market. In the absence of market-
specific information on weekly newspaper availability, the Commission 
makes the most conservative assumption that there is one independently-
owned weekly newspaper in each local market, and assign to it the 
entire weekly newspaper share.
    294. In terms of calculating the Index, within each medium the 
Commission combines commonly-owned outlets and calculate each owner's 
share of the total availability of that medium. The Commission then 
multiplies that share by the share of the medium in question in the 
total media universe (television plus newspaper plus radio plus 
Internet). Once these shares in the overall ``diversity market'' have 
been calculated, the Commission adds together the shares of properties 
that are commonly-owned (for example, a newspaper and a television 
station), square the resultant shares, and sum them to get the base 
Diversity Index for the market in question.
    295. Cross-Media Limits. The Commission modifies its rules by 
adopting a new set of cross-media limits (``CML'') in lieu of the 
Commission's former newspaper/broadcast and television/radio cross-
ownership rules. The CML have been designed specifically to check the 
acquisition by any single entity of a dominant position in local media 
markets--not in economic terms, but in the sense of being able to 
dominate public debate--through combinations of cross-media properties. 
Because the Commission has traditionally relied upon blanket 
prohibitions on certain cross-media combinations, it has never before 
had to confront head-on the challenge of identifying specifically which 
types of markets give us the greatest cause for concern in terms of 
preserving diversity of viewpoint, and which types of transactions are 
most problematic in this regard. This effort is complicated by the 
nature of the public interest the Commission are seeking to protect--
diversity--which is as elusive as it is cherished.
    296. The Commission's modification of the newspaper/broadcast and 
television/radio cross ownership rules into a set of cross-media limits 
or CML is the Commission's first comprehensive attempt to answer this 
difficult and complex set of questions. The CML derives from data in 
the record regarding the relative reliance by consumers of various 
types of media outlets for news and information. To help us analyze 
that data, the Commission uses a methodological tool--a diversity index 
or ``DI''--that allows us to measure the degree to which any local 
market could be regarded as concentrated for purposes of diversity. 
Based on an analysis of a large sample of markets of various sizes, the 
diversity index suggests that the vast majority of local media markets 
are healthy, well-functioning, and diverse.
    297. Moreover, because the Commission is adopting herein intra-
service competition caps for radio and television properties, those 
caps will ensure that local markets will continue to be served by a 
diversity of voices within each of these respective services. By the 
nature of the exercise, markets defined for competition purposes are no 
broader than, and generally are narrower than, markets defined for 
diversity purposes. Thus, the Commission's radio and television 
competition caps will not only serve to promote and protect competition 
within the radio and television services, they will also be protective 
of diversity interests when television-only or radio-only transactions 
are at issue. For example, in a market with 12 TV stations, the 
Commission's intra-service caps guarantee at least six different owners 
of television stations. If there are forty radio stations in the 
market, the Commission's radio cap will ensure at least six different 
owners of radio properties.
    298. The Commission recognizes, however, that its intra-service 
caps will not address diversity concerns that may result from cross-
media combinations. Although the Commission's local radio and 
television caps will ensure a significant number of independent voices 
in larger markets, cross-media combinations in very small markets might 
result in problematical levels of concentration for diversity purposes. 
Accordingly, the Commission supplements its two intra-service local 
rules with a narrowly drawn set of cross-media limits to reach those 
combinations that are not already prohibited by its television or radio 
caps, but which would give rise to serious diversity concerns. The 
cross-media limits are based on a set of assumptions drawn directly 
from the record evidence in this proceeding and premises that are 
consistent with past Commission policy and practice. Although the 
Commission relies in part on its data analysis to help define the CML, 
it clearly respects that diversity is inherently subjective and cannot 
be reduced to scientific formula. The CML, therefore, ultimately rests 
on the Commission's independent judgments about the kinds of markets 
that are most at-risk for viewpoint concentration, and the kinds of 
transactions that pose the greatest threat to diversity.
    299. Competition Caps Protect Diversity. The Commission has adopted 
a cap both on the number of television stations that any one owner may 
hold in a market, and on the number of radio stations that any one 
owner may hold in a market. These caps were designed to promote and 
protect competition within these two distinct services. The caps are, 
therefore, based on product market definitions that consider only those 
products or services that may be regarded as reasonable substitutes for 
competition purposes. The Commission recognizes, however, that although 
radio and television outlets may not compete in economic terms with 
other types of speech outlets, e.g., newspapers, they all inhabit the 
mass media landscape that Americans turn to for news and information. 
In that sense, whatever the confines of their markets for competition 
purposes, many different outlets serve core democratic functions as 
purveyors of ideas, outlets for opinion, and distributors of news.
    300. The data in the record evidence this difference. Radio and 
television

[[Page 46322]]

compete in economic terms in separate and distinct product markets. 
Both radio and television outlets, however, inhabit the larger speech 
market, as do several other types of entities. For example, MOWG Study 
No. 8, a consumer survey on media usage, reveals that, when asked to 
identify their primary source of all news and information--both local 
and national--approximately 40% of Americans responded that broadcast 
television was their primary source and approximately 10% of Americans 
responded that radio was their primary source. However, nearly 24% of 
respondents identified daily newspapers as their primary source of news 
and information, 18% identified cable news networks, 6% identified the 
Internet, and 2% identified weekly newspapers or magazines. Other 
studies confirm that, today, Americans substitute among and between 
many different sources for news and information on a regular basis. The 
record reflects, in short, that the ``viewpoint'' market in which 
television and radio stations participate is broader than the economic 
product markets, as defined by standard competition theory, in which 
either competes. As a result, intra-service caps designed to ameliorate 
competition concerns necessarily also will protect against undue 
concentration of speech outlets for diversity purposes.
    301. The Commission's diversity index helps to illustrate this 
point. Pursuant to the Commission's new local radio rule, no single 
owner, even in the smallest markets, will own more than 50% of the 
radio outlets. In larger markets, the percentage of radio outlets that 
can be held by any one entity is considerably smaller. Thus, using the 
most extreme set of facts, and using Altoona, Pennsylvania, as the 
Commission's test case, the diversity index focused on local news and 
information alone (again, the most conservative assumption) reveals a 
relatively minimal impact on viewpoint diversity even should the radio 
outlets become split between only two owners. The current base case DI 
for local news and information for Altoona is 960. If the local radio 
market were to become restructured into a duopoly, the DI would rise to 
only 1,156. This hypothetical posits the most extreme restructuring of 
radio outlets in the smallest market among those in the Commission's 
test cases. The change in the diversity index will be far smaller as a 
result of radio transactions in larger markets or where the 
restructuring is less extreme.
    302. Similarly, pursuant to the Commission's new local television 
rule, no single owner will be permitted to own more than two television 
outlets in most markets. Using a set of randomly sampled markets of 
varying sizes, the average change in DI as a result of an owner of one 
television property buying another to create a television duopoly in a 
small market with only five licensed television stations is 91. In 
markets with twenty licensed television stations the change in DI as a 
result of the creation of a television duopoly is only six.\22\ Thus, 
although the Commission's intra-service television and radio caps are 
designed to protect and promote competition, they have a corollary 
benefit of also guarding against concentration in the viewpoint 
markets, at least with respect to intra-service combinations.
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    \22\ The local television ownership cap includes a prohibition 
on top-four combinations. This will have the effect of prohibiting 
combinations of the local television stations most likely to produce 
and carry significant local news programming. Thus, although the 
top-four restriction is based on competition theory, the rule will 
also have beneficial effects on local diversity.
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    303. The Commission recognizes, however, that cross-media 
combinations that may impact the range and diversity of voices in local 
markets will not be captured by its television and radio caps. The 
Commission therefore adopts new cross-media limits targeted 
specifically and solely at the types of transactions that would give it 
the most concern and which are not already prohibited by its intra-
service caps.
    304. Foundations of the Cross-Media Limits. The Commission begins 
with the proposition that, because this rule will limit the speech 
opportunities not only for broadcasters, but also for other entities 
that may seek to own and operate broadcast outlets (including those 
with the fullest First Amendment protection--newspapers), the 
Commission should draw the rule as narrowly as possible in order to 
serve its public interest goals while imposing the least possible 
burden on the freedom of expression. The Commission also recognizes 
that the tools that the Commission is using to evaluate market 
diversity involve as much art as science. ``Diversity'' is not 
susceptible to microscopic examination; it cannot be mapped with any 
known formal system or reduced to mathematical equations. Although the 
Commission attempts to measure it and assign some quantitative value to 
it in order to understand relative diversity of different types of 
markets, it recognizes that this process is inherently approximate.\23\ 
The Commission must exercise great care, therefore, before 
categorically prohibiting any particular transaction or set of 
transactions as a prophylactic matter.
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    \23\ Using the Diversity Index allows the Commission to see 
different market characteristics in markets of different sizes. It 
has also found, however, that differentiating markets by the number 
of newspapers present is too blunt while differentiating markets by 
the number of radio stations is too fine. Therefore, the Commission 
uses the number of television stations as an identifier of market 
size.
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    305. Nonetheless, it is apparent, based on the record in this 
proceeding, that certain types of transactions in certain markets 
present an elevated risk of harm to the range and breadth of viewpoints 
that may be available to the public. Using the Commission's diversity 
index analysis and its independent judgment regarding desired levels of 
diversity, the Commission first identifies ``at-risk'' markets that 
might already be thought to be moderately concentrated for diversity 
purposes. It then identifies the types of transactions that pose the 
greatest risk to diversity, and imposes specific limits on those 
transactions in at-risk markets. Finally, because certain transactions 
in less concentrated markets pose a high risk of rapid concentration, 
the Commission imposes separate restrictions on transactions outside of 
the at-risk markets.
    306. Identifying At-Risk Local Markets. The Commission begins by 
identifying those markets most susceptible to high levels of viewpoint 
concentration; i.e., those markets where its diversity concerns cut 
most deeply. At the outset, consistent with the Commission's past 
practice and precedent, the Commission focuses in this regard on local, 
not national, viewpoint market(s). Evidence in the record before us 
supports the conclusion that the number of outlets for national news 
and information is large and growing, and that government regulation is 
thus unnecessary to protect it.
    307. With respect to local markets, the Commission's ten city study 
and its DI test cases reveal that most local markets today are well-
functioning, healthy markets for speech. Not all voices, however, speak 
with the same volume. Using its Diversity Index, the Commission has 
examined the concentration of media outlets in the ten markets that 
were the subject of its Ten City Study using weighted voices. New York 
has a base DI for local news and information of 373; Lancaster, 
Pennsylvania, has a DI of 939; and Myrtle Beach, South Carolina, has a 
DI of 989. Indeed, the average DI for all ten markets, which range from 
the largest to near the smallest, is 758. A DI of 758 is the equivalent 
of 13 equally-sized firms.

[[Page 46323]]

    308. Moreover, to ensure that the results of its ten city study 
were not anomalous, the Commission has calculated the average DI for a 
different set of randomly selected markets, both large and small. The 
average DI for markets in which there are 20 television stations is 
612; the average DI for markets in which there are 15 television 
stations is 595; the average DI for markets in which there are 10 
television stations is 635; and the average DI for markets in which 
there are 5 television stations is 911--all well below the point at 
which one would characterize them as highly concentrated if one were 
using the analogous HHI to measure competition in the market.
    309. The Commission believes the analogy to the HHI is apt. The HHI 
is an indicator of economic concentration; it provides an analytical 
framework for determining when and if an entity or group of entities is 
likely to wield market power in an economic market. The Commission's 
DI, which was inspired by and modeled after the HHI, similarly is an 
indicator of viewpoint concentration. Using the DI as an analytical 
tool, the Commission can assign approximate weights to different types 
of media outlets, account for the diversity effects of commonly-owned 
properties, and measure relative concentration between and among 
markets. The DI can help the Commission, therefore, identify the point 
at which an entity or group of entities is likely to wield inordinate 
power in the marketplace of ideas.
    310. Although competition theory does not provide a hard-and-fast 
rule on the number of competitors necessary to ensure that the benefits 
of competition are realized, a market that has ten or more equally-
sized firms normally can be considered fully competitive.\24\ A 1000 DI 
correlates to market in which there are roughly ten firms with 
approximately equal market power. An 1800 DI would correspond to a 
market with six roughly equal voices. Using the Commission's DI 
analysis of sample markets, it notes that it is not until it reaches 
markets with three or fewer licensed television stations that the 
average DI exceeds 1000, the point at which the market normally would 
be characterized as moderately concentrated for competition 
purposes.\25\
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    \24\ A market with 10 or more equally-sized firms has an HHI of 
1000 or less. DOJ/FTC regards markets in this region to be 
unconcentrated. Mergers resulting in unconcentrated markets are 
unlikely to have adverse competitive effects and ordinarily require 
no further analysis.
    \25\ The average DI for markets with three television stations 
is 1027; the average DI for markets with two television stations is 
1316; and the average DI for markets with a single television 
station is 1707.
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    311. The Commission's DI analysis of these sample markets, however, 
is not the end of its inquiry. Because of the importance the Commission 
associates with maintaining diversity among the three principal 
platforms--newspaper, radio and television--for the expression of 
viewpoint at the local level, and because these same three outlets 
produce a large share of local news content, the Commission previously 
has used a ``voice test'' focused on one or more of these outlets for 
measuring diversity. In larger markets, the Commission expects that the 
number of distribution outlets for local news content will be larger, 
and that consumers will have greater access to secondary outlets for 
news and information.
    312. Finally, the Commission is concerned not merely with the 
absolute level of diversity that might already exist in any market or 
type of market, but also with the degree to which diversity might be 
sacrificed as a result of likely transactions. Accordingly, in defining 
``at-risk'' markets, the Commission has used its DI and sampled the 
effect of transactions, in large and small markets, involving heavily 
used sources of local news and information. In so doing, the Commission 
has focused on the types of transactions that most likely will lead to 
large DI changes and rapid concentration. The Commission's line-drawing 
effort is informed by the approach the DOJ has taken in assessing 
competition issues. Although DOJ policy is to review any transaction in 
a moderately concentrated market that would result in a change in HHI 
of 100 points or more, the Commission has found no case in many years 
in which DOJ has filed suit to block a merger that produced less than a 
400 or more point HHI change. Based on the Commission's analysis, 
cross-media combinations involving newspaper and television, newspaper 
and radio, or radio and television properties do not produce a change 
in the DI of anything even approaching that magnitude other than in 
markets with three or fewer television stations.
    313. These changes, of course, reflect approximations based upon 
sample data and are provided only to be illustrative of the diversity 
losses that can occur as a result of cross-media combinations in small 
markets. Nonetheless, based on all of the foregoing, the Commission 
concludes that a market with the equivalent of ten or more equally-
sized firms cannot be regarded as even moderately concentrated for 
diversity purposes. In light of that conclusion, and in consideration 
of the properties of small markets and on its analysis of potential 
transactional impacts in those markets, the Commission concludes that 
markets with three or fewer licensed television stations should be 
regarded as ``at-risk'' markets for purposes of diversity 
concentration. Markets of that size, the Commission expects, will be 
moderately concentrated and subject to rapid concentration if cross-
media combinations are created involving radio, television and/or 
newspaper properties.\26\ Accordingly, the Commission will prohibit 
certain cross-media combinations involving those properties in markets 
with three or fewer television stations.
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    \26\ A market with an HHI of more than 1800 is regarded as 
highly concentrated. We noted above that a DI of 1800 would 
correspond to six equally-sized ``voices.'' Because of the amorphous 
nature of diversity as an interest and the difficulty of measuring 
it with precision, we decline to draw an absolute line prohibiting 
transactions that would take a market beyond the 1800 DI (i.e., six 
voice) level. The rules we are adopting herein, however, are 
intended to protect against markets becoming highly concentrated--in 
a qualitative sense--for diversity purposes.
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    314. Local Cross-Media Limits in At-Risk Markets. With respect to 
the limits themselves, the Commission treads lightly in view of the 
sensitive First Amendment interests at stake and the deregulatory 
purpose of Section 202(h). The Commission's intent is to draw its rules 
narrowly, focusing on those transactions that are likely to have a 
substantial impact on the diversity of voices available in the market. 
The record shows that broadcast television, daily newspapers, and 
broadcast radio are the three media platforms that Americans turn to 
most often for local news and information. They are, accordingly, the 
focus of the Commission's diversity concerns, and the Commission 
declines to impose any cross-media limit on transactions involving 
media properties other than radio, television, and newspaper outlets.
    315. Further, the Commission is establishing rules of nationwide 
applicability. The Commission desires, therefore, to provide the 
industry and the public with clear, easy to administer rules reflective 
of common market trends and characteristics. The Commission recognizes 
that, in any given market, the lines the Commission draws here may 
appear under- or over-inclusive. Again, although they have a 
methodological foundation in the DI, these judgments are based on 
agency expertise and experience dealing with broadcast markets and the 
media

[[Page 46324]]

industries generally. Accordingly, except as specifically prohibited 
herein, cross-media combinations will not be subject to anything other 
than routine Commission review, i.e., unless the transaction is barred 
by the CML or the Commission's other ownership rules, the combination 
is permissible under the Commission's rules, and the Commission will 
not apply the DI to it.\27\
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    \27\ Bright lines provide the certainty and predictability 
needed for companies to make business plans and for capital markets 
to make investments in the growth and innovation in media markets. 
Conversely, case-by-case review of even below-cap mergers on 
diversity grounds would lead to uncertainty and undermine our 
efforts to encourage growth in broadcast services. Accordingly, 
petitioners should not use the petition to deny process to 
relitigate the issues resolved in this proceeding.
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    316. Combinations of daily newspaper and broadcast properties in 
at-risk markets present a serious threat to local viewpoint diversity. 
The Commission therefore, adopts a rule prohibiting common ownership of 
broadcast stations and daily newspapers, and TV/radio combinations, in 
markets with three or fewer television stations. In order to determine 
which markets have 3 or fewer broadcast television stations, the 
Commission will rely on Nielsen television Designated Market Areas 
(DMAs). The Commission includes for these purposes, commercial and 
noncommercial television stations assigned to the DMA.
    317. A number of parties have questioned whether a cross-ownership 
rule applicable to entities other than broadcasters, e.g., newspaper 
owners, would be constitutional. The Commission continues to believe 
that a narrowly-drawn rule prohibiting or limiting common ownership of 
broadcast properties and daily newspapers is consistent with its 
constitutional framework. The Commission's current newspaper/broadcast 
cross-ownership rule has been upheld by the Supreme Court against 
constitutional challenge and, as discussed above, broadcast/newspaper 
and radio/television cross-ownership rules, like broadcast ownership 
rules, are reviewed under the rational basis standard. The Commission 
believes that its new cross-media limits satisfy this standard because 
they are ``a reasonable means of promoting the public interest in 
diversified mass communications,'' and they are founded on a 
substantial record.
    318. Television-Newspaper. Nielsen survey data reveal that daily 
newspapers and broadcast television remain the two most important 
sources of local news and information. The importance of these outlets 
is reflected in the Commission's DI. A combination of a daily newspaper 
and a television station in a market with only three television 
stations leads to an average DI change of 331 points. These 
combinations in markets with only two or one television station lead to 
DI changes of 731 and 910 DI points, respectively. In these at-risk 
markets, a single combination of a daily newspaper and a television 
station could quickly jeopardize the range of viewpoints available to 
consumers in the market. The Commission therefore, adopts a rule 
prohibiting the combination of a daily newspaper and a broadcast 
television facility in any market with three or fewer television 
properties. To trigger the rule, the Commission will count all 
television stations assigned to the DMA that contains the newspaper's 
community of publication. The Commission presumes that broadcast 
television stations are generally carried throughout the DMA to which 
the station is assigned. The Commission's rules will not, however, bar 
a broadcast television station in such a market from starting a new 
newspaper, as that would expand, not decrease, diversity.
    319. One additional issue in the cross-interest context is the 
definition of ``daily newspaper'' for the purposes of newspaper/
broadcast cross-ownership. Currently, Note 6 to the multiple ownership 
rule defines a daily newspaper as ``one which is published four or more 
days per week, which is in the English language and which is circulated 
generally in the community of publication.'' The exclusion of non-
English language daily newspapers in areas where the dominant language 
of the market is not English creates a discrepancy in treatment that 
must be ended. Since the definition of a daily newspaper was adopted in 
1975, the percentage of households in which Spanish was spoken has 
approximately doubled. It is appropriate, therefore, at this point in 
time, that the Commission applies the CML to non-English daily papers 
in markets in which the language that they are printed in is the 
dominant language of their market.\28\
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    \28\ To trigger the rule, the Commission will count all 
television stations assigned to the DMA that contains the 
newspaper's community of publication. For the purposes of evaluating 
whether the non-English daily is printed in the primary language of 
the ``market,'' however, the market shall be defined as the 
newspaper's community of publication.
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    320. Radio-Newspaper. Although broadcast radio generally has less 
of an impact on local diversity than broadcast television, according to 
the results of the Nielsen survey, in at-risk markets the combination 
of a daily newspaper with one or more broadcast radio facilities can 
nonetheless have significant negative implications for the range of 
viewpoints available. Indeed, markets with three or fewer television 
stations have, on average, only 21 radio stations. Under the 
Commission's radio cap, a single owner in a market with 21 stations 
could own six stations, or 29% of all the radio outlets in the market. 
Combining such a station group with, perhaps, the only daily newspaper 
could, therefore, seriously impair the range of independent viewpoints 
available in the market. The Commission therefore, adopts a rule 
prohibiting the combination of a daily newspaper and a broadcast radio 
facility in any market with three or fewer television properties. To 
trigger the rule for newspaper/radio combinations the Commission will 
retain its current standard. That standard requires complete 
encompassment of the newspaper's community of publication by the 
requisite signal strength contour of the commonly owned radio 
station(s).\29\
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    \29\ For AM radio stations that standard is complete 
encompassment of the newspaper's community of publication by the 
predicted or measured 2mV/m contour computed in accordance with 
Section 73.183 or Section 73.186 of the Commission's Rules. For FM 
radio stations the standard is complete encompassment of the 
newspaper's community of publication by the 1 mV/m contour computed 
in accordance with Section 73.313 of the Commission's Rules. 
Previously, we discussed the inherent flaws in defining radio 
markets using a contour-based definition, and decided to move to a 
geographic based definition. Specifically, we found that a contour 
based definition for defining radio markets can create 
inconsistencies in counting stations that comprise a market, 
counting stations that an entity owns in a market, and determining a 
radio market's size and geographic area. See Local Radio/Problems 
with the Existing Radio Market Definition and Counting 
Methodologies, Section VI(B)(1)(a)(ii)(a) of the R&O. However, such 
problems do not arise in the context of using contours to determine 
whether the cross-media limits rule is triggered. Here, we are 
concerned with the physical proximity of the broadcast station and 
the newspaper's community of publication, or in the case of radio/
television cross-ownership, we are concerned with the relative 
distance between two specific stations. Because the cross-media rule 
relies, in part, on a geographic location, i.e. the community of 
publication or the communities of license, parties cannot take 
advantage of such discussed inconsistencies to circumvent the rules. 
Moreover, we are not relying on a contour-based definition to define 
a cross-media market; we are only using it to determine whether the 
rule is triggered.
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    321. Television-Radio. Combinations involving daily newspapers and 
broadcast properties are not the only cross-media combinations that 
present diversity concerns in at-risk markets. Approximately one-fourth 
of Americans rely on radio as a source of local news and information, 
and one-third use broadcast television for this purpose.

[[Page 46325]]

Cross-media combinations involving television and radio properties 
also, therefore, are likely to give rise to systematic diversity 
concerns in at-risk markets. The Commission's DI analysis confirms this 
fact. The Commission therefore adopts a rule prohibiting the 
combination of broadcast radio and broadcast television facilities in 
any market with three or fewer television properties. The television/
radio cross-ownership rule is triggered when the radio station's 
community of license is in the commonly owned television station's DMA. 
Similar to requests for waiver of the newspaper/broadcast cross-
ownership rule, parties seeking waiver of the television/radio cross-
ownership rule can rebut this by showing that the stations' signals do 
not overlap and the television station is not carried on cable systems 
in the radio station's market.
    322. Additional Cross-Media Limits in Small to Medium-Size Markets. 
Although markets with four or more licensed television stations do not 
qualify, in the Commission's judgment, as at-risk markets, a 
combination of a daily newspaper with a television duopoly and a 
significant radio presence can, in small to medium-size markets result 
in substantial changes in the level of diversity. The potential for 
rapid concentration that may result from a combination of a newspaper 
with a television duopoly in markets with between four and eight 
licensed television stations leads the Commission to conclude that it 
would be prudent, in these markets, to impose additional local 
ownership restrictions as part of its CML.
    323. The Commission is cognizant, however, of the fact that 
substantial public interest benefits may flow from broadcast/newspaper 
combinations. Television stations that are co-owned with daily 
newspapers tend to produce more, and arguably better, local news and 
public affairs programming than stations that have no newspaper 
affiliation. Because of the news resources available to local 
newspapers, the Commission expects similar benefits to be associated 
with newspaper ownership of radio stations (e.g., radio stations 
affiliated with a local newspaper may have an enhanced ability to 
produce local, all-news radio programming and to cover local political 
and cultural events in greater depth than stations unaffiliated with a 
newspaper). Accordingly, the Commission is not inclined to prohibit 
outright newspaper/ broadcast combinations in markets with 4-8 
television stations (referred to below as ``small to medium size 
markets'').
    324. Balancing these interests, the Commission believes it 
appropriate, in small to medium size markets (those with between four 
and eight television stations) to allow the following: (1) One entity 
may own a combination that includes radio, television and newspaper 
properties, but the entity may not exceed 50% of either of the 
applicable local radio or the local television caps in the market; (2) 
a radio station group owner that also owns a newspaper in the market, 
but which does not own any television properties in the market, may 
acquire radio stations up to 100% of the applicable radio cap. In these 
small to medium size markets, therefore, the Commission will prohibit: 
television broadcasters that also own a daily newspaper in the market 
from having a television duopoly in that market; a broadcaster with a 
duopoly from obtaining a daily newspaper in the same DMA; a newspaper 
owner from purchasing more than a single television station within the 
DMA; and a radio station owner that also owns a daily newspaper and a 
television station in the market from exceeding 50% of the applicable 
radio cap for the market.\30\
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    \30\ For these purposes, the Commission uses the Arbitron or 
contour-overlap market definitions discussed above in determining 
whether the newspaper and a radio station serve the same market. We 
are not imposing a limitation that would preclude a top four 
television stations in a market from being combined in common with a 
newspaper or radio station similar to the restriction imposed in the 
local television rule context. The top four restriction imposed 
under the local TV ownership rule is specifically designed to 
protection competition, as fully discussed in that section. The 
cross-media limit, on the other hand, is designed to protect 
viewpoint diversity, not economic competition.
---------------------------------------------------------------------------

    325. Although there may be economic benefits to the owner from more 
extensive combinations, it is not as clear that those benefits will 
accrue to the public in any meaningful way; at least the public 
interest component of these benefits is likely to decline incrementally 
as the number of stations increases. Given that no owner will be 
permitted, in accordance with the Commission's local television cap, to 
hold more than two television stations in a small to medium size 
market, a limit of one station in these markets for owners of local 
newspapers will maximize the public interest benefits, while reducing 
any loss of diversity. Although the loss of diversity that might result 
were that owner to add a significant radio presence in the market 
warrants a further 50% limit in the number of radio properties that 
owner might hold, such is not the case if the combination does not 
include any television properties.
    326. The Commission has engaged in this analysis using its DI and a 
randomly selected sample of markets not with the idea of slavishly 
following the numbers that the index generated, but to confirm and 
support the judgments the Commission makes regarding the kinds of 
markets that are most susceptible to viewpoint concentration, and the 
kinds of transactions that are most likely to have a significant impact 
on the level of diversity available in any given market. The Commission 
does not believe that markets with between four and eight television 
stations can be regarded as moderately concentrated for viewpoint 
purposes or otherwise ``at risk.'' The Commission does, however, 
believe, and the DI confirms, that these markets are approaching a 
level of viewpoint concentration that the Commission would regard as 
moderate, and it is concerned that some combinations involving the 
three major sources of local news and public affairs information in 
these markets would lead to inordinate diversity losses. Accordingly, 
the Commission will permit television/radio combinations in small to 
medium size markets, provided they comply with the local radio and 
television rules.
    327. With respect to markets with nine or more TV stations (``large 
markets''), the Commission imposes no cross-media restrictions. To 
begin with, markets of this size today tend to have robust media 
cultures characterized by a large number of outlets and a wide variety 
of owners. New York City, for instance, which has 23 licensed 
television stations, 61 radio stations, and 21 daily newspapers, had 61 
different owners of broadcast stations and daily newspapers as of 
November 2002. Using the Commission's diversity index as a measure, New 
York City today has a base DI of only 373. More striking, perhaps, is 
the example provided by Kansas City, Missouri, which has only nine 
licensed television stations. The Commission's Ten City Study reveals 
that Kansas City had 35 different owners and the Commission's Diversity 
Index analysis shows that Kansas City has a base DI today of only 509.
    328. Again, to ensure that the results of the Commission's Ten City 
Study were not anomalous, the Commission conducted a DI analysis on a 
random sample of markets of various sizes, including markets with nine 
licensed television stations, markets with ten television stations, 
markets with fifteen television stations, and markets with twenty 
television stations. Among the Commission's sample markets, the

[[Page 46326]]

average DI for those with nine television stations is 705; the average 
DI for those with ten television stations is 635; the average for those 
with fifteen television stations is 595; and the average DI for those 
with twenty television stations is 612. That is, markets with nine or 
more television stations today are very much un-concentrated.
    329. Beginning in markets with nine licensed television stations, 
the Commission sees that, on average, the change in DI that would 
result from a television owner acquiring a radio group consisting of 
the maximum number of radio stations permissible under the Commission's 
local radio rule is only 64 points. If instead it were the owner of a 
daily newspaper acquiring that radio group, the DI change would be 198 
points, leaving the market below 1000 DI. If the owner of a daily 
newspaper were to purchase a television station instead of a large 
radio group in a market of this size, the DI would increase only 86 
points. Indeed, the largest combination possible in the market--a 
combination that would include a daily newspaper, a television duopoly, 
and a large radio group--would result in a DI increase of 473 points, 
taking the average nine television market to a base DI of under 1200 
points, only marginally in the range that the Commission would consider 
moderately concentrated.
    330. This analysis is premised on the creation of very large 
combinations of media properties at the local level. Even so, the 
results show that markets with nine or more television stations are un-
concentrated today and are unlikely to become highly concentrated even 
in the absence of cross-media limits. Section 202(h) requires that the 
Commission justify broadcast ownership limits on more than supposition 
or inchoate fears; the Commission's governing law requires that the 
Commission targets its structural limits at real and demonstrable 
harms. Based on the foregoing, the Commission cannot, therefore, 
justify cross-media restrictions in markets with nine or more licensed 
television stations.
    331. The tiers adopted in the R&O, ``at-risk'' markets, ``small to 
medium size'' markets, and ``large'' markets--are derived from the 
Commission's DI analysis and our independent judgment regarding market 
operation and the effect of various combinations on diversity. The 
Commission's diversity concerns are greatest in at-risk markets and the 
Commission has accordingly prohibited all forms of cross-media 
combinations in those markets. In small to medium markets the 
Commission has imposed specific limitations on particular kinds of 
combinations that would, in its estimation, most likely result in 
unacceptable harm to viewpoint diversity. In large markets, the 
Commission's analysis indicates that no cross-media limit is necessary, 
nor can one be justified, given the large number of outlets and owners 
that typify these markets and the operation of its intra-service 
television and radio caps.
    332. Conclusion. Although the Commission generally prohibits 
television-radio, and newspaper-broadcast, cross-ownership in at-risk 
markets, and the Commission limits newspaper-broadcast combinations in 
small to medium size markets, the Commission recognizes that special 
circumstances may render these cross-media limits unnecessary or 
counter-productive in particular markets. Accordingly, the Commission 
will continue to entertain requests for waiver of these cross-media 
limits and, in particular, will give special consideration to waiver 
requests demonstrating that an otherwise prohibited combination would, 
in fact, enhance the quality and quantity of broadcast news available 
in the market.\31\ In addition, of course, the Commission will review 
its entire local broadcast ownership framework, including its new 
cross-media limits, beginning next year, in the 2004 biennial review. 
The Commission will not, however, permit collateral attack upon its 
rules in individual cases on diversity grounds based upon more 
particularized showings using the DI in a given market. The rules 
adopted in the R&O are rules of general applicability. The lines that 
have been drawn and the judgments that have been made reflect the 
Commission's conclusions regarding the probable effects of given 
transactions in the run of cases. Those conclusions necessarily rely 
upon generalizations, approximations, and assumptions that will not 
hold true in every case. Indeed, many of these assumptions would not be 
true in a particular context or specific market. The Diversity Index 
itself is a blunt tool capable only of capturing and measuring large 
effects and general trends in typical markets. It is of no use, 
therefore, for parties to attempt to apply the DI to a particular 
transaction in a particular market.
---------------------------------------------------------------------------

    \31\ As is the case with our new local television ownership 
rules, we will require that a licensee who obtains a waiver of our 
cross-media limits show at renewal time the benefits that have 
accrued to the public as a consequence of the waiver. At the end of 
the broadcast station's (or stations') license term(s), the licensee 
of the station(s) must certify to the Commission that the public 
interest benefits of the Commission's grant of the waiver are being 
fulfilled. This certification must include a specific, factual 
showing of the program-related benefits that have accrued to the 
public. Cost savings or other efficiencies, standing alone, will not 
constitute a sufficient showing.
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D. Grandfathering and Transition Procedures

    333. Grandfathering Provisions. There may be some existing 
combinations of broadcast stations that exceed the new ownership limits 
due to the modifications of both the local TV and the local radio 
ownership rules. In addition, there may be instances in which a party 
currently owns a radio/television combination that may not comply with 
the new cross-media limits.\32\
---------------------------------------------------------------------------

    \32\ While we are not aware of any existing newspaper/broadcast 
combinations that have been previously grandfathered or approved by 
the Commission that would be barred under the new rules, to the 
extent such combinations do exist, they will be subject to the 
grandfathering and transferability provisions described in this 
section.
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    334. The Commission is persuaded by the record to grandfather 
existing combinations of radio stations, existing combinations of 
television stations, and existing combinations of radio/television 
stations. The Commission will not require entities to divest their 
current interests in stations in order to come into compliance with the 
new ownership rules. As suggested by commenters, doing so would 
unfairly penalize parties who bought stations in good faith in 
accordance with the Commission's rules. Also, the Commission is also 
sensitive to commenters' concerns that licensees of current 
combinations should be afforded an opportunity to retain the value of 
their investments made in reliance on our rules and orders. The 
Commission also agrees with the commenters that argue that compulsory 
divestiture would be too disruptive to the industry. On balance, any 
benefit to competition from forcing divestitures is likely to be 
outweighed by these countervailing considerations.
    335. While commenters overwhelmingly support grandfathering 
existing combinations, many nonetheless argue that grandfathering will 
create competitive imbalances which favor existing group owners--those 
that assembled combinations under the current rules--and disfavor those 
that cannot assemble competing combinations because of new ownership 
restrictions. Like all grandfathering decisions, some disparity will 
exist between grandfathered owners and non-grandfathered owners. The 
Commission does not believe this fact outweighs the

[[Page 46327]]

equitable considerations that persuade us to grandfather existing 
combinations.
    336. Transferability. In general, the Commission will prohibit the 
sale of existing combinations that violate the modified local radio 
ownership rule, the local television ownership rule, or the cross media 
limits. Parties must comply with the new ownership rules in place at 
the time a transfer of control or assignment application is filed. 
However, in order to help promote diversity of ownership, the 
Commission will allow sales of grandfathered combinations to and by 
certain ``eligible entities.'' The Commission does not agree with 
commenters that advocate allowing grandfathered combinations to be 
freely transferable in perpetuity, irrespective of whether the 
combination complies with our adopted rules. Such an approach would 
hinder our efforts to promote and ensure competitive markets. Unlike 
our decision not to require existing station owners to divest stations, 
here, the threat to competition is not outweighed by countervailing 
considerations. Buyers will be on notice that ownership combinations 
must comply at the time of the acquisition of the stations. Thus, they 
do not have the same expectations as present owners who acquired 
stations under the current ownership rules. Because of the limited 
number of broadcast licenses available, station spin-offs that would be 
required upon sales of stations in a grandfathered group could afford 
new entrants the opportunity to enter the media marketplace. They could 
also give smaller station owners already in the market the opportunity 
to acquire more stations and take advantage of the benefits of combined 
operations. Because divestitures are not required until a sale of the 
station groups, owners have sufficient time to minimize any specific 
complications due to joint operations. Therefore, the Commission 
rejects the argument that prohibiting transfers of station groups that 
exceed the new ownership limits would be unacceptably disruptive or 
would negatively impact the availability of bank financing, as some 
commenters suggest. Requiring future assignments and transfers to 
comply with our ownership rules upon sale is consistent with Commission 
precedent. The prohibition on the transfer of grandfathered stations 
will not apply to pro-forma changes in ownership or to involuntary 
changes of ownership due to a death or legal disability of the 
licensee.
    337. Eligible Transfer. The Commission is adopting an exception to 
its prohibition on the transfer of grandfathered combinations in 
violation of the new rules. This exception applies to grandfathered 
radio and television combinations that exceed the ownership limits 
adopted in this R&O, cross-media combinations in at-risk markets, and 
cross-media combinations in small to medium sized markets that exceed 
the ownership limits adopted in this R&O. Entities may transfer control 
of or assign a grandfathered combination to ``eligible entities'' as 
defined herein.\33\ In addition, ``eligible entities'' may sell 
existing grandfathered combinations without restriction. As the 
Commission defines in greater detail below, it limits ``eligible 
entities'' to small business entities, which often include businesses 
owned by women and minorities.
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    \33\ We are not grandfathering existing combinations of stations 
that exceed the ownership limits because of an attributable interest 
in a station pursuant to an LMA or JSA. Existing LMAs and JSAs that 
result in a combination of stations exceeding the ownership limits 
must be terminated at the time of the sale or within two years, 
whichever comes first.
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    338. The Commission defines an ``eligible entity'' as an entity 
that would qualify as a small business consistent with SBA standards 
for its industry grouping. For example, the SBA small business size 
standard for radio stations is $6 million or less in annual revenue. 
For TV stations the limit is $12 million. The Commission will further 
require that any transaction pursuant to this exception may not result 
in a new violation of the rules. Control of the eligible entity 
purchasing the grandfathered combination must meet one of the following 
control tests. The eligible entity must hold (1) 30% or more of the 
stock/partnership shares of the corporation/partnership, and more than 
50% voting power, (2) 15% or more of the stock/partnership shares of 
the corporation/partnership, and more than 50% voting power, and no 
other person or entity controls more than 25% of the outstanding stock, 
or (3) if the purchasing entity is a publicly traded company, more than 
50% of the voting power.
    339. The Commission will allow entities that meet the definition of 
``eligible entity'' to transfer any existing grandfathered combination 
generally without restriction. The Commission believes that small 
businesses that qualify as eligible entities require greater 
flexibility than do larger entities for the disposition of assets. 
Restrictions on the sale of assets could disproportionately harm the 
financial stability of smaller firms compared to that of larger firms, 
which have additional revenue streams. However, an eligible entity may 
not transfer a grandfathered combination acquired after the adoption 
date of this R&O to an entity other than another eligible entity unless 
it has held the combination for a minimum of three years. The 
Commission will prohibit eligible entities from granting options to 
purchase, or rights of first refusal to prevent non-eligible entities 
from financing an acquisition in exchange for an option to purchase the 
combination at a later date. Any transaction pursuant to this policy 
may not result in a new violation of the rules.
    340. Radio LMA Combinations. The Commission will give licensees two 
years from the effective date of this R&O to terminate any LMAs that 
result in a violation of the new ownership limits, or otherwise come 
into compliance with the new rules. If the licensee sells an existing 
combination of stations within the two year grace period, it may not 
sell or assign the LMA to the buyer if the LMA causes the buyer to 
exceed the ownership limits adopted in this R&O. Parties are prohibited 
from entering into an LMA or renewing an existing LMA that would cause 
the broker of the station to exceed the ownership limits.
    341. TV LMA Combinations. In our Local TV Ownership Report and 
Order, the Commission grandfathered LMA combinations that were entered 
into prior to November 5, 1996, through the end of our 2004 biennial 
review. The Commission does not alter this policy. These LMAs are not 
affected by the grandfathering policy adopted in the R&O.
    342. TV Temporary Waivers. A few licensees have been granted 
temporary waivers of our local TV ownership rule, and some have filed 
requests for an extension of waivers that are currently pending, or 
have sought permanent waivers. Any licensee with a temporary waiver, 
pending waiver request, or waiver extension request must, no later than 
60 days after the effective date of this R&O or the date on which the 
waiver expires, whichever is later, file one of the following: (i) A 
statement describing how ownership of the subject station complies with 
the modified local TV ownership rule; or (ii) an application for 
transfer or assignment of license of those stations necessary to bring 
the applicant into compliance with the new rules.
    343. Cross-Media Conditional Waivers. A few licensees have been 
granted conditional waivers of the previous one-to-a-market rule. 
Parties that currently have conditional waivers for radio/television 
combinations must submit a statement to indicate whether the 
combination they hold: (1) Is located in an at-risk market, (2) is 
located in a small to medium size market, and (3) is

[[Page 46328]]

in compliance with the cross-media limits. For the combinations that 
comply with the cross-media limits adopted herein, the Commission will 
issue a letter replacing the conditional grant with permanent approval. 
For any combinations that violate the cross-media limits, the 
Commission will issue a letter indicating that the combination will 
continue to be grandfathered until a decision in the 2004 Biennial 
Review is final. As part of the 2004 Biennial Review, the Commission 
will review and reevaluate the status of such grandfathered 
combinations to determine whether they should continue to be 
grandfathered. On a case-by-case basis, the Commission will consider 
the competition, diversity, equity, and public interest factors the 
combinations may raise.
    344. Other Cross-Media Waivers. The Commission's cross-media limits 
are founded on the presumption that, by reason of cable carriage, 
television stations are available throughout the DMA to which they are 
assigned. The Commission recognizes, however, that this may not be true 
in every case. Accordingly, those requesting waiver of our cross-media 
limits may attempt to rebut this presumption in individual cases
    345. Elimination of Flagging and Interim Policy. In August 1998, 
the Commission began ``flagging'' public notices of radio station 
transactions. Under this policy, the Commission flagged proposed 
transactions that would result in one entity controlling 50% or more of 
the advertising revenues in the relevant Arbitron radio market or two 
entities controlling 70% or more of the advertising revenues in that 
market.
    346. The Commission believes that the changes made today to the 
market definition will address many of the market concentration 
concerns that led the Commission to begin flagging radio station 
transactions. Accordingly, effective upon adoption of this R&O, the 
Commission will no longer flag radio sales transactions or apply the 
interim policy procedures adopted in the Local Radio Ownership NPRM in 
processing them.
    347. Processing of Pending and New Assignment and Transfer of 
Control Applications. The processing guidelines below will govern 
pending and new commercial broadcast applications for the assignment or 
transfer of control of television and radio authorizations commencing 
as of the adoption date of this R&O. These guidelines also cover 
pending and new modification applications that implicate our multiple 
ownership rules. Applications filed on or after the effective date of 
this R&O as well as applications that are still pending as of such 
effective date will be processed under the new multiple ownership 
rules, including, where applicable, the interim methodology for 
defining radio markets as adopted in the R&O.
    348. New Application. The Commission has established a freeze on 
the filing of all commercial radio and television transfer of control 
and assignment applications that require the use of FCC Form 314 or 315 
(``New Applications''). The Commission will revise application Forms 
301, 314 and 315 to reflect the new rules adopted in the R&O. The 
freeze will be in effect starting with the R&O's adoption date until 
notice has been published by the Commission in the Federal Register 
that OMB has approved the revised forms. Upon such publication, parties 
may file New Applications, but only if they demonstrate compliance with 
the new multiple ownership rules adopted in the R&O, including where 
applicable, the interim methodology for defining radio markets outside 
Arbitron metros, or submit a complete and adequate showing that a 
waiver of the new rules is warranted. The Commission will continue to 
allow the filing of short-form (FCC Form 316) applications at any time 
and will process them in due course.
    349. Pending Applications. Applicants with long-form assignment or 
transfer of control applications (FCC Form 314 or 315) or with 
modification applications (FCC Form 301) that are pending as of 
adoption of the R&O (``Pending Applications'') may amend those 
applications by submitting new multiple ownership showings to 
demonstrate compliance with the ownership rules adopted in the R&O, 
including where applicable, the interim methodology for defining radio 
markets outside of Arbitron metros, or by submitting a request for 
waiver of the new rules. Parties may file such amendments once notice 
has been published by the Commission in the Federal Register that OMB 
has approved the information collection requirements contained in such 
amendments. Pending Applications that are still pending as of the 
effective date of the new rules will be processed under the new rules. 
Applications proposing pro forma assignments and transfers (FCC Form 
316) will be processed in the normal course.
    350. Pending Petitions and Objections. Petitions to deny and 
informal objections that were submitted to the Commission prior to the 
adoption date of the R&O and that raise issues unrelated to competition 
against Pending Applications will be addressed with respect to those 
issues at the time the Commission acts on such Applications. Petitions 
and informal objections that were submitted to the Commission prior to 
the adoption date of the R&O and that contest Pending Applications 
solely on grounds of competition pursuant to the interim policy will be 
dismissed as moot.

VI. National Ownership Rules

    351. The Commission considers the national TV ownership rule and 
the dual network rule. The Commission concludes that it should modify 
the former by raising the cap to 45%, and the Commission retains the 
latter.

A. National TV Ownership Rule

    352. The current national TV ownership rule prohibits any entity 
from owning televisions stations that in the aggregate reach more than 
35% of the country's television households. 47 CFR 73.3555(e)(1). The 
Commission concludes that the current rule cannot be justified and it 
raises the cap to 45% and retains the UHF discount.
    353. In the 1984 Multiple Ownership Report and Order, the 
Commission determined that repealing the national TV ownership rule 
would not harm competition or diversity. Consistent with the decision 
in 1984, the Commission finds that restricting national station 
ownership is not necessary to promote either of those policy 
objectives. It departs, however, from the 1984 decision to repeal the 
rule because evidence in the record demonstrates that the national 
television cap serves localism. The localism rationale for retaining 
the national television cap was articulated in the 1998 Biennial Review 
Report. In that decision the Commission explained that preserving a 
balance of power between the networks and their affiliates serves local 
needs and interests by ensuring that affiliates can play a meaningful 
role in selecting programming suitable for their communities. The 
Commission continues to believe that to be the case and, consequently, 
that a national cap is necessary to limit the percentage of television 
households that a broadcast network may reach through the stations it 
owns. Although the record supports retention of a national ownership 
cap, it does not support a cap of 35%. The evidence shows that the cap 
at the current level is not necessary to preserve the balance of 
bargaining power between networks and affiliates. The record also 
indicates that the cap appears to have other drawbacks. Most 
importantly, the cap restrains some of

[[Page 46329]]

the largest group owners--broadcast networks--from serving additional 
communities with local news and public affairs programming that is of 
greater quantity and at least equal, if not superior, quality than that 
of affiliates. Moreover, the Commission believes that a modest 
relaxation of the cap will help networks compete more effectively with 
cable and DBS operators and will promote free, over-the-air television 
by deterring migration of expensive programming to cable networks. 
Balancing these competing interests, the Commission raises the national 
cap from 35% to 45%.
    354. Background. Since 1941, the Commission has limited the 
national ownership reach of television broadcast stations. The 
Commission has modified the restriction several times to keep pace with 
the changing marketplace. In 1984, the Commission repealed the rule, 
concluding that it was not necessary to promote competition or 
diversity, and instituted a six-year transitional ownership limit of 
twelve television stations nationwide. On reconsideration, the 
Commission affirmed its underlying conclusions, but it eliminated the 
sunset provision out of a concern that repealing the rule would create 
a disruptive restructuring of the national broadcasting industry. The 
Commission retained the twelve station limit and, in addition, 
prohibited an entity from reaching more than 25% of the country's 
television households through the stations it owned.
    355. In 1996, the Commission adopted the current 35% cap in 
response to the Congress' directive to raise the cap (from 25% to 35%) 
and to eliminate the rule that an entity could not own more than twelve 
stations nationwide. The Commission subsequently affirmed the 35% cap 
as part of its 1998 biennial review of media ownership regulations. In 
affirming the cap, the Commission reasoned that it would be premature 
to institute revisions to the national TV ownership limit before fully 
observing the effects of changes to the local TV ownership rules and 
the effects of raising the cap from 25% to 35%. The Commission also 
concluded that the national TV ownership rule helps promote better 
service to local communities by preserving the power of affiliates to 
negotiate with the networks and to make independent programming 
decisions. In addition, the Commission concluded that the national TV 
ownership rule facilitates competition in the program production market 
and in the national advertising market.
    356. Several broadcast networks challenged the Commission's 
decision to retain the national TV ownership rule. In Fox Television 
Stations, Inc. v. FCC, 280 F.2d 1027 (D.C. Cir. 2002), the U.S. Court 
of Appeals for the District of Columbia Circuit found that the 
Commission's 1998 decision to retain the rule was arbitrary and 
capricious, and it remanded the rule for further consideration. The 
court rejected the Commission's ``wait-and-see'' approach on the 
grounds that it was inconsistent with the Commission's statutory 
mandate to determine on a biennial basis whether its rules are 
necessary in the public interest. The court also held that the 
Commission failed to demonstrate that the national cap advanced 
competition, diversity, or localism.
    357. With respect to competition, in its 1998 Biennial Review 
Report, the Commission provided a study and a table showing that large 
group owners of television stations had acquired additional stations 
and increased their audience reach since the 1996 Act's passage. The 
court was not persuaded by the Commission's evidence that large group 
owners have undue market power, and it agreed with the networks that 
the figures alone, absent evidence of an adverse effect on the market, 
were insufficient to support retention of the rule. The court also 
found unsupported the Commission's statement in the 1998 Biennial 
Review Report that the national cap is necessary to safeguard 
competition in the national advertising or program production markets. 
The court concluded that the Commission's analysis of the state of 
competition in the television industry was incomplete and did not 
satisfy the requirement under section 202(h) to show that the rule is 
necessary in the public interest as the result of competition.
    358. The court held that diversity and localism are valid public 
interest goals within the context of broadcast regulation and made it 
clear that the Commission could determine that the national TV 
ownership rule was necessary in the public interest under section 
202(h) if it served either interest. The court, however, ruled that the 
Commission had not provided sufficient evidence that either one of 
these goals was served. The court noted that the Commission, in its 
1998 Biennial Review Report, ``mentioned national diversity as a 
justification for retaining the [national TV ownership rule], but did 
not elaborate upon the point.'' The court found the Commission's 
statement did not explain why the rule is necessary to further national 
diversity. The court also found that the Commission failed to justify 
its departure in the 1998 decision from its 1984 decision, in which the 
Commission concluded that the national TV ownership restriction should 
be phased out after six years because: (1) The rule no longer was 
necessary for national diversity given the abundance of media outlets 
and (2) a national rule was irrelevant to local diversity. In addition, 
the court held that the Commission did not adequately demonstrate that 
the rule strengthens the bargaining power of independently-owned 
affiliates and thereby promotes program diversity, particularly in 
light of its 1984 conclusion that no evidence suggested that stations 
that are not group-owned responded better to community needs or spent 
proportionately more revenue on local programming. However, the court 
acknowledged the Commission's right to reverse course, provided the 
reversal is supported by a reasoned analysis. Recognizing that 
sufficient evidence may exist to justify the national TV ownership 
rule, the court determined that the appropriate remedy was to remand, 
rather than to vacate, the rule. The Commission now considers whether 
the current rule can be justified as necessary to promote competition, 
diversity or localism.
    359. The Current National TV Ownership Rule Cannot Be Justified. 
Under section 202(h), the Commission must evaluate whether the national 
TV ownership rule continues to be ``necessary in the public interest as 
the result of competition.'' To make this determination, it considers 
whether the rule serves the public interest by furthering its policy 
goals of competition, localism, or diversity. The evidence demonstrates 
that a national TV ownership limit is necessary to promote localism by 
preserving the bargaining power of affiliates and ensuring their 
ability to select programming responsive to tastes and needs of their 
local communities. However, the evidence also demonstrates that the 
current cap of 35% is not necessary to preserve that balance.
    360. Competition. In analyzing whether the current rule is 
necessary to protect competition, the Commission focuses on whether and 
to what extent market power exists in any relevant market, and what 
effect the rule has on the existence and exercise of this market power. 
In the 1984 decision to eliminate the national ownership cap, the 
Commission limited its competition analysis to the national television 
advertising market. In this decision, the Commission expands its 
competition review to include the national program acquisition market. 
The national cap affects economic concentration in

[[Page 46330]]

national markets by limiting the size of group owners of television 
stations, but does not affect concentration in the local video delivery 
market, and thus does not raise competition concerns that were 
discussed in the local ownership rule sections above. The national cap 
limits the ability of group owners to purchase television stations in 
individual local markets. The effect of this ownership restriction on 
station performance in the video delivery market is discussed elsewhere 
in this summary.
    361. Based on its analysis of the relevant markets, the Commission 
finds that the current rule is not necessary to maintain competition in 
the three economic markets it examines. As the record indicates, the 
media marketplace is undergoing unprecedented change. Broadcast 
stations are subject to competition from cable and DBS, and they face 
increased competition for viewers, advertising revenues, station 
network affiliations, and programming. The Commission concludes that 
the 35% cap is no longer necessary to protect competition in the media 
marketplace and unnecessarily constrains the organization of, and 
investment in, free, over-the-air (i.e., non-subscription) broadcast 
television.
    362. Broadcast competition framework. The evolution of non-price 
competition in television has implications for the economic 
organization of broadcast television networks. Higher channel capacity 
cable systems and the growth in the number of cable networks, together 
with the programming options offered by DBS, have intensified the 
competitive pressure on broadcast television networks to slow the 
erosion of viewer market share and to build strong network brand 
identity reflecting program focus, quality and reputation.
    363. Two broadcast television network organizational changes, which 
are viewed as responses to the growth in viewer options, are 
noteworthy, namely, (1) the extensive backward integration into program 
supply, and (2) the desire to increase the extent of forward vertical 
integration through ownership of additional local television stations. 
Transaction cost economics suggests that such organizational 
integration induced by increased rivalry within the media industry may 
improve economic efficiency.
    364. Transaction cost economics adopts a contractual approach in 
understanding the economic organization of firms. The transaction--the 
exchange of goods or services for money or other goods between 
parties--is the focal point of economic analysis. Determining the 
governance structure that minimizes the economic cost of effectuating a 
particular type of transaction is a central objective of a transaction 
cost analysis. Transaction cost economics identifies three, discrete 
governance structures, namely, (1) the market; (2) hybrid contracting; 
and (3) hierarchy, where transactions are placed under unified 
ownership in a firm subject to administrative controls and management. 
Whether it is economically efficient (cost minimizing) to effectuate 
exchange using market contracting or through hierarchy (vertical 
integration) depends on certain behavioral assumptions, and key 
attributes of any given transaction.
    365. In general, ordinary market contracting is an efficient 
governance structure for transactions supported by general purpose 
assets not dedicated to the specific output demand of a given customer. 
As asset specificity deepens, market contracting as a governance 
structure gives way to either hybrid structures or hierarchy (vertical 
integration) as the least costly to organize transactions. The 
pervasiveness of asset specificity in the program production industry 
suggests that complex contracts between broadcast television networks 
and program suppliers may not be the least costly governance structure 
for effectuating transactions.
    366. Broadcast television networks have a single, strategic focus, 
namely, the maximization of the number of television viewers that are 
attracted to mass audience and niche audience programming. This 
strategic focus is crucial to broadcast television networks, since the 
sale of audiences to national advertisers provides their only stream of 
revenue from broadcast operations in contrast to cable networks which 
may receive both advertiser and subscriber revenue. By contrast, local 
broadcast television stations pursue a more complex business strategy 
as licensed broadcast facilities. First, the local station seeks to 
maximize the size of the audience it attracts within its local 
television market. If the local station is a network affiliate, then 
the local station will promote the network's program schedule together 
with syndicated programming the station may acquire to help fill out 
its daily program schedule. Second, the local station will also promote 
its own locally-produced programming, such as news and public affairs 
programming, that it believes is responsive to issues or viewer 
preferences in the communities served by the station. Station 
management may vary the allocation of time devoted to any particular 
type of programming, including network programming, to respond to 
emerging preferences or news events in the communities located in its 
local television market. As the networks have lost viewer market share 
over the last decade in response to the growth in cable and DBS, the 
traditional contractual relationship between a television network and a 
local station affiliate may be a less efficient governance structure. 
From a transaction cost perspective, television networks view their 
massive sunk investments in network programming as increasingly risky 
assets as non-broadcast program options proliferate.
    367. With respect to contractual safeguards, the networks have 
attempted to negotiate substantial penalties for failure to clear a 
full schedule of network programming. With respect to changes in 
governance structure, the broadcast television networks have argued for 
elimination of the national ownership cap, which would permit the 
networks to substitute hierarchy (vertical integration) for the current 
contractual relationship with independently-owned station affiliates. 
Presumably, the networks believe, consistent with transaction cost 
logic, that conflicts in strategic focus between stations and the 
network respecting programming decisions can be resolved more 
efficiently, i.e., at minimal transaction cost, if hierarchy, i.e., 
forward vertical integration, replaces market contracting as the 
governance structure.
    368. Thus, the Commission's transaction cost analysis suggests that 
the national ownership cap probably restricts the full transition to 
the least costly way for organizing transactions between television 
networks and local television stations, i.e., forward vertical 
integration, assuming that realization of a network's singular 
strategic focus on mass or niche audience size is the preferred policy 
objective. If, however, locally produced programming and ultimate 
program selection authority are a higher policy priority, then the 
Commission's transaction cost economic framework identifies the 
relevant policy trade-off, namely, the incremental social benefit of 
local programming viewed as a component of the Commission's localism 
policy goal versus the increased social and private costs of 
inefficient contracting.
    369. Program Production and Acquisition Market. Competition in the 
program production and acquisition market is important because networks 
and owners of individual television stations compete with each other, 
as well as with cable television networks, to acquire programming that 
will

[[Page 46331]]

continue to attract viewers to their channels. Although television 
station owners as a group are relatively significant purchasers of 
programming, the Commission has no evidence that they exercise market 
power in the program production market.
    370. In considering the effect of the national television cap on 
competition in the program acquisition market, the Commission first 
must identify the market participants. The broadcast networks contend 
that the following categories of firms compete in the program 
acquisition market: broadcast television networks, individual 
television stations (and group owners thereof), non-broadcast program 
networks (i.e. cable networks), syndicators, pay-per-view systems, VHS 
and DVD rental stores. The affiliates counter that major broadcast 
networks are a discrete sub-market, or ``strategic group,'' within the 
program purchasing market. The Commission generally agrees with the 
networks' definition of the relevant market participants, although it 
excludes video sales and rental stores. It disagrees with the networks' 
contention that such outlets are clearly a substitute for the delivered 
video programming of broadcast channels and cable channels. Those 
channels are the most conventional form of television viewing that can 
be substituted among by viewers almost instantly. It is possible to 
analyze the impact on the program acquisition market of relaxing the 
national television ownership cap by examining company expenditure 
shares. The following describes estimates of expenditure shares and 
calculation of a hypothetical HHI. The analysis assumes that the buyers 
in this market are broadcast networks, broadcast stations, and cable 
networks.\34\ OPP Working Paper 37 (Table 32) provides estimates for 
the year 2000 of programming expenditures by the Big Four commercial 
networks and by television stations.
---------------------------------------------------------------------------

    \34\ Our market definition includes pay cable networks as well 
as pay-per-view networks, but in the absence of data, they are 
excluded from this analysis
---------------------------------------------------------------------------

    371. The table included in this summary provides program 
expenditure data for the year 2000 for the Big Four broadcast networks 
in column 2 and for eight firms that own cable networks in column 4. 
The eight firms include the top four broadcast networks, the two 
biggest cable network owners that do not own television stations, and 
the two companies with the biggest cable network shares that also own 
television stations. There is also a residual category that includes 
all other cable network expenditures as ``Other.''
    372. Column 3 includes some hypothetical broadcast station owner 
shares. The Commission does not know exactly how station expenditures 
are divided up among companies that own television stations. The 
numbers in this column represent a ``worst case scenario'' of what 
could happen if the national television cap were eliminated. In 2000 
there were 1248 commercial television stations on the air. The 
Commission knows that the major commercial networks each reach 
virtually 100% of U.S. television households and that each network has 
roughly 200 affiliated stations. If stations were distributed evenly 
across markets, then there would be room for six television station 
companies each reaching all U.S. television households.
    373. However, stations are not evenly distributed across markets. 
There are 50 Nielsen DMAs with fewer than four commercial stations, but 
they account for only 4.6% of U.S. television households, so, from the 
point of view of station programming expenditures, it is reasonable to 
assume that each of the top four broadcast networks could achieve 100% 
coverage of U.S. television households. However, there are 120 markets 
with fewer than six commercial television stations, and those markets 
account for 19.7% of U.S. television households. So it is reasonable to 
assume that two additional station groups could grow to 80% coverage. 
This analysis assumes that television station program expenditures are 
divided among six firms: the four networks with 100% coverage, and Cox 
and Hearst, each with 80% coverage. The Commission assumes that 
expenditures are proportionate to coverage. The resulting expenditure 
estimates are in column 3. These estimates reflect a level of 
concentration that is higher than the true level. There are 63 markets 
with more than six commercial stations in them. Adding up the excess 
over six stations in each market yields a total of 259 stations. The 
Commission knows that a single company can own multiple stations in the 
same market, but it is likely that even with more companies owning two 
stations in a market that there will still be more than six station 
owners in some markets.
    374. Column 5 contains hypothetical total programming expenditures 
for the eight firms, aggregating across broadcast network, broadcast 
station, and cable network categories, and using the hypothetical 
consolidated television station ownership pattern described above. 
Column 6 shows market shares and column 7 implements the HHI 
calculation by squaring and summing the market shares. The resulting 
``worst case'' HHI of 1535 is in the moderately concentrated range. 
Even with the highly unrealistic assumption of a 100% national reach by 
four companies, and an 80% reach by two companies, these levels of 
market share provide us with no basis to conclude that the current 35% 
cap on national television ownership is needed to protect competition 
in the program acquisition market.

                                    Hypothetical HHI for Program Acquisition
                                      [Data are year 2000 in millions of $]
----------------------------------------------------------------------------------------------------------------
                                      Broadcast   Broadcast      Cable                   Market     Market share
                                       network     station      network      Total       share        squared
----------------------------------------------------------------------------------------------------------------
Cox.................................       0           969.5        139.4   1,108.9          4.37     19.13502
Hearst..............................       0           969.5        530.0   1,499.5          5.92     34.98944
ABC.................................   2,581.75      1,212.0      1,276.7   5,070.45        20.00    400.071
Fox.................................   2,581.75      1,212.0        521.8   4,315.55        17.02    289.812
GE..................................   2,581.75      1,212.0        300.0   4,093.75        16.15    260.7875
Viacom..............................   2,581.75      1,212.0      1,466.4   5,260.15        20.75    430.5666
Time Warner.........................       0               0      2,162.9   2,162.9          8.53     72.79758
Liberty Media.......................       0               0        786.3     786.3          3.10      9.621009
Other...............................       0               0      1,052.5   1,052.5          4.15     17.23806
-------------------------------------------------

[[Page 46332]]

 
    Total...........................  10,327           6,787      8,236.0  25,350          100.00  1,535.018
----------------------------------------------------------------------------------------------------------------

    375. National Advertising Market. The Commission's focus is not on 
advertisers, but on the ability of broadcasters to compete for 
advertising revenues. Broadcast networks compete for advertising 
dollars by creating national audiences for their programming. If the 
networks cannot generate national audiences, their ability to compete 
for advertising revenues will decline, thereby diminishing their 
ability to invest in innovative programming. As a result, viewers will 
experience a decrease in programming choices and quality.
    376. In its 1984 decision, the Commission determined that 
elimination of the national cap would not harm competition in the 
national advertising market. The Commission found that the number of 
firms in the market would ensure continued vigorous competition in that 
market. In the NPRM, the Commission sought information on whether the 
conclusion reached in 1984 continues to be valid. To analyze 
competition in this market, the Commission sought comment on the firms 
that compete in the national television advertising market, including 
the extent to which national spot advertisements and/or syndicated 
programming are fungible with network television advertising from the 
perspective of advertisers.\35\ The national television advertising 
market brings together those advertisers wishing to reach a national 
audience with television networks that provide national exposure. 
Broadcast television networks are the leading suppliers of national 
television advertising.
---------------------------------------------------------------------------

    \35\ National spot advertising time is sold by stations to 
national advertisers, which aggregate national or regional coverage 
by purchasing advertising spots from stations in multiple markets. 
Syndication refers to advertisements sold in syndicated programs.
---------------------------------------------------------------------------

    377. The affiliates claim the record demonstrates that national 
spot advertising is competitive with national advertising. National 
advertisers can purchase advertising on a collection of local 
television stations that can approximate a national advertisement on a 
single network. Local television stations sell national spot 
advertising through advertising agencies, which aggregate the available 
advertising on local stations for national spot buyers. The affiliates 
contend that when demand for national advertising on a particular 
network show exceeds the available supply of national network 
advertising time, advertisers turn to the national spot advertising 
market to reach viewers. Television stations rely in part on the 
national spot advertising market for a portion of their advertising 
revenue. The affiliates argue that if the ownership cap is raised, the 
broadcast networks will increase their ownership of television stations 
and decrease the national spot availabilities to such an extent that 
the viability of the national spot market will be impaired. 
Specifically, the affiliates contend that a network-owned station will 
not compete against its network for national (spot) advertising 
revenue. The result, according to the affiliates, is that competition 
in the national advertising market will be diminished by the decreased 
viability of national spot advertising as a substitute for network 
advertising. The affiliates assert that the resulting loss of revenue 
to local stations will harm their ability to compete with other 
delivered video providers.
    378. Discussion. The Commission agrees that a strong national spot 
advertisement market is an important component of the financial 
stability and competitiveness of television station owners. The 
Commission finds, however, that the increase in the cap from 25% to 35% 
has not harmed national spot advertising revenues. Its analysis of 
advertising revenue data indicates that despite increases in ownership 
of stations by CBS, NBC and Fox since 1996, there has been no 
diminution in the national spot advertising market that can be reliably 
associated with an increase in network station ownership. With the 
exception of 2001, national spot advertising has experienced a 
relatively consistent growth.
    379. Although the Commission agrees with the affiliates that 
network-owned stations have less incentive to compete directly with an 
affiliated broadcast network in the national advertising markets, it 
cannot agree that such competition in fact would not occur. If national 
advertisers are willing to pay a higher per-spot price to network-owned 
stations than are local advertisers, network-owned stations might well 
accept the higher priced advertising. Thus, the profit-maximizing 
behavior of the network-owned stations might well serve as a substitute 
for national advertisers seeking to purchase national spot advertising. 
Such a response by network-owned stations would maintain the viability 
of national spot advertising as an option for national advertising 
regardless of the level of the national television cap. Moreover, even 
if the top four networks were to acquire additional local stations and 
declined to use the national spot advertising availabilities to compete 
with their own network's advertising availabilities, there is every 
reason to think the network-owned stations would seek to take national 
advertising dollars away from other broadcast networks. That is, even 
if an NBC-owned station sought not to compete with the NBC network for 
advertising dollars, the NBC-owned stations have incentives to compete 
in the national spot market for advertising dollars that might 
otherwise go to the CBS, ABC, and Fox networks. Consequently, the 
Commission cannot say that the national cap is necessary to protect 
competition in the national advertising market.
    380. Innovation. In the NPRM, the Commission asked whether the 
national ownership cap promotes or hinders innovation in the media 
marketplace. Affiliates argue that non-network owners encourage 
innovation because affiliates provide a competitive outlet for 
innovative programming. The affiliates provide nine examples of 
innovation by non-network group owners, such as satellite newsgathering 
encouraged by affiliates to improve upon network-delivered news; the 
development of the local newsmagazine format; all-news cable channels 
developed for cable carriage; digital TV experiments such as the 
multicasting by several affiliates of the NCAA tournament; the delivery 
of local news in HDTV format; and the creation of iBlast, a joint 
venture between affiliates and an outside firm to develop new uses for 
digital spectrum.
    381. Taking an opposing view, the networks contend that the cap 
limits networks' investment in innovative

[[Page 46333]]

programming by ``inhibiting economic efficiencies'' that come with a 
larger number of owned and operated stations. As evidence, the networks 
refer to a study concluding that, by inhibiting the potential economic 
efficiencies available to group owners, the rule artificially raises 
the cost of operating television stations and limits the return that 
group owners can realize on their programming investments. The study 
argues that the rule drives group owners to direct more of their 
resources away from free television and toward alternative means of 
distributing programming content, such as subscription-based cable 
channels.
    382. Discussion. The current national ownership cap appears to 
encourage innovation in broadcast television by preserving a number of 
separately-owned station groups, including non-network owned station 
groups. The current number of station group owners has led to 
innovation in ways that benefit the public. Those developments include 
the creation of local all-news channels in partnership with local cable 
companies, the implementation of program formats such as local 
newsmagazines, and, importantly, experimentation with the spectrum 
allocated to local broadcasters for digital television. The transition 
to digital television represents a critical evolutionary step in 
broadcast television. The Commission is committed to ensuring the rapid 
completion of that transition in a way that delivers the greatest 
possible benefits to the viewing public. It believes that the broadcast 
industry is more likely to rapidly address the technical and 
marketplace issues associated with digital television if there are a 
variety of group owners exploring ways to use the spectrum. The record 
shows that non-network owners of television stations are actively 
exploring different ways of using digital spectrum. It is also 
important to have group owners with potentially different economic 
incentives in this area examining transition mechanisms to digital 
television. Because of networks' ongoing investment in programming, it 
is possible that networks may have incentives to use digital spectrum 
differently from affiliates. The Fox television network, for instance, 
has indicated its interest in using the spectrum of its owned stations 
as well as its affiliates for future services. Therefore, the 
Commission concludes that a national television cap is necessary to 
preserve a number of separately-owned television station groups, 
including non-network groups, that will increase the types of digital 
transition experiments and ultimately facilitate a rapid and efficient 
transition to digital broadcast television.
    383. Diversity. The 1984 Multiple Ownership Report and Order 
concluded that the local community is the relevant market for 
evaluating viewpoint diversity and that, therefore, the national TV 
ownership rule is not needed to promote viewpoint diversity. The 1984 
Multiple Ownership Report and Order also stated that the national 
market is not relevant for evaluating viewpoint diversity, but even if 
it were, the proliferation of media outlets renders the national 
ownership restrictions unnecessary. In the 1998 Biennial Review Report, 
the Commission did not analyze the rule's effects on viewpoint 
diversity and merely stated, without evidentiary support, that the rule 
promotes diversity of programming. In remanding the national TV 
ownership rule, the court in Fox Television found that the Commission 
had failed to support its 1998 conclusion that the rule is necessary to 
strengthen affiliates' bargaining power and had neglected to address 
its 1984 determination that the national market is not the relevant 
geographic area to consider when evaluating diversity. The Commission 
addresses the issue of affiliates' bargaining power elsewhere in this 
summary and addresses diversity here.
    384. In the NPRM, the Commission observed that the national TV 
ownership rule does not appear to be relevant to the goal of promoting 
viewpoint diversity because people gather news and information from 
sources available in their local market and that the relevant 
geographic market for viewpoint sources is local, not national. It also 
noted that the viewpoints aired by television stations in one city do 
not seem to have a meaningful impact on the viewpoints available in 
other cities. Commenters do not provide evidence that persuades the 
Commission to alter those views, and it affirms the 1984 conclusion 
that the national TV ownership rule is not necessary to promote 
diversity.
    385. Discussion. The Commission concludes that the national 
television cap is not necessary to promote viewpoint diversity. 
Americans use media outlets available in their local communities as 
sources of information. The national television cap, by contrast, 
ensures a larger total number of station owners nationwide, but it has 
no meaningful impact on viewpoint diversity within local markets. It is 
possible, of course, that the replacement of one station owner by 
another could in fact reduce the number of independently-owned 
television stations in that market. If the acquiring firm already owned 
one station in that market and the seller was selling its only station 
in that market, there would be one less independently-owned station in 
that market. The impact of such a transaction on viewpoint diversity 
would be accounted for under the diversity component of the 
Commission's local rules. Therefore, the Commission affirms its 1984 
decision that the national television ownership limit is not necessary 
to promote viewpoint diversity. It also affirms its decision that the 
market for viewpoint diversity is local, not national. And it 
reiterates its 1984 statement that even if the national market were the 
relevant area to consider, the proliferation of media outlets 
nationwide renders the current rule unnecessary.
    386. Although proponents of the current rule assert that the 
increased uniformity imposed by the networks' national distribution 
agenda limits the number of viewpoints available to the public, the 
Commission does not find convincing evidence in the record indicating 
that raising the current national TV ownership limit would harm 
viewpoint diversity. Affiliates assert that maintaining a diversity of 
ownership across local markets is beneficial because viewers may become 
aware of investigative news stories presented by stations in other 
markets, particularly those of strong stations. They argue that ``this 
type of cross-fertilization is less likely to occur in the absence of 
the national TV ownership rule.'' For this cross-fertilization to be a 
plausible scenario, the following minimum conditions must occur: (1) 
The national cap prevents a station from being acquired by a broadcast 
network; (2) the non-acquired station produces content that by some 
measure is meaningfully different (and significant from a viewpoint 
perspective) from what the network-owned station would have aired; and 
(3) the airing of that different content becomes known to consumers in 
other localities. The national cap cannot be justified by reference to 
such a hypothetical scenario as this.
    387. Commenters discussing types of diversity other than viewpoint 
diversity do not provide an evidentiary basis for retaining the current 
cap. The 1998 Biennial Review Report stated that ``[i]ndependent 
ownership of stations also increases the diversity of programming by 
providing an outlet for non-network programming.'' In this R&O, 
however, the Commission has concluded that it can and should rely on

[[Page 46334]]

the marketplace, rather than regulation, to foster program diversity. 
Further, the record in this proceeding does not contain evidence that 
affiliates air programming that is more diverse than programming aired 
by network-owned stations. Therefore, the Commission cannot affirm its 
earlier determination regarding program diversity, and it does not find 
that the cap is necessary to foster program diversity.
    388. Localism. The Commission's decision in the 1984 Multiple 
Ownership Report and Order did not address whether the national TV 
ownership rule advances its goal of localism. In the 1998 Biennial 
Review Report, however, the Commission did address its localism goal, 
declining to modify the national TV ownership restriction in part 
because affiliates ``play a valuable counterbalancing role'' to network 
programming decisions by exercising their independent programming 
discretion regarding what programs best serve the needs and interests 
of their local communities. In Fox Television, the court stated that, 
although the Commission had failed to present evidence that the cap in 
fact promoted localism, localism was a legitimate basis for imposing a 
national ownership cap.
    389. Based on its analysis of the extensive record in this 
proceeding, the Commission concludes that a national television 
ownership limit is necessary to promote localism on broadcast 
television. The evidence suggests, however, that the current 35% cap is 
not needed to protect localism, and may in fact be hindering public 
benefits that are expected to follow from an increase in the cap. The 
Commission concludes that a national cap of 45% fairly balances the 
competing public interest values affected by this rule. It recognizes 
that its decision to retain a national ownership cap is contrary to its 
conclusion in 1984. The Commission reaches this different conclusion 
principally because it finds that a cap is necessary to protect 
localism by preserving a balance of power between networks and 
affiliates, a policy objective that was not considered in the 1984 
decision. In this section, the Commission details the localism 
analysis, and then discusses the modified rule.
    390. Whether a National Cap Promotes Localism. The Commission 
examines the effect of a national television cap on the economic 
incentives for locally responsive programming by television stations. 
It also considers evidence that a national cap results in behavior by 
network-affiliated stations that is responsive to the needs and tastes 
of a station's local community.
    391. Economic Incentives for Localism. The affiliates contend that 
the current national cap is needed to preserve their bargaining power 
with their networks. The affiliates explain that limiting the national 
audience that networks can reach through their owned stations promotes 
a balance of power between networks and their affiliates. The 
affiliates also claim that the cap is necessary to counteract the 
networks' strong financial incentive to promote the widest distribution 
across the nation of network programming irrespective of the tastes of 
one or more particular local cities. The widest possible distribution 
of programming, according to the affiliates, increases viewership of 
network programming, which maximizes network advertising revenues. 
According to the affiliates, maximum national exposure of programming 
also improves the likelihood that the program owner will realize 
additional revenues in the program syndication market. The affiliates 
contend that as broadcast networks have ownership stakes in a larger 
percentage of their prime time programming, their incentive to create 
programs with syndication value--and their incentive to stifle local 
preemption--increases.
    392. The affiliates argue that the incentive of independently-owned 
affiliates, in contrast to network-owned stations, is to make 
programming decisions that are more closely aligned with the needs and 
tastes of their communities of license. A network derives its income 
from the programming that the network produces (and the syndication 
revenue the programs might generate) as well as from its local 
stations. A local station maximizes its income by providing programming 
desired by its local community irrespective of national programming 
preferences. Therefore, the programming interests are not always the 
same.
    393. Evidence of Localism by Affiliate. The affiliates contend that 
the national cap is needed to preserve a body of network affiliates not 
owned by the network that can influence network programming so that it 
is more suited to the tastes and needs of the affiliates' communities. 
In support of this argument, the affiliates submitted several examples 
of the influence independent affiliates can have on network 
programming:
    [sbull] When NBC aired a special edition of Fear Factor, featuring 
Playboy bunnies, during halftime of the Superbowl (airing on Fox), 
affiliates objected to the network promos, which ran during all hours 
of the day, and included tag lines such as ``who needs football when 
we've got bunnies?''
    [sbull] When NBC began a trial program to accept liquor 
advertisements, so many affiliates opted out of airing the ads due to 
local concerns that NBC dropped the program.
    [sbull] CBS had scheduled the Victoria's Secret Fashion Show for 8 
p.m. The affiliates objected to the early showing and urged that the 
program be moved to the 10 p.m. time slot. In response, CBS moved the 
show to 9 P.M., although some affiliates nonetheless preempted the show 
as having inappropriate content for their service areas.
    [sbull] Promotional ads for NBC's Dog Eat Dog included shots of 
nude contestants promoting the program's challenges such as ``strip 
football'' and ``strip golf.'' When affiliates objected to the 
explicitness of the promos and their airing at all times of day, NBC 
agreed to eliminate strip stunts from future episodes.
    [sbull] NYPD Blue was originally designed to include more nudity 
and graphic language than is currently aired, but after ABC affiliates 
objected, the amount of nudity and graphic language in the show was 
reduced. Even so, a number of affiliates initially refused to carry the 
show.
    [sbull] Affiliates expressed concerns about the violent and mature 
content of the series Kingpin, which concerns the life of a drug lord. 
In response, NBC agreed to allow affiliates to review episodes in 
advance to ensure the content is appropriate for their local 
communities.
    [sbull] In 2002, CBS worked with affiliates to reformat its morning 
news program, The Early Show. One key issue of affiliate concern was 
whether they would be permitted to provide local news content during 
the two-hour time block used by the program, as they had with CBS' 
prior show, CBS This Morning. Although some local affiliates are 
permitted to use the blended format with The Early Show, CBS has 
refused to permit other affiliates to move to the blended local-network 
news program format.
    [sbull] NBC affiliates objected to NBC's intention to broadcast the 
2002 Olympic Games live, which would have preempted the evening news on 
the west coast. After initially resisting the requests of the west 
coast affiliates to air a delayed broadcast during prime time, the 
network conducted a viewer survey. Results of the survey, however, 
substantiated the affiliates' assertion that west coast viewers 
preferred to watch the games during prime time, and the networks 
complied.

[[Page 46335]]

    [sbull] NBC affiliates initially objected to NBC's decision to 
require live broadcasting of the XFL games. On the west coast, games 
substantially preempted both the affiliates' early evening local news 
and the national network news. In other parts of the country, overruns 
of the game preempted the late night local news. When affiliates raised 
similar concerns about Arena Football, claiming that overruns would 
preempt the 6 p.m. local newscasts on the east coast, the network 
agreed to work with the sports league to ensure the games do not run 
over.
    [sbull] KYTV in Springfield, Missouri, preempted a January 6, 2003 
episode of NBC's Fear Factor, which airs at 7 p.m. Central Time, that 
involved contestants eating horse rectums because it found the material 
inappropriate for its community.
    394. Separate from this ``collective negotiation'' type of 
localism, parties also submitted evidence regarding the frequency of 
station-by-station preemptions for affiliates versus network-owned 
stations. Preemptions are instances in which local stations, whether 
they are owned and operated by networks or independently owned but 
affiliated with these networks, choose to air a program other than the 
program the network distributes to the station. Affiliates described 
numerous examples of individual station preemptions of network 
programming. WRAZ-TV in Raleigh, North Carolina, chose to stop airing 
Temptation Island after Fox revealed that one of the participating 
couples had a child because ``WRAZ will not support a program that 
could potentially break up the parents of a young child.'' WFAA-TV in 
Dallas did not carry the entire first season of NYPD Blue because it 
found the material and language inappropriate for programming scheduled 
to air at 9 p.m. in that community. KNDX in Bismarck, N.D., refused to 
clear the Fox network's broadcast of the movie Scream, which is 
targeted to young viewers, because of its graphic and disturbing 
portrayal of teenage murders. WFAA-TV, an ABC affiliate in Dallas, was 
denied permission to preempt Monday Night Football's half-time show on 
November 12, 2001 to cover an American Airlines plane crash. American 
Airlines is based in Dallas. According to the affiliates, ABC permitted 
two O&Os to preempt the same half-time show to air news covering the 
same crash. (In this R&O, the Commission uses the terms ``network-
owned'' stations and ``O&O'' (i.e. owned and operated) stations 
interchangeably.) CBS did not permit WTSP-TV in Tampa Bay to air a 
debate between Jeb Bush and Bill McBride during the Florida 
gubernatorial debate because the affiliate would have preempted the 
season premiere of 48 Hours. WTSP-TV was a co-sponsor of the debate. A 
Raleigh North Carolina Fox affiliate refused to air Who Wants to Marry 
a Multimillionaire? because it ``felt it was demeaning to women and 
made a mockery of the institution of marriage.'' WANE-TV, the Fort 
Wayne, Indiana CBS affiliate, sought to preempt network programming to 
air a half-hour, early morning local news program geared toward the 
agricultural community. Although this was initially denied, CBS 
ultimately relented and granted permission.
    395. The networks submitted data comparing prime time preemption 
rates of network-owned stations versus affiliates for 2001. That data 
showed that affiliates preempted an average of 9.5 hours of prime time 
programming per year compared with 6.8 hours per year for network-owned 
stations. The networks claim that this difference is inconsequential 
and does not justify retention of a national ownership cap. Affiliates 
assert that even this hand-picked data by networks confirms that 
affiliates preempt more than network-owned stations and that a national 
cap is needed to protect localism.
    396. Affiliates seek to explain low preemption rates by arguing 
that networks have increasingly restricted preemption through their 
network-affiliate contracts. Affiliates complain that they are subject 
to preemption caps involving financial penalties or loss of affiliation 
if they exceed the number of network-authorized preemptions, while 
affiliates' local programs are often ``preempted'' by network overruns 
(e.g., network sports overrunning local news). According to the 
affiliates, Fox allows only two preemptions per year, and NBC allows 
only five hours of prime-time preemptions per year. Affiliates that 
exceed their allowable preemption ``basket'' may be subject to 
financial penalties or even loss of affiliation. Thus, while a majority 
of affiliates did not exceed their permitted preemptions, affiliates 
argue that there are good reasons for that result. In addition, 
affiliates note that they often maintain a ``cushion'' of unused 
preemption time in case it is needed, requiring them to exercise 
discretion in ``spending'' their preemption time during the year to 
avoid contractual financial penalties associated with excessive 
preemption.
    397. Discussion. The Commission finds that a national television 
ownership cap is necessary to promote localism. The evidence 
demonstrates both that network affiliates have economic incentives more 
oriented towards localism than do network-owned stations, and that 
affiliates act on those incentives in ways that result in networks 
delivering programming more responsive to their local communities (in 
the judgment of the affiliate) than they otherwise would. In order for 
affiliates to continue to serve local community tastes and needs in 
this way, a national cap is needed to preserve a body of independently-
owned affiliates. The two ways in which affiliates can promote localism 
are by collective negotiation to influence the programming that the 
networks provide and by preemption by an individual station owner to 
provide programming better suited to its community.
    398. The record shows that network-owned stations and affiliates 
have different economic incentives regarding the programming aired by 
local stations. The Commission agrees with the affiliates that they 
have an economic incentive to target their local audience by offering 
programs suited to local tastes. In so doing, affiliates have an 
incentive to tailor their programming schedule to meet local 
preferences. Localism is fostered by the affiliates' efforts to promote 
their own economic interest of maximizing the value of their stations 
by offering programming that local viewers will prefer to watch, even 
if the programming replaces the network's nationally scheduled 
programming.
    399. The 2001 preemption data comparing network and affiliate 
preemption rates also supports retention of a national cap. The record 
shows that in 2001, affiliates preempted 9.5 hours per year of prime 
time programming versus 6.8 hours per year for network-owned stations. 
This data bolsters the Commission's conclusion that affiliates act on 
their economic incentives to preempt network programming with 
measurably greater frequency than do network-owned stations. Although 
the Commission agrees with the networks that the total number of hours 
preempted by both types of station owners in this comparison is 
relatively small, these data are for the prime time viewing period, 
when the vast majority of television viewing occurs. In the 
Commission's view, the practical effect of prime time preemption is far 
greater than that of preemption during other dayparts.
    400. The Commission does not believe that network-owned stations 
provide the same localism value that independently-owned affiliates do. 
The networks argue that they listen to the management of network-owned 
stations

[[Page 46336]]

as well as to the management of affiliates. They claim that managers of 
O&Os participate during the networks' program development process and 
provide more credible input than the management of affiliate stations. 
They also assert that affiliates have an ``inherent economic conflict'' 
with the network regarding the distribution of profits, have no 
influence in the development of new programs, and learn of the new 
programs at the same time as do advertisers.
    401. The Commission agrees that affiliates have an inherent 
economic conflict with networks. However, the Commission believes that 
affiliates' economic incentives actually help explain why affiliates 
regularly raise programming concerns with networks and why affiliates 
preempt more network programming, on average, than do network-owned 
stations. In the Commission's view, affiliates' economic incentives to 
maximize local viewership works to promote localism. In addition, the 
networks' claim of minimal affiliate influence over programming is 
overcome by evidence that affiliates regularly raise programming 
concerns with networks and frequently succeed in altering network 
programming in ways that protect local interests. These numerous 
instances of the collective influence brought to bear by affiliates on 
network programming decisions represent a powerful force for the 
protection of local viewing interests. They represent empirical 
evidence that affiliates collectively serve as an important 
counterweight to network programming decisions by influencing networks 
to deliver programming responsive to local tastes. In sum, the 
Commission believes that this affiliate/network dynamic is beneficial 
to viewers and should be preserved. It concludes that eliminating the 
cap altogether would shift the balance of power with respect to 
programming decisions toward the national broadcast networks in a way 
that would disserve its localism policy.
    402. Appropriate Level of the Cap. The Commission has found that a 
national television ownership cap continues to be necessary to promote 
localism because the record demonstrates that affiliates affect network 
programming in ways that respond to viewer preferences in affiliates' 
local communities. In this section, the Commission examines the 
specific effects of the current 35% cap and whether this particular 
level achieves its localism objectives.
    403. Preemptions. Affiliates argue that the networks have limited 
their ability to preempt network programming in order to provide 
programming more geared to local needs and interests, and that these 
limits have become more formidable as the networks have extended their 
ownership of stations. Affiliates argue that an increase in the 
national cap reduces affiliates' ability to resist network pressure not 
to preempt. The affiliates point to a decline in affiliate preemptions 
following the 1996 increase in the cap from 25% to 35%. The affiliates' 
submission indicates that, with respect to all dayparts (as opposed to 
prime time-only), affiliates preempted, on average, 48 hours per year 
between 1991 to 1995 and 36 hours per year between 1996 to 2001. It 
also shows that, in the year 1995, the year before the cap was 
increased to 35%, there were, on average, 46 hours of programming 
preempted, but by the year 2001 the average had declined to 33 hours.
    404. The networks offer two responses to the affiliates' data. 
First, the networks submit preemption data that, according to the 
networks, shows that the 35% cap has no effect on bargaining power 
between networks and affiliates. The networks contend that if higher 
levels of network station ownership actually increased networks' 
leverage over their affiliates, affiliates of the largest network 
station owners would be expected to preempt less (because of their 
diminished bargaining power) than affiliates of a network that had 
significantly less station ownership. The networks' data shows that 
affiliates of the largest network-owners (CBS and Fox, at 39% and 38% 
national reach respectively) preempt to an equal or greater extent than 
do affiliates of ABC, with a national reach of 23%. The networks assert 
that this data proves that the 35% cap has no effect on bargaining 
leverage between networks and affiliates.\36\
---------------------------------------------------------------------------

    \36\ In a motion filed May 28, 2003, NAB/NASA asked the 
Commission to disregard certain portions of network submissions 
concerning preemption and local news quantity because the networks 
have not provided the data underlying those submissions. 
Alternatively, NAB/NASA asked the Commission to infer that the 
underlying data would not favor the networks' positions on 
preemption and news quantity of O&O versus affiliate stations. The 
portions of the network filings the Commission is asked to disregard 
include, inter alia, EI Study G and Disney Exhibit G, relating to 
preemptions, and EI Study H, relating to local news quantity. Fox 
opposed the motion on May 29, 2003. The Commission will afford the 
record evidence the appropriate weight in light of all 
circumstances, including the extent to which it believes the 
underlying data is necessary to make an informed decision about the 
showing.
---------------------------------------------------------------------------

    405. Second, the networks argue that affiliate preemptions often 
are not for programming that is of greater public interest, but for 
syndicated programs. The data Disney submits suggests that more 
affiliates preempted ABC programming in favor of syndicated programming 
than for local specials. In addition, Disney states that very few half 
hours of affiliate prime-time preemptions were for news, political, or 
public affairs programming. Disney's data, however, is countered by the 
affiliates' survey of affiliated stations, in which respondents 
reported preempting network programming for: local breaking news (83% 
of respondents); local news (71% of respondents); local emergencies 
(70% of respondents); local political programming (74% of respondents); 
local sports (75% of respondents); religious programming (47% of 
respondents); ``other'' programming (e.g., parades, telethons, 
syndicated programming, movies) (34% of respondents).
    406. Apart from contractual restrictions, a majority of affiliates 
responding to an affiliate survey--68%--report that they have 
``experienced pressure from [their] network to not preempt 
programming.'' The record provides several instances of increased 
network resistance when affiliates attempted to air programs deemed to 
be of greater local interest than the network programming. For example, 
Belo's ABC affiliate in Dallas, the headquarters of American Airlines 
failed to get the network's permission to preempt the November 12, 
2001, Monday Night Football halftime show for local news updates on the 
American Airlines jet crash in New York that morning.
    407. Discussion. Although the Commission has concluded that a 
national cap is needed to balance power between networks and 
affiliates, the record suggests that maintaining the cap at 35% is not 
necessary to preserve the balance of bargaining power between networks 
and affiliates. In reaching this conclusion, the Commission relies 
principally on the evidence showing that the largest network station 
owners possess no greater bargaining power--as measured by prime time 
preemptions--than the smallest network station owner. This evidence is 
persuasive because it directly compares the extent to which different 
levels of network ownership of stations actually affect the level of 
preemption by those networks' affiliates. Implicit in this analysis is 
an assumption that that data, although not a perfect proxy, is a 
reliable indicator of relative bargaining power between networks and 
affiliates. Preemption of network programming by an affiliate has 
negative consequences to the network, and networks by all accounts seek 
to avoid preemption by affiliates. So the

[[Page 46337]]

ability of an affiliate to preempt in the face of networks' incentives 
to prevent preemption appears to be a reasonable measure of relative 
bargaining power between networks and affiliates.
    408. The Commission is not persuaded by the affiliates' argument 
that the 35% cap is needed to protect localism because the most recent 
national cap increase resulted in fewer affiliate preemptions. The 
principal deficiency in this argument is that it does not control for 
other plausible causes of the decline in affiliate preemptions. 
Although the affiliates suggest that the 1996 increase in the national 
cap reduced affiliates' bargaining power, the affiliates themselves 
identify other factors occurring in the same timeframe as the national 
cap increase that they claim have further eroded affiliate bargaining 
power. The affiliates assert that the Commission's repeal of its 
financial interest and syndication rules in the early 1990s gave 
networks an additional financial incentive (in addition to their 
incentive to avoid preemption to maximize advertising rates) to 
discourage affiliate preemption. The affiliates contend that vertical 
integration, including program ownership and syndication by broadcast 
networks and the trend toward ``repurposing'' of network programming on 
affiliated non-broadcast channels have helped increase the networks' 
leverage over affiliates. To the extent these additional factors 
actually enhance network bargaining leverage, they undercut the 
affiliates' argument that it was specifically the 1996 increase in the 
national cap that caused affiliates to reduce their preemption of 
network programming.
    409. A more accurate assessment of the impact of the 1996 national 
cap increase on network-affiliate bargaining leverage could be made if 
affiliate preemption rates from 1991 through 2001 could be compared to 
the preemption rates of network-owned stations during that same period. 
If preemption rates on network-owned stations were similar to affiliate 
preemption rates over that same period, there might be shown a more 
certain--and completely different--explanation for the decline. 
Networks might well have persuaded the Commission that the uniform 
decline in preemptions by O&Os and affiliates was caused by some 
plausible reason unrelated to the change in the national cap. On the 
other hand, if the data had shown preemption rates on network-owned 
stations remaining steady while affiliate preemptions declined sharply 
after 1996, then the affiliates' explanation for the decline (i.e. 
increase in the national cap) would carry more weight.
    410. The foregoing analysis of preemption data excludes 
consideration of the content of the programming substituted by the 
local station for the network programming. Other than its interest in 
promoting market structures that encourage local news production, the 
Commission seeks to avoid resting broadcast ownership policies on 
subjective judgments about the public policy value of different types 
of locally-substituted programming. The Commission agrees with the 
affiliates that it is enough, for purposes of assessing stations' 
responsiveness to local communities, that they preempted network 
programming. The judgment of when to preempt and what to substitute are 
uniquely within the judgment--and responsibility--of the station.
    411. Thus, the Commission reaffirms its conclusion, in the 1998 
Biennial Review Report, that independently-owned affiliates play a 
valuable role by ``counterbalancing'' the networks' economic incentive 
to broadcast their own programming ``because they have the right * * * 
to air instead'' programming more responsive to local concerns. But, 
the evidence suggests that the current limit of 35% is overly 
restrictive and that the cap may safely be raised and the benefits of 
wider network station ownership achieved without disturbing either this 
balance or affiliates' ability to preempt network programming.
    412. Other Effects of the Current 35% Cap. The Commission, thus far 
in the R&O, examined two measures of localism--collective affiliate 
influence on network programming and specific preemption levels by 
affiliates versus network-owned stations. In this section it considers 
a third measure--the effect of the national cap on the quantity and 
quality of local news and public affairs programming. The Commission 
examines this area because local news and public affairs programming 
can play an important role in citizen participation in local and state 
government affairs. Thus it seeks market structures among broadcasters 
that encourage stations to produce local news and public affairs 
programming and thereby contribute to an informed citizenry.
    413. In its 1984 decision, the Commission compared the quality and 
diversity of programming by stations owned by group owners--both 
network and non-network owners--with that of singly owned stations. It 
concluded that there was no evidence that group owners provided less or 
lower quality news and public affairs programming than single owners. 
The Fox court criticized the Commission for failing to explain in the 
1998 Biennial Review Report why it departed from this conclusion. With 
the decline in the number of individually owned stations, an increase 
has occurred in the number of stations sharing common ownership. The 
Commission sought in this biennial review to understand whether the 
national TV ownership rule, by preserving a class of affiliates, 
affects localism by comparing the local news and public affairs 
programming of network owned and operated stations to that of non-
network owned affiliates. It discusses the evidence and its conclusions 
in this summary.
    414. Quantity of local news and public affairs programming. In the 
NPRM, the Commission requested evidence regarding any clear 
relationship between the ownership of stations and the quantity and 
quality of local news and public affairs programming produced by those 
stations. A study conducted by Commission staff, MOWG Study No. 7, 
concluded that network-owned stations produced more local news and 
public affairs programming than affiliates and received local news 
excellence awards more frequently than affiliates. Responding to that 
study, the affiliates submitted a study indicating that many of the 
results of MOWG Study No. 7 changed when data pertaining to stations 
belonging to Fox were not used. Another study, submitted by Dr. Michael 
Baumann of Economists Inc., demonstrates that no defensible reason 
exists for deleting the Fox station data. Dr. Baumann's study provides 
analysis purporting to demonstrate that network-owned stations, on 
average, produce more local news than do affiliates across all-sized 
markets, with an even greater difference in the amount of news offered 
by network-owned stations in smaller markets.
    415. The results of MOWG Study No. 7 show that network-owned 
stations air 23% more local news and public affairs programming per 
week than affiliates (22.8 hours versus 18.5 hours). Only MOWG Study 
No. 7 examined newspaper-owned affiliates separately from the other 
affiliates. It showed that, on average, newspaper-owned affiliates 
provided more hours per week of local news and public affairs (about 22 
hours) than did the other affiliates (approximately 15 hours). The 
study also showed that network O&Os provided the most local news of all 
(almost 23 hours).
    416. In response to MOWG Study No. 7, the affiliates conducted a 
study that revealed no statistically significant

[[Page 46338]]

difference between hours of local news aired by affiliates and O&O 
stations. Unlike MOWG Study No. 7, the affiliates' study included data 
on ABC, NBC and CBS, but did not include data on Fox Television. Disney 
argues that there is no policy-based rationale for excluding Fox 
stations. Using the affiliates' data, but accounting for all four of 
the networks, Dr. Baumann determined that network-owned stations on 
average provide more local news--about 4.2 hours per week--than do 
affiliates in all markets. In markets outside the top 25 markets, 
network-owned stations provide almost eight more hours of local news 
each week than affiliates do. Inside the top 25 markets, Disney agrees 
with the affiliates' study results that the difference between network-
owned stations and affiliates was not statistically significant.
    417. In Dr. Baumann's study, a third data set was used in analyzing 
local news and public affairs programming on network-owned and 
affiliate stations. Results, however, were similar to the first two 
studies: network-owned stations produce about 6.4 more hours per week 
of local news than affiliates in all markets tested. As with the 
modified affiliate data, in markets outside the top 25 markets, 
network-owned stations provide about 9 hours additional local news each 
week. This study agrees with the affiliates' results that the 
difference between network-owned stations and affiliate stations in 
news provided was not statistically significant in markets inside the 
top 25 markets.
    418. Local News Quality. Although the Commission does not regulate 
programming quality, it has attempted to strengthen the ability of 
local stations to serve their communities through news and public 
affairs programming. In the NPRM, it sought to understand whether the 
national TV ownership rule may have the effect of increasing or 
decreasing the quantity and/or quality of local news and public affairs 
programming. Studies discussing programming quality were submitted in 
the record.
    419. MOWG Study No. 7, for example, finds that network O&O stations 
win more awards for local news programming than non-O&O affiliates. In 
evaluating the quality of local news programming, the authors used 
three measures: (1) Ratings received for local evening news; (2) awards 
from the Radio and Television News Directors Association (RTNDA); and 
(3) the local television recipients of the Silver Baton of the A.I. 
Dupont Awards. The ratings of network-owned stations and affiliates 
were virtually identical during the period tested. However, with 
respect to the receipt of RTNDA awards for news excellence, network-
owned stations received those awards at a rate of 126% of the national 
average and affiliates received them at 96% of the national average. 
The study found, with respect to the DuPont awards, network-owned 
stations received awards at 337% of the national average, while 
affiliates received awards at 77% of the national average.
    420. The results of a second study, however, indicate that quality 
differences between network-owned stations and affiliates are virtually 
nonexistent. In comparing the record of network-owned stations and 
affiliates' news operations, a study by Economists Inc. on behalf of 
the networks focused on the RTNDA awards, one of the awards used in 
MOWG Study No. 7. It reasoned that, because a larger number of RTNDA 
awards are given out each year, they are more likely to offer a better 
measure of news quality than the DuPont awards. The study examined the 
RTNDA awards from two perspectives, first analyzing the awards bestowed 
in the top 10 markets, and then the top 50 markets. The study concludes 
that, in either setting, ``there is no discernible difference between 
network-owned stations and affiliates with respect to RTNDA awards.'' 
Neither this study nor MOWG Study No. 7 suggests that affiliates 
provide higher quality local news and public affairs programming than 
network-owned stations. Thus, the studies provide evidence that a 
national limit of 35% is not necessary to preserve a class of 
affiliates in order to maintain high quality local news and public 
programming.
    421. One commenter argues that the number of awards received by 
stations is not a reliable measure of quality because the awards are 
not equally available to both network stations and affiliates. It 
argues that stations must apply for awards and pay entry fees to be 
considered. Moreover, it argues, networks generally have promotion and 
publicity departments that handle award entries, while local stations 
do not. While the Commission agrees that factors unrelated to quality 
programming can affect the number of awards received, there is no 
evidence that these factors had any measurable effect on the conclusion 
that network-owned stations' news programming is at least equivalent in 
quality to that of affiliates.
    422. A third study finds that smaller station groups tend to 
produce higher quality newscasts than larger groups. In that study, 
affiliates generally had higher quality scores than network-owned 
stations. Sixteen percent of affiliate stations earned ``A's'' in 
programming quality versus 11% of network-owned stations. According to 
the study's survey results, affiliates generally demonstrate somewhat 
more enterprise, cite more sources, tend to be more local, and are more 
likely to air stories that affect the community. Network-owned 
stations, on the other hand, are more likely to air national stories 
with no local connection, although they tend to air more points of view 
and score better in finding the larger implications of a story. The 
study also shows that only 22% of stations owned by the 25 largest 
group owners earned ``A'' grades for quality, compared with 48% of 
midsize and small groups. It acknowledges, however, that ratings for 
local news programming are growing more rapidly at larger group-owned 
stations than at smaller ones. Results of this study suggest that being 
a network-owned station does not ``improve the kind of local news that 
citizens see.''
    423. A critique prepared by Economists Inc. asserts that the 
principal findings of this third study are statistically insignificant. 
In addition, they contend the study relies on subjective measures of 
newscast quality, and does not account for other factors affecting news 
quality, such as geographic differences. In the critique, Economists 
Inc. states that the underlying data will not be available for analysis 
and review within the time frame of this proceeding; thus only limited 
information is available for use in determining the validity of the 
study's results. The authors of this third study respond that the point 
of its survey was to identify patterns and trends in news quality. It 
asserts that it was not trying to prove a particular theory of cause 
and effect with its research, and states it has no financial stake in 
the outcome. Whether or not the study is unbiased, its results appear 
statistically insignificant, the underlying data have not been made 
available, and therefore it cannot be considered reliable or convincing 
evidence.
    424. The affiliates argue, however, that localism cannot be limited 
to local news and public affairs; rather, it is a rich mix of 
programming, and that the Commission itself has previously identified 
other elements, such as opportunities for local self-expression, 
development and use of local talent, weather and market reports, and 
sports and entertainment programming as necessary and desirable in 
serving the broadcast needs and interests of local communities. As the 
Commission said in the NPRM, stations may fulfill their obligation to 
serve the needs and

[[Page 46339]]

interests of their communities by presenting local news and public 
affairs programming and by selecting other programming based on the 
particular needs and interests of the station's community. Thus, the 
Commission acknowledges that other kinds of programming are important 
in serving local needs. However, the Commission must rely on the data 
in the record, which focuses on two aspects of localism--program 
selection decisions by affiliates (preemption/collective negotiation) 
and the quality and quantity of local news and public affairs 
programming. From the data, it concludes that network-owned stations 
provide local news and public affairs programming that is at least 
equal, and may be superior, to that of affiliates.
    425. Discussion. The Commission concludes that the national cap is 
not necessary to encourage local stations to air local news and public 
affairs programming. The record actually suggests that the national cap 
diminishes localism by restraining the most effective purveyors of 
local news from using their resources in additional markets. The 
studies in the record show that network-owned stations air, on average, 
more local news and public affairs programming than affiliates overall. 
MOWG Study No. 7 found that network-owned stations aired 4.3 hours more 
local news per week than did affiliates. The Baumann study concluded 
that the differential was 6.4 hours per week. The principal objection 
to the findings of these two studies was the affiliates' criticism that 
exclusion of the Fox stations from those two studies would nullify the 
differential between the two groups of stations. The Commission agrees 
with the networks that no valid reason exists for excluding the Fox 
stations.
    426. The record also shows that local news on network-owned 
stations appears to be of higher quality than news on affiliate 
stations. MOWG Study No. 7 found that network-owned stations received 
local news excellence awards at a significantly higher rate than did 
affiliates. For the DuPont awards, networks received 337% of the 
national average compared with 77% for affiliates. For the RTNDA 
awards, networks received 126% to affiliates' 96%. (A score of 100% for 
a station group would indicate that the stations in that group won 
precisely the number of awards that would be expected given the number 
of stations in that group relative to the total number of stations in 
the U.S.). The Commission disagrees with commenters that smaller group 
owners tend to produce higher quality local news. It agrees with the 
networks that the study's findings are statistically insignificant. In 
other words, according to widely-accepted scientific standards, there 
is an unacceptably large risk that the findings are attributable to 
random noise in the data. The study reports the differences in 
percentages of newscasts that received a particular grade, but fails to 
provide any statistical testing on these results. The networks 
conducted these statistical tests and determined that the differences 
in news quality were not large enough to conclude that the probability 
of a newscast getting a particular grade was dependent on the ownership 
group that aired the newscast. In sum, the record shows that the 
national cap is not necessary to promote high quality, or relatively 
larger amounts of, local news programming. The record suggests the 
opposite--that the current cap prevents networks from acquiring more 
stations and providing enhanced local news operations.
    427. Modification of the National Television Ownership Rule. The 
Commission has concluded that an audience reach cap of 35% is not 
necessary to promote diversity or competition in any relevant market. 
It is persuaded, however, that a national cap at some level is needed 
to promote localism by preserving the balance of power between networks 
and affiliates. The Commission found that affiliates' incentives are 
more attuned to their local communities than are those of networks, 
which seek to assure that the largest audiences possible are watching 
their programming at the same time. It concludes from the record that 
preserving a balance of power between a network and its affiliates 
promotes localism, and accordingly, it will continue to restrict the 
national audience reach of station owners.
    428. Given the benefits to innovation that derive from having a 
number of separately-owned station groups, the Commission believes the 
national ownership cap should continue to apply to all station owners, 
including those that are not networks. The record shows that there have 
been a number of instances where having a variety of owners has led to 
innovative programming formats and technical advances, and the 
Commission believes that applying the national ownership cap to all 
station owners will continue to spur innovation, which the Commission 
believes will be particularly valuable in transitioning to digital 
television. In addition, applying the cap to all station owners adheres 
to our longstanding policy of refusing to differentiate among different 
categories of station owners for purposes of the national TV ownership 
rule.
    429. The next task is to determine what the ownership limit should 
be. As the court in Sinclair recognized, the Commission has wide 
discretion when drawing administrative lines. Having found that 35% is 
too low and 100% (or no limit) is too high, after considering the 
evidence in the record, the Commission applies its discretion and 
raises the national ownership cap to 45%. This modification, 
fundamentally, is a line-drawing exercise in which it attempts to 
balance the benefits of a television ownership cap against the factors 
favoring an incremental increase. Finding a point between 35% and 100% 
is a matter of judgment falling within the particular expertise of the 
Commission.
    430. The Commission has decided to modify the national cap by 
raising it 10 percentage points for three primary reasons. First, while 
affiliates argue that it is necessary to preserve a balance of power 
between networks and affiliates so that affiliates can maintain 
adequate preemption rights, it is evident that networks can exceed a 
nationwide audience reach of 35% without harming affiliates' abilities 
to preempt network programming. Affiliates of networks with a national 
reach of greater than 35% seem to have no less bargaining power than 
affiliates of networks with less than 35% national reach. In accordance 
with section 202(h), therefore, the cap must be modified upward. The 
record does not, unfortunately, help to identify with any precision the 
point at which a network audience reach would be so large that 
affiliate bargaining power would be substantially undermined. Given 
that the Commission is interested in finding a point at which the 
balance of power between networks and affiliates is roughly equal, 
however, it believes that a national audience reach cap of 
approximately half of all homes would be appropriate.
    431. Second, the Commission is mindful of the predictive nature of 
this line-drawing exercise, and has some concern about allowing 
significant new aggregation of network power absent more compelling 
evidence regarding the possible effects of that aggregation above 
current limits. Accordingly, and in light of the fact that Congress 
raised the ownership cap by ten percentage points in 1996, from 25% to 
35%, the Commission is inclined to take a similarly incremental 
approach and increase the cap by an additional 10 percentage points. 
Although a cap of 45% does not equate to a precisely equal degree of 
national reach for networks and their affiliates, a 45% limit ensures 
that networks will not

[[Page 46340]]

obtain a greater national audience reach than their affiliates 
collectively will have.
    432. Finally, the Commission believes that the cap should 
accommodate all existing broadcast combinations and permit some 
additional room for growth. A 45% cap will allow some, but not 
unconstrained, growth for each of the top four network owners. Under 
the current rule, ABC owns ten stations reaching 23.6% of the national 
audience; CBS owns 39 stations reaching 39% of the national audience 
(these stations include the CBS as well as the UPN owned and operated 
stations, including 3 satellite stations); Fox owns 37 stations 
reaching 37.8% of the national audience (includes two satellite 
stations); and NBC owns 29 stations reaching 33.6% of the national 
television audience (these stations include the NBC as well as the 
Telemundo owned and operated stations, as well as a station located in 
Puerto Rico). There are currently 1,340 commercial television stations 
licensed by the Commission. The percentage of these television stations 
owned by each of these networks is as follows: ABC owns less than 1%; 
CBS owns approximately 3%; Fox owns approximately 3%; and NBC owns 
approximately 2%.
    433. Broadcast networks have lost market share in recent years to 
cable and DBS, and allowing them to achieve better economies of scale 
and scope may help them remain competitive in the marketplace. Further, 
given the rise in programming costs and increasing competition from 
non-broadcast national media, the economies of scale and scope made 
possible by network expansion of station ownership will contribute to 
the preservation of over-the-air television by deterring the migration 
of expensive programming, such as sports programming, to cable 
networks. Accordingly, the Commission modifies the national audience 
reach rule to impose a 45% cap.
    434. Although the Commission affirms the finding in the 1984 
Multiple Ownership Report and Order that increased network ownership of 
stations will not harm either competition or diversity, the 
Commission's decision to retain a national ownership cap is a departure 
from its conclusion in 1984 that the national TV ownership rule should 
be repealed. In 1984, the Commission gave very limited consideration to 
the potential effects of the cap on localism. That attention was 
devoted to the quality and quantity of news and public affairs 
programming on group-owned versus individually-owned stations. In this 
R&O, by contrast, the Commission expanded its ``localism'' measures to 
include the important consideration of program selection by local 
stations. The 1984 decision did not address the balance of power 
between networks and affiliates and how that affects program selection. 
It is this factor that is the central factor in our decision to retain 
a national cap.
    435. UHF Discount. In the NPRM, the Commission invited comment on 
the relevance and continued efficacy of the 50% UHF discount, which is 
intended to recognize the deficiencies in over-the-air UHF reception in 
comparison to VHF reception. The NPRM explained that the discount was 
enacted because UHF stations were competitively disadvantaged by weaker 
signals and smaller household reach than VHF stations. In light of 
greater carriage of UHF stations on MVPDs since enactment of the UHF 
discount in 1985, the Commission sought comment on the continued need 
for the UHF discount.
    436. The Commission concludes that the UHF discount continues to be 
necessary to promote entry and competition among broadcast networks. 
VHF signals typically reach between 72 and 76 miles, while UHF signals 
reach approximately 44 miles. This signal disparity results in a 
significantly smaller household reach of UHF signals compared with VHF 
signals. Fox, NBC and Viacom submitted data showing that, in markets 
where they own both a UHF and a VHF station, the UHF station reaches 
between 56% and 61% of the service area of their VHF stations. 
Similarly, Paxson Communications states that in eight cities where it 
owns UHF stations, its stations reach between 35.7% and 78.2% of the 
homes reached by VHF stations in those markets.
    437. This diminished UHF signal area coverage affects UHF stations' 
ability to compete with VHF stations in two ways. First, although cable 
and DBS operators serve 86% of U.S. households, the Commission recently 
determined that roughly 30% of television sets are not connected to 
MVPD service and receive exclusively over-the-air broadcast stations. 
UHF stations reach far fewer of these broadcast-only viewers as VHF 
stations. Second, weaker UHF signals make it more difficult for a UHF 
station to qualify for cable and DBS carriage. Commission regulations 
require a local television station to place a Grade B signal over the 
cable or DBS headend in order to qualify for carriage. Alternatively, 
if a station does not place a Grade B signal over the headend, it may 
pay for an alternative method of delivering its signal to the headend, 
such as a fiber optic connection. Non-carriage on a cable system will, 
as a practical matter, make the UHF station unavailable to homes in the 
MVPD's service area.
    438. In addition to diminished signal coverage, UHF stations 
require between 1.5 and 3 times greater electricity costs to operate 
than VHF stations. UHF stations also require more expensive 
transmitters than VHF stations. These factors, along with the signal 
coverage disparity, appear to diminish the ability of UHF stations to 
compete in the delivered video programming market. According to a 1997 
study provided by Paxson Communications, VHF affiliates of the top four 
broadcast networks had approximately 50% higher ratings than UHF 
affiliates of the top four networks. Paxson then replicated this study 
with 2002 ratings information and determined that the ratings disparity 
between UHF and VHF stations had actually increased between 1997 and 
2002. Paxson's filing shows that, in November of 2002, network-
affiliated VHF stations received approximately 57% higher ratings than 
network-affiliated UHF stations, compared with 50% in 1997. Thus, even 
after controlling for factors such as programming and market size, UHF 
stations continue to experience a competitive handicap compared with 
VHF stations. This disparity translates into reduced advertising 
revenues for UHF stations. Thus, the Commission does not believe that 
the UHF handicap has largely been eliminated by greater cable and DBS 
carriage of UHF signals.
    439. In addition to strengthening competition between UHF and VHF 
stations, the UHF discount promotes entry by new broadcast networks. 
Paxson asserts that UHF discount enhanced its ability to launch a new 
broadcast network because it could own more UHF stations than VHF 
stations. Paxson states that the additional ownership of stations 
permitted by the UHF discount provides a significant financial 
incentive for new networks to enter and compete with established 
networks. This is because ownership of stations, as opposed to 
affiliation with separately-owned stations, enables a network such as 
Paxson's to earn both national and local advertising revenues. 
Univision Communications also states that the UHF discount has enabled 
it to enter the market with programming tailored to Hispanic audiences. 
Univision explains that its entry as a broadcast network is 
particularly beneficial to Hispanic audiences because they rely 
disproportionately on over-the-air broadcast channels.
    440. Finally, the Commission observes that the established 
broadcast networks generally have not sought to

[[Page 46341]]

take advantage of the UHF discount to gain greater national reach 
through local stations. The four most established broadcast networks 
collectively own 67 stations, 12 of which are UHF stations. Instead of 
replacing their VHF stations with UHF stations and owning up to 70% 
national coverage, they have retained their VHF stations and sought 
elimination of the national ownership cap. By contrast, Paxson, a 
recent entrant into the broadcast network business, owns 61 stations, 
all of which are UHF. Absent the UHF discount, Paxson's audience reach 
would be 61.8% of the nation's television households. This data 
indicates that the UHF discount plays a meaningful role in encouraging 
entry of new broadcast networks into the market. For these reasons, the 
Commission retains the UHF discount.
    441. The Commission has previously said it will issue a notice of 
proposed rulemaking proposing a phased-in elimination of the discount 
when DTV transition is near completion. At this point, however, it is 
clear that the digital transition will largely eliminate the technical 
basis for the UHF discount because UHF and VHF signals will be 
substantially equalized. Therefore, the Commission will sunset the 
application of the UHF discount for the stations owned by the top four 
broadcast networks (i.e., CBS, NBC, ABC and Fox) as the digital 
transition is completed on a market by market basis. This sunset will 
apply unless, prior to that time, the Commission makes an affirmative 
determination that the public interest would be served by continuation 
of the discount beyond the digital transition. For all other networks 
and station group owners, it will continue to examine the extent of 
competitive disparity between UHF and VHF stations as well as the 
impact on the entry and viability of new broadcast networks. In a 
subsequent biennial review, the Commission will determine whether to 
include stations owned by these other networks and station group owners 
in the sunset provision it has established for stations owned by the 
top four broadcast networks.

B. Dual Network Rule

    442. The dual network rule provides: ``A television broadcast 
station may affiliate with a person or entity that maintains two or 
more networks of television broadcast stations unless such dual or 
multiple networks are composed of two or more persons or entities that, 
on February 8, 1996, were `networks' as defined in Sec.  73.3613(a)(1) 
of the Commission's regulations (that is, ABC, CBS, Fox, and NBC).'' 47 
CFR 73.658(g). Thus, the rule permits common ownership of multiple 
broadcast networks, but prohibits a merger between or among the ``top-
four'' networks, i.e., ABC, CBS, Fox, and NBC. In the R&O, the 
Commission concludes that the dual network rule is necessary in the 
public interest to promote competition and localism.
    443. The original dual network rule, which prohibited any entity 
from maintaining more than a single radio network, was adopted over 
sixty years ago. The rule was later extended to television networks. 
The Commission believed that an entity that operated more than one 
network might preclude new networks from developing and affiliating 
with desirable stations because those stations might already be 
affiliated with the more powerful network entity. In addition, the 
Commission expressed concern that ownership of more than one network 
could give the owner too much market power. The rule, therefore, was 
intended to serve the Commission's competition and diversity goals.
    444. In the 1996 Act, Congress directed the Commission to amend the 
rule, which it did, to permit common ownership of two or more broadcast 
networks, but not a merger among ABC, CBS, Fox, or NBC, or between one 
of these top-four networks and UPN or WB. In 2001, the Commission 
further modified the rule to permit a top-four network to merge with or 
acquire UPN or WB. The Commission found that: (1) Competition in the 
national advertising market would not be harmed; (2) greater vertical 
integration was potentially an efficient, pro-competitive response to 
increasing competition in the video market; and (3) program diversity 
would not be harmed because the two combined networks would have 
economic incentives to diversify their program offerings.
    445. The restrictions in the current rule apply only to 
combinations of the top-four networks. All existing network 
organizations, and all new network organizations, may create and 
maintain multiple broadcast networks. Thus, the current rule permits 
common ownership of multiple broadcast networks created through 
internal growth and new entry.
    446. Under section 202(h), the Commission considers whether the 
dual network rule continues to be ``necessary in the public interest as 
the result of competition.'' In determining whether the rule meets this 
standard, the R&O addresses whether the rule promotes competition, 
localism, and diversity.
    447. Competition. The R&O summarizes the complex roles played by 
broadcast networks. Broadcast networks acquire a collection of programs 
from program producers. The programs are selected based on their 
ability to attract audiences that can be sold to advertisers. These 
programs--with advertisements embedded--are then made available to 
television audiences through the broadcast network's owned and operated 
broadcast television stations (``O&Os''), and also through contractual 
arrangements with affiliated broadcast television stations. Thus, a 
broadcast network serves many roles. It is an intermediary between 
local broadcast stations and advertisers and program producers. Because 
the top-four broadcast networks are participants in the program 
acquisition market and the national advertising market, mergers among 
them can affect competition in each of these markets.
    448. Given the level of vertical integration of each of the top-
four networks, as well as their continued operation as a ``strategic 
group'' in the national advertising market, a top-four network merger 
would give rise to competitive concerns that the merged firm would be 
able to reduce its program purchases and/or the price it pays for 
programming. As a result, the Commission concludes that the dual 
network rule remains necessary in the public interest to foster 
competition.
    449. Program Acquisition Market. The top-four networks are the 
broadcasting components of vertically-integrated firms, which compete 
against each other to acquire programming that will attract the largest 
national audiences. Competition in the program acquisition market is 
important because networks compete with each other to acquire new, 
diverse, and innovative programming. A top-four network merger would 
give rise to competitive concerns that the merged firm would restrict 
the consumption of programming by using its market power to limit 
competitors' access to sources of programming. In addition, the merged 
network could use its market power to control the price it pays for 
programming or to raise competitors' costs of acquiring programming. In 
concentrated markets, viewers have access to fewer programming choices 
if the number of national, independent purchasers of programming 
decreases due to limited access to programming and higher programming 
costs.
    450. NASA argues that a merger of two or more of the top-four 
networks would result in a less competitive program acquisition market, 
evidenced by lower output, fewer choices, and less technological 
progress. CCC argues that the top-four networks represent a distinct 
and important resource for

[[Page 46342]]

viewers because only they are able to consistently distribute both news 
and entertainment programming to a mass audience, using their cable 
subsidiaries and local broadcast affiliates. Fox, on the other hand, 
argues that the rule actually undermines the Commission's competition 
policy by discouraging broadcast investment to the detriment of 
consumers of free over-the-air television. Fox also argues that the 
program acquisition market is only moderately concentrated, having an 
HHI of approximately 1120. In support of this argument, Fox asserts 
that the program acquisition market is characterized by a large number 
of purchasers of exhibition rights, including broadcast networks, 
broadcast stations, cable networks, DBS operators, premium cable 
networks, pay-per-view providers, and distributors of video cassettes 
and DVDs. NASA counters that the major broadcast networks do not 
compete with the cable networks for mass-audience, prime-time programs, 
and that the only avenue of distribution for such programs is the 
television broadcast networks. By NASA's estimate, which is based on an 
analysis of Fox's Economic Study E, Table E2, the top-four networks 
account for over 87 percent of programming expenditures by broadcasting 
networks, and the video entertainment program acquisition market has an 
HHI of approximately 2100, a result considered ``highly concentrated'' 
under the DOJ/FTC Merger Guidelines. NASA therefore asserts that only 
the major broadcasting networks should be considered in an analysis of 
concentration in the purchase of national video programming.
    451. The Commission agrees with Fox and NASA that the context for 
analyzing the program acquisition market is to consider the shares of 
expenditures on video entertainment programming. The Commission 
concludes, however, that a more accurate assay of the market includes 
the shares of broadcast networks, broadcast stations, basic cable 
networks, pay cable networks, and pay-per-view networks. The Commission 
rejects NASA's narrow definition because it provides no evidentiary 
reason to exclude other video programming purchasers and it dismisses 
the range of programming choices available to viewers over the air, via 
cable and via satellite. The Commission does not agree with Fox's more 
expansive definition, specifically the inclusion of home video, as that 
requires additional action on the part of individual viewers, such as 
purchasing a DVD player, driving to a video rental store, and renting a 
DVD. The Commission concludes that using broadcast networks, broadcast 
stations, basic cable networks, pay cable networks, and pay-per-view 
networks in its analysis accurately represents the market participants, 
and their role in delivering programming to large, passive audiences. 
In order to examine the effect of mergers among broadcast television 
networks subject to this rule, the Commission constructs hypothetical 
merger scenarios, building on the scenario developed in the national 
cap section. In the absence of actual figures for the network 
companies' broadcast station expenditures, the Commission examines the 
effects of mergers amongst the networks (i.e., without their complement 
of O&Os, but including the cable networks they own). For the same 
reason, the Commission can only calculate the change in the HHI, not 
the ``base level'' HHI. So, for example, if Fox merged with GE and 
Disney merged with Viacom, the HHI would increase by almost 767 points. 
Then, if these two companies merged with each other, the HHI would 
increase by 2,246 points. Either of these changes in the HHI would be 
scrutinized under DOJ Merger Guidelines. Since these networks own 
television stations, the change in the HHI would actually be higher 
than in these examples.
    452. Accordingly, the Commission concludes that a merger between or 
among any of the top-four networks would harm competition in the 
program acquisition market. As noted, the Commission determines in its 
analysis of the national ownership cap that an increase in the cap 
would not harm the program acquisition market, principally because 
networks would be enhancing their owned and operated distribution base. 
The Commission's analysis of a merger between two or more of the top-
four broadcast networks, however, indicates a significant potential for 
harm to this market. In addition to acquiring an entire group of owned 
and operated stations and all of the affiliation agreements of the 
stations aligned with the network, a merger would also entail the 
acquisition of significant program purchasing power by the vertically 
integrated merging networks. The vertically integrated networks would 
limit competitors' access to programming by denying remaining networks 
access to the production output of the merged network. Currently, one 
network studio may produce programming that is ultimately purchased by 
another network. In addition the merged firm can raise the price paid 
by those competitors for programming created and produced by the merged 
network's program production assets. The rule, therefore, remains 
necessary to promote competition in the program acquisition market.
    453. National Advertising Market. Networks sell national 
advertising by creating large national audiences for their programming 
and delivering those audiences to advertisers. Sellers in the national 
advertising market include national broadcast networks, cable networks, 
and syndicators. Network O&Os, network-affiliated stations, and 
independent stations sell national spot advertising time, which is 
advertising sold on a market-by-market basis to national advertisers. 
National spot advertising time provides a competitive alternative to 
national advertising time to a certain extent. These sellers compete 
against each other not only based on the price they charge for 
advertising spots, but also based on their ability to deliver the 
largest number of viewers to their advertisers. If a merger were to 
reduce competition for advertising dollars, networks would have less 
incentive to compete against each other for viewers, which would lead 
them to pay less attention to viewers' needs and to produce less 
varied, lower quality, and less innovative programming.
    454. In the discussion above of the necessity of maintaining the 
national TV ownership rule, the Commission concludes that the networks 
compete with each other and with cable networks for national 
advertising revenues and that the current ownership cap was not 
necessary to ensure competition in the national advertising market. 
However, while the Commission finds that the top-four networks do not 
possess market power today, that would change if two or more of them 
were to merge with each other. Moreover, as explained in the Dual 
Network Order, the top-four networks comprise a ``strategic group'' 
within the national advertising market. A strategic group refers to a 
cluster of independent firms within an industry that pursue similar 
business strategies. For example, the top-four networks supply their 
affiliated local stations with programming intended to attract mass 
audiences and advertisers that want to reach such large, nationwide 
audiences. By contrast, the emerging networks target more specialized, 
niche audiences similar to cable television networks. When properly 
applied, the concept of a strategic group ordinarily implies that only 
a relatively few firms will be included within its boundaries so that 
competitive rivalry will be oligopolistic

[[Page 46343]]

in nature, although the number of firms actually populating the 
industry aggregated over all strategic groups may be quite numerous. 
The top-four networks compete largely among themselves for advertisers 
that seek to reach large, national, mass audiences--a significant 
portion of the national advertising market that provides the top-four 
networks with a significant portion of their profits. The Commission 
therefore concludes that a merger of two or more of the top-four 
networks would substantially lessen competition in the national 
advertising market, especially within the strategic group, with the 
concomitant harm to viewers described above. The Commission's analysis 
suggests that economic concentration within the strategic group for 
2001, as measured by the HHI, is 2646. This is based on advertising 
revenue and on shares of the top-four broadcast networks.
    455. The recent growth of cable and DBS does not alter this 
conclusion. Despite that growth, the top-four networks continue to 
provide the greatest reach of any medium of mass communications. The 
top-four networks attract much larger prime-time audiences in relation 
to advertisement-supported cable networks. For example, during the 
month of February, 2003 (1/27/03-2/23/03), CBS, NBC, ABC, and Fox 
delivered prime-time household ratings of 8.9, 8.1, 6.7, and 6.7, 
respectively, as compared to the top advertiser-supported cable 
network, TNT, which garnered a 1.8 share rating. (A rating point is 
equal to 1.067 million households.) Broadcasting's percentage share of 
advertising revenue continues to exceed its percentage share of 
viewing. Broadcasting's share of advertising revenue in 2001 was 71.5% 
whereas its audience share stood at 53.7%. In addition, the networks 
have been able to increase the quantity of advertising availabilities 
for sale by adding more commercial minutes per hour. Moreover, despite 
a decrease in audience share, the top-four networks continue to command 
increases in advertising rates, a further testament to the strength of 
broadcasting television as an advertising medium. The networks have 
raised prices for advertising on a cost per thousand (``CPM'') viewers 
basis steadily. Prime-time broadcast network CPMs have increased from 
$9.74 in 1990 to $13.42 in 2000, an average annual growth rate of 3.8%.
    456. The Commission agrees with NASA that despite the emergence of 
new media on cable, DBS, and the Internet, the top-four broadcast 
networks still have the largest concentration of viewers and television 
economic power. A recent survey shows that each of the top twenty-five 
prime-time broadcast programs during the week of December 9-15, 2002, 
all of which were aired by CBS, ABC, NBC, or Fox, achieved considerably 
higher household ratings than any of the 25 highest ranked cable 
programs. The highest-ranked broadcast program had a rating larger than 
the top five cable programs' ratings combined. The Commission also 
agrees that as it becomes more difficult to reach a large number of 
viewers, television broadcasters that can still deliver a mass audience 
become more valuable.
    457. The Commission further concludes, as it did in the Dual 
Network Order, that obtaining a sufficient number of affiliated 
stations remains a major obstacle to developing a new broadcast network 
capable of attracting national advertisers seeking to reach a mass 
audience. As long as mobility barriers (i.e. barriers to entry that 
deter the movement of a firm within a given industry from shifting from 
one strategic group to another) deter entry into the major network 
strategic group, the pricing of network advertising will be sensitive 
to the number of network competitors. The Commission therefore 
concludes that the current dual network rule is necessary to maintain 
competition in national advertising market.
    458. Localism. The Commission concludes that the dual network rule 
also is necessary to retain the balance of bargaining power between the 
top-four networks and their affiliates. As noted in the national TV 
ownership rule section, the Commission concludes that affiliates play 
an important role in assuring that the needs and tastes of local 
viewers are served. Elimination of the dual network rule would harm 
localism by providing the top-four networks with increased economic 
leverage over their affiliates, thereby diminishing the ability of the 
affiliates to serve their communities.
    459. The top-four networks have an economic incentive to promote 
the widest distribution nationwide of the programming that they produce 
and to assure that it is carried simultaneously across the country. To 
reach the most viewers, the top-four networks acquire their own 
stations (``O&Os''), usually in the largest television markets, and 
enter into affiliation agreements with station owners throughout the 
remainder of the country. Through affiliation, the networks benefit 
from the wide-area delivery of their programming. Network affiliates 
benefit, in turn, by gaining access to high-quality programming.
    460. Affiliates have an economic incentive to tailor their 
programming to their local audiences. Affiliates can influence network 
programming decisions by joining forces with other network affiliates 
in collective negotiations to ensure that the programming provided by 
the network serves local needs and interests. The strength of an 
affiliate's influence with its network lies in its power as part of a 
``critical mass'' to join forces with other network affiliates in 
collective negotiations to try to influence network programming. On an 
individual basis, affiliates may also decide to preempt network 
programming if other programming is available that better suits local 
needs.
    461. As noted by NASA, because of the costs of programming and 
promotional expenses, network affiliation remains critical for the 
economic survival of most local television stations. NASA argues that 
if the dual network rule were eliminated, a top-four network merger 
would result in the networks gaining an unfair advantage over their 
affiliates, noting that a merger would reduce alternative choices of 
program providers for affiliates as the number of network owners 
decreases. As an example, NASA notes that if NBC and CBS were permitted 
to merge, a terminated CBS affiliate would no longer be able to turn to 
NBC for affiliation. The harm would be exacerbated if more than two of 
the top-four networks were to combine.
    462. The Commission agrees with NASA that a top-four network merger 
would harm localism by providing the networks with undue economic 
leverage over their affiliates. While a top-four network merger may not 
result in fewer networks, it would result in fewer network owners. The 
Commission concludes that a top-four network merger would reduce the 
ability of affiliates to bargain with their network for favorable terms 
of affiliation, and would result in less influence of affiliates on 
network programming. As the number of network owners declines, 
affiliates lose the ability to use the availability of other top 
independently-owned networks as a bargaining tool with their own 
networks. In the same way, a combined top-four network's increased 
leverage could be used to overwhelm affiliate bargaining power with 
respect to programming issues. A top-four network merger would lead to 
fewer alternatives for affiliates, which would lead to reduced 
bargaining power of affiliates, and less influence of affiliates on 
network programming, including the ability to preempt network 
programming that affiliates find

[[Page 46344]]

to not serve their local communities. The Commission therefore 
concludes that the dual network rule remains necessary to foster 
localism.
    463. Diversity. In the NPRM, the Commission sought comment on the 
dual network rule's effect on program diversity and viewpoint 
diversity. As noted in the national TV ownership rule section, the 
Commission concludes that the market for diversity is local, not 
national. As also noted, the Commission concludes that viewpoint 
diversity is the most pertinent aspect of diversity for purposes of our 
ownership rules. Nevertheless, since several commenters argue that 
elimination of the dual network rule would result in a diminution of 
program diversity, the R&O addresses their arguments.
    464. Several commenters argue that elimination of the dual network 
rule would result in less diverse programming and that national 
viewpoints in news reporting would be diminished. AFL-CIO and AFTRA 
argue that recent mergers and consolidation in the industry have 
resulted in instances of reduced viewpoint diversity and program 
diversity in local markets. AFTRA also argues that elimination of the 
rule will quell new voices and diverse viewpoints, ``as emerging 
networks are quashed in favor of more 'cost-effective' means of 
delivering content.'' CCC argues that because CBS is ``repurposing'' 
its original programming on UPN, diversity between the two networks is 
reduced. CCC also argues that WB, UPN, and the cable networks do not 
have the audience reach or the resources to fill the diversity void 
created if the national networks were reduced by elimination of the 
rule. Fox disagrees, arguing that the vast array of other media outlets 
will provide the public with sufficiently diverse information and 
views.
    465. UCC argues that despite recent gains in the popularity of 
other forms of media, national broadcast television continues to be the 
public's most important source for national and international news. UCC 
argues that the average weekday reach of the evening newscasts of ABC, 
CBS and NBC is about 10 times the combined reach at 6:30 p.m. for Fox, 
CNN, CNN Headline News, MSNBC, and CNBC. Because network news on 
broadcast television is expensive to produce, UCC argues, a top-four 
network merger would result in the consolidation of news departments in 
order to achieve economic efficiency.
    466. In the Dual Network Order, the Commission found that program 
diversity at the national level would not likely be harmed by the 
combination of an emerging network (i.e., UPN or WB) with one of the 
top-four networks. The Commission found it likely that a common owner 
would have strong incentives to produce a diverse schedule of 
programming for each set of local TV outlets in the same market. In 
this proceeding, the Commission addresses possible combinations among 
only the top-four networks, which are distinct from combinations 
between a top-four network and an emerging network. Also, the 
Commission finds in this proceeding that the market for diversity is 
local, not national. Further, as noted in the Policy Goals section 
above, the Commission finds that program diversity is best achieved by 
reliance on competition among delivery systems rather than by 
government regulation.
    467. The Commission is unable to conclude that the dual network 
rule can be justified on program diversity or viewpoint diversity 
grounds. Although the Commission received conjectural statements 
regarding the repurposing of some programming, and stories of news 
operations being shared in a few markets, these reports do not evidence 
a systematic reduction in diversity as a result of media mergers. The 
record provides no evidence that, because some stations share news 
operations, viewpoint diversity is diminished. Further, even if a 
merger among ABC, CBS, or NBC would result in the loss of one weekday 
evening newscast, a substantial number of outlets that report national/
international news would remain to provide diverse viewpoints 
throughout the day to the public. Finally, to the extent that the 
Commission considers programming diversity an issue, the record 
provides no evidence that the repurposing of programming on different 
networks results in a diminution of program diversity. In fact, the 
Commission found in the Dual Network Order that the repurposing of 
programming between two merged networks was likely to produce net 
benefits to viewers of network television.
    468. Given the level of vertical integration of each of the top-
four networks, as well as their continued operation as a ``strategic 
group'' in the national advertising market, a top-four network merger 
would give rise to competitive concerns that the merged firm would be 
able to reduce its program purchases and/or the price it pays for 
programming. These competitive harms would, in turn, harm viewers 
through reductions in program output, program choices, program quality, 
and innovation. The Commission further concludes that a top-four 
network merger would harm localism by providing the networks with undue 
economic leverage over their affiliates, reducing the ability of 
affiliates to bargain with their network for favorable terms of 
affiliation, giving the networks greater power in program selection, 
and diminishing alternative choices of programming for affiliates. As a 
result, the Commission concludes that the dual network rule remains 
necessary in the public interest to foster competition and localism.

VII. Miscellaneous Requests

    469. Numerous parties submitted comments on issues not specifically 
raised in the NPRM. The Commission dismisses most of these requests on 
procedural grounds because they fall outside the scope of this 
proceeding. The Commission does not review the merits of these 
requests. To the extent appropriate, parties are free to re-file these 
requests as petitions for rulemakings. The Commission denies others for 
the reasons discussed in this summary.
    470. Proposed Behavioral Rules. Several parties ask that the 
Commission impose behavioral rules to achieve a number of alleged 
public interest goals. The Commission invited comment in the NPRM as to 
whether behavioral rules might render structural rules unnecessary to 
achieve our public interest goals of diversity, competition, and 
localism. The following proposals, however, relate to policy goals that 
are unrelated to those served by our structural rules and are therefore 
outside the scope of the NPRM.
    471. TV Viewing. TV Turnoff Network requests that the Commission 
require all broadcast stations to run announcements reminding the 
viewing public that: (1) Excessive television viewing has negative 
health, academic, and other consequences for children; and (2) parents 
and guardians retain and should exercise their First Amendment right 
and ability to turn off their television sets and limit their 
children's viewing time. The Commission dismisses this request because 
it is outside the scope of this proceeding, which reviews our 
structural broadcast ownership rules pursuant to section 202(h). 
Indeed, the goals sought to be advanced by the proposal bear no 
relation to diversity, competition, or localism.
    472. PEG. Alliance requests that the Commission promulgate 
behavioral regulations that guarantee public, educational, and 
governmental (``PEG'') access on cable and direct broadcast satellite 
(``DBS'') to ensure diversity of voices. Alliance argues that such 
federal regulations are necessary because PEG

[[Page 46345]]

access is not mandated by federal legislation, but rather derives from 
a statute that allows local communities to regulate it. The Commission 
dismisses Alliance's request as outside the scope of this proceeding 
and our authority, generally. The Commission once had access 
requirements of the type suggested by Alliance, but the Supreme Court 
struck them down as beyond our statutory authority. Congress did not 
authorize the Commission, however, to implement, enforce, or oversee 
the broad local access requirements advocated by Alliance. Although DBS 
is required to set aside 4% of capacity for public interest (``non-
commercial, educational, and informational'') programming pursuant to 
section 335 of the Act, the Commission does not have authority to adopt 
the broader rights advocated. The Commission notes, however, that 
noncommercial educational television stations may request mandatory 
carriage on cable systems and also have satellite carriage rights in 
markets where DBS provides local-into-local service pursuant to the 
``carry-one-carry-all'' requirements under section 338 of the Act.
    473. Payola. Future of Music Coalition alleges that a new form of 
payola exists in which record companies pay independent promoters to 
ensure that the companies' records are played on the radio. The 
independent promoters, Future of Music Coalition alleges, then 
establish exclusive relationships with radio stations and pay these 
radio stations a large portion of the money received from the record 
companies in the form of ``promotional expenses.'' Future of Music 
Coalition asks that the Commission ban this practice, thereby promoting 
diversity in radio programming. The Commission dismisses Future of 
Music Coalition's request because it is outside the scope of this 
proceeding.
    474. Ownership Issues Outside the Scope of the Proceeding. Some 
parties request action regarding ownership or attribution issues that 
were not raised in the NPRM and that are therefore outside the scope of 
the proceeding. The Commission dismisses these requests.
    475. Alien Ownership. CanWest suggests that the Commission's 
biennial review of media ownership rules and the multilateral trade in 
services negotiations underway in the World Trade Organization provide 
a timely occasion to review foreign ownership rules for broadcasting. 
The Commission declines to undertake such a review because it would be 
outside the scope of this proceeding. Moreover, to the extent that our 
foreign ownership regulations are statutorily based, 47 U.S.C. 310, the 
Commission does not have the discretion to modify or repeal them in the 
biennial review process, pursuant to section 202(h).
    476. Attribution. MMTC asks us to expand this proceeding to include 
review of the attribution rules. The Commission denies this request 
because the attribution limits are not properly reviewed in the 
biennial review process, except for review of radio joint sales 
agreements (``JSAs''), which the Commission addresses in the Local 
Radio Ownership section of the R&O. The attribution rules do not 
themselves prohibit or restrict ownership of interests in any entity, 
but rather determine what interests are cognizable under the ownership 
rules. The focus of the biennial review process is whether the 
ownership rules are necessary in the public interest as a result of 
competition. The attribution limits are set at the level the Commission 
believes conveys influence or control and, as these limits are not 
related to any changes in competitive forces, they are not reviewed 
biennially.
    477. LPFM. REC Networks requests that the Commission refrain from 
changing our Low Power FM (``LPFM'') rules relating to ownership caps 
and assignment of stations because these rules are consistent with our 
intentions in establishing LPFM. LPFM ownership and assignment rules 
are addressed in Sec. Sec.  73.855, 73.858, 73.860, and 73.865 of the 
Commission's rules, and are not addressed in the context of this 
proceeding. These are non-commercial stations and therefore a 
consideration of ownership limits for these stations is outside the 
scope of this proceeding. REC also asks that the Commission impose new 
ownership restrictions on non-commercial educational stations. The 
Commission dismisses that request as such limits are outside the scope 
of this proceeding.
    478. Broadcast Auction Process. Hodson recommends that the 
Commission modify the new entrant bidding credit in the broadcast 
auction process from the current percentages of 25 percent and 35 
percent to 30 percent and 45 percent. Hodson also recommends, in its 
proposed 30 percent tier, that the Commission allow an attributable 
interest in five mass media facilities nationwide instead of the 
current three, with the condition that the winning bidder has no 
attributable interest in a broadcast presence already in the market the 
proposed broadcast station intends to serve. Finally, for entities 
eligible for Hodson's proposed 45 percent tier, Hodson recommends that 
the Commission establish a relaxed payment plan for the winning bid 
balance that would include an extended payment schedule. Hodson's 
proposals go to the Commission's broadcast auction rules and process, 
not our ownership rules. These proposals are outside the scope of this 
proceeding. The Commission addressed the broadcast auction process in a 
prior rulemaking proceeding. In 1998, the Commission determined that it 
would fulfill its obligations under section 309(j) of the 
Communications Act of 1934, 47 U.S.C 309(j)(3)(B), to promote economic 
opportunity and competition for designated entities, including small 
businesses, by providing new entrant bidding credits. Changes to these 
bidding credits would require a separate rule making.
    479. Translator/Spectrum Issues Outside the Scope. REC also makes 
other requests involving the Commission's rules applying to use of 
translators. REC claims that the current rules allow distant 
translators and discourage establishment of new local LPFM stations. 
Nickolas Leggett asks that the Commission provide alternative 
opportunities to small broadcasters including: (1) A frequency band for 
manually operated low-power commercial broadcasters; (2) a citizens 
broadcasting band; and (3) open-microphone neighborhood broadcasting 
supported by the consolidated broadcasters. The Commission denies 
requests to change its translator rules or afford spectrum to small 
broadcasters because they are outside the scope of the proceeding.
    480. Cable Ownership. CCC requests that the Commission retain our 
30% national cable system ownership limits. The Commission dismisses 
CCC's request because it is outside the scope of this proceeding and it 
relates to an issue that is the subject of a separate rulemaking.
    481. DTV. USCCB asks the Commission to promulgate regulations that 
define digital television (``DTV'') broadcasters' public interest 
obligations. The Commission dismisses USCCB's request because it is 
outside the scope of this proceeding. CST requests that the Commission 
amend or eliminate any of our rules that hinder the digital conversion 
of broadcasters, cable systems, and telephone systems, and that the 
Commission establish regulatory policies to encourage the introduction 
of digital technologies. The Commission dismisses CST's requests 
because they are outside the scope of this proceeding.
    482. Further, CST proposes that all broadcast licensees and cable 
systems that expand their operations as a result

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of rule relaxations be required to loan a percentage of their expansion 
revenues to a Digital Conversion Fund. The Commission declines to adopt 
CST's proposal because there is no basis for the Commission to directly 
fund industry's transition to digital television. When Congress 
established the framework for the digital television transition in the 
Telecommunications Act of 1996, it gave no indication that the 
Commission should directly fund industry transition costs for digital 
television. Even if CST's proposal fell within Congress's directives, 
the establishment of such a fund raises extraordinarily complex and 
controversial issues such as the measurement by the Commission of 
`merger efficiencies' and how the fund would be administered. CST 
provides us with no meaningful basis to assess the viability or 
effectiveness of such a program. Finally, the Commission already has 
considered the relationship between local television consolidation and 
the transition to digital television. The Commission determined that 
the efficiencies from relaxing the local television ownership limit 
would likely promote the transition to digital television.
    483. Some parties ask the Commission to undertake additional 
studies or delay taking action until after some future events. MMTC 
filed a motion requesting that the Commission postpone its vote on this 
R&O. MMTC argues that because our Electronic Comment Filing System 
(``ECFS'') was overloaded with filings immediately prior to our June 2, 
2003 vote, the record does not accurately reflect all comments received 
in this proceeding and, therefore, parties are unable to respond to the 
complete record. MMTC Motion for a Brief Postponement of the Vote (May 
31, 2003). The Commission denies the motion. The reply comment period 
closed Feb. 3, 2003, more than four months ago. Nonetheless, in the 
interests of assembling a full record, the Commission has continued to 
accept comments, and more than 500,000 comments were filed in this 
proceeding, many of which were filed at the last minute. Given the 
large volume of last minute filings, it is inevitable that a small 
percentage would not be placed on our ECFS system or be available in 
the public reference room in sufficient time for replies. Nonetheless, 
the record is complete, and MMTC's failure to file its comments or 
requests in a timely fashion is no excuse to delay the proceeding. 
Nickolas Leggett asks us to engage in detailed political science 
analysis of the impact of removal of ownership caps on the legitimacy 
of government and business. The Commission denies this request because 
it is unclear and declines to delay action in this proceeding. The 
Commission's statutory obligation is to review the rules biennially; it 
has no discretion to willfully deviate from that schedule.
    484. IBOC-DAB. VCPP requests that there be no relaxation on 
ownership restrictions until several years after 100% rollout of In 
Band On Channel Digital Audio Broadcasting (``IBOC-DAB''), arguing that 
this technology will destroy competition. The Commission denies VCPP's 
request. The courts require the Commission to base our ownership 
decisions on today's marketplace and the facts presently before it. It 
is not free to adopt a ``wait and see'' approach. The impact of IBOC-
DAB on diversity, competition, and localism in local media markets will 
be accounted for in future biennial reviews.
    485. SBA asks the Commission to issue a Further Notice of Proposed 
Rulemaking in this proceeding, claiming the NPRM is not specific enough 
to comply with the Administrative Procedure Act or the Regulatory 
Flexibility Act. The Commission disagrees with SBA and denies its 
request. Contrary to the implication of SBA, the actual rules at issue 
in this proceeding are specifically identified in the NPRM and well 
known to all interested parties--they are our current broadcast 
ownership rules. Congress has directed us to review those rules every 
two years to determine whether those exact rules remain necessary in 
the public interest. That the Commission has done in this proceeding in 
accordance with the NPRM. Further, Congress directed the Commission to 
eliminate or modify any of its broadcast ownership rules that no longer 
are necessary. Again, it was explicit in the NPRM that we might 
eliminate any rule that could not be justified in light of the current 
media marketplace. To the extent that the Commission has eliminated 
rules in this R&O, therefore, there has been no failure of notice. With 
respect to those rules that, having been found unnecessary, have been 
modified herein, the question is the familiar one--were the 
modifications a ``logical outgrowth'' of the issues identified in the 
NPRM. The Commission concludes that this R&O and its accompanying rules 
are a logical outgrowth of the questions posed in the NPRM. The 
modifications made herein are consistent with the issues and questions 
posed in the NPRM, and take account of the full record in this 
proceeding. Finally, we take seriously the mandate of Section 202(h) to 
review our broadcast ownership rules every two years. It would be 
impractical to complete such a Herculean task, in this case, to review 
six different rules, and to complete that review in time to start 
another review, if we issued a separate notice detailing modifications 
to rules and initiated another comment period.
    486. Children Now asks that the Commission reserve our decision-
making on media ownership until its research on the effects of media 
consolidation on children is complete and can be incorporated into our 
record. Laura Smith requests that we expand the scope of our public 
hearings on media ownership and that we conduct additional research 
before concluding this proceeding. The Commission declines to further 
delay this proceeding. The public, industry, and government agencies 
alike have an interest in finality, economy, and the avoidance of 
unnecessary delay. The public is not served by bureaucratic inaction; 
industries suffer when rules that restrain behavior without cause 
continue in force; and agencies fail in their responsibility when they 
commit public resources to meaningless exercises of no decisional 
significance. As a corollary, agencies should not refrain from acting 
on an issue once a robust record has been developed. It is the agency's 
responsibility, in the first instance, to determine when that point has 
been reached. United States v. FCC, 652 F.2d 72, 90-91 (D.C. Cir. 1980) 
(en banc).
    487. In this case, the Commission sees no overriding need to 
augment the record, nor do we believe that the expenditure of 
additional time and resources in an effort to do so will provide us 
with a significantly more accurate or current assessment of the media 
markets. To the contrary, the record in the current proceeding is one 
of the most factually complete and thorough ever assembled in a 
Commission rulemaking. In addition, the court in Fox Television made it 
quite clear that regulatory delay in the biennial ownership review 
process is causing hardship to the parties and should not be tolerated. 
Accordingly, the Commission denies the requests of Children Now and 
Laura Smith.
    488. Independent Production Rules. The Coalition for Program 
Diversity (``CPD'') asks the Commission to take ``content neutral 
action'' by ``adopting a 25% Independent Producer Rule that will insure 
[sic] that the prime time programming aired by the four networks is as 
diverse as possible.'' In a similar vein, the Writers' Guild of America 
(``WGA'') proposes a requirement that

[[Page 46347]]

broadcast and cable national program services purchase at least 50 
percent of the entertainment for their prime time schedules from 
independent producers. In essence, CPD and WGA ask us to re-impose some 
version of our prior financial interest/syndication rules, first 
adopted by the Commission in 1970. The Commission rejects these 
requests (collectively, the ``Fin/Syn Proposals'').
    489. To begin with, there is substantial doubt as to whether we 
have adequate notice to adopt the Fin/Syn Proposals. In the NPRM, the 
Commission invited comment on, among other issues, whether diversity 
could be better promoted by alternatives to structural regulation, such 
as behavioral requirements and, if so, what behavioral requirements 
would be recommended. The Commission also sought comment on whether 
``the effects of the 1996 change in the national ownership cap [can] be 
separated from the effects of the repeal of the fin/syn and [prime time 
access] rules?'' The Commission asked commenters to identify those 
effects.
    490. Although the Commission invited comment as to whether we 
should, in lieu of structural rules, adopt behavioral rules to serve 
our public interest goals, we did not propose a re-imposition of the 
fin/syn rules, or anything related. The Fin/Syn Proposals, therefore, 
are not squarely within the four corners of our NPRM. Moreover, to the 
extent that we asked general questions about the effect of the repeal 
of our former fin/syn rules, or whether some behavioral rules might 
obviate structural regulation, we did not intend, nor do we think the 
NPRM can be fairly read to suggest, that a fin/syn overlay would or 
could substitute for structural regulation as a means of protecting our 
desiderata--localism, competition, and diversity. Accordingly, the 
Commission does not believe that the Fin/Syn Proposals are responsive 
to the NPRM, or that the adoption of such rules could be thought to be 
a logical outgrowth of the NPRM.
    491. In any event, the Commission is not inclined to adopt the Fyn/
Syn Proposals. The original fin/syn rules prohibited a television 
network (defined at the time to include only ABC, NBC, and CBS) from 
syndicating television programming in the U.S., or from syndicating 
outside the U.S. programming for which it was not the sole producer, or 
from having any option or right to share in the revenues from domestic 
or foreign syndication. These rules also prohibited a network from 
acquiring any financial or proprietary right or interest in the 
exhibition, distribution, or other commercial use of television 
programming produced by someone other than the network for distribution 
on non-network stations. In 1983, the Commission proposed repealing the 
rules based on, inter alia: (i) A 44% increase in the number of TV 
stations available to the average viewer since 1970; (ii) the dramatic 
increase in the availability of cable television; and (iii) evidence of 
vigorous competition among the television networks.
    492. In 1991, however, the Commission opted not to repeal the 
rules, but instead modified them. Among other things, the Commission 
imposed a new restriction on networks, which provided that ``no more 
than 40 percent of a network's own prime-time entertainment schedule 
may consist of programs produced by the network itself.'' In 1992, the 
U.S. Court of Appeals for the Seventh Circuit vacated the rules. The 
Court criticized the Commission for not addressing earlier Commission 
findings, in 1983, that the networks lacked significant market power. 
The Court found that the development of cable, video recorders, and the 
advent of the Fox network buttressed the earlier findings.
    493. In the proceedings on remand, the Commission decided to 
repeal, on a graduated basis, most of its fin/syn rules. In repealing 
the 40 percent cap, the Commission observed that the cap does not 
necessarily foster diversity. The Commission also noted that ``the 
decline in network audience share, which largely explained the rule's 
relaxation in 1991, has continued unabated.'' On appeal, the Seventh 
Circuit affirmed that decision, stating that if the Commission ever 
decided to re-impose similar fin/syn restrictions on the networks, ``it 
had better have an excellent, a compelling reason'' to do so.
    494. In 1995, the Commission removed the remaining fin/syn 
restrictions, finding that there was no ``clear trend toward increased 
network ownership of [prime time entertainment programming] that is 
attributable to the relaxation of our fin/syn rules or that constitutes 
a cause for concern from a public interest standpoint.'' At the time, 
independent producers provided 80.97% of the prime time programming 
hours for ABC, CBS and NBC. Although there had been a decline in the 
number of packagers of programming included in the prime time schedules 
for ABC, CBS and NBC, the Commission believed that the decline could 
not be attributed to elimination of the fin/syn rules, but was 
``instead attributable to the inherent riskiness of prime time 
programming.'' Moreover, ABC, CBS, and NBC faced more, rather than 
less, competition in broadcast television due to the emergence of FOX 
and two additional broadcast networks (United Paramount and Warner 
Brothers). The Commission also reaffirmed its finding in 1993 that 
alternative video delivery systems, such as DBS and wireless cable, 
provided sufficient competition to the broadcast networks to obviate 
fin/syn restrictions.
    495. CPD now argues that, despite the growth of cable and DBS 
providers in the video programming distribution market, there still is 
a strong public interest supporting limitations on network programming 
because 43 million consumers receive only broadcast network television. 
CPD also points out that in 1992, 66.4 percent of the networks' prime 
time schedule consisted of programs produced and owned by independent 
producers. Today, they argue, only 24 percent of the four largest 
networks' prime time schedule is supplied by independent producers. CPD 
argues that the Commission should preserve 25 percent of the networks' 
prime time schedule for independent producers.
    496. WGA asks that the Commission ``adopt measures designed to 
insure [sic] that national program services on broadcast and cable 
television purchase at least 50% of their prime time programming from 
independent producers.'' WGA contends that consolidation in the market 
for video programming makes any appearance of diversity a mirage. 
Although there are 230 national cable programming networks, according 
to WGA, there are just 91 networks that can be considered major 
networks (defined by WGA as available in more than 16 million homes). 
Of these 91 networks, 80 percent (73) are owned or co-owned by 6 
entities: AOL Time Warner, Viacom, Liberty Media, NBC, Disney and News 
Corporation.
    497. Four major networks (ABC, CBS, FOX, and NBC, collectively the 
``Networks'') filed a joint ex parte pleading opposing any cap on the 
amount of network programming a network may air during prime time. The 
Networks invoke much of the rationale that the Seventh Circuit used 
when it vacated the Commission's prior fin/syn rules. To those 
arguments, the Networks add that the broadcast networks' prime time 
audience share has dropped from 72 percent in 1993-1994 to 58.9 in 
2001-2002. The Networks assert that CPD's argument ignores the fact 
that, whereas there were only three broadcast networks in 1970 when the 
Commission first adopted the fin/syn rules, there are now seven 
networks providing English language programming. The Networks also 
argue that the growth in use of the

[[Page 46348]]

DVD player, personal video recorder, and the Internet continues to add 
to the diversity in video programming and continues to undermine any 
rationale for fin/syn rules. Even accepting WGA's assertion that six 
companies own many of the major cable networks, the Networks argue that 
the market for video programming is more diverse today because six is 
double the number of companies that owned broadcast networks when the 
fin/syn rules were adopted.
    498. Although CPD and WGA appear to be correct that fewer of the 
programs in the Networks' prime-time lineup are produced by independent 
producers than at times in the past, the evidence in the record does 
not address whether the decline in the number of independently-produced 
programs is attributable to changes in the regulatory environment 
(i.e., the elimination of the fin/syn rules) or to other changes that 
have taken place in the media business in the intervening years that 
have increased the risk of producing prime time programming. ``Whatever 
the pros and cons of the original financial interest and syndication 
rules, in the years since they were promulgated the structure of the 
television industry has changed profoundly.'' The Commission previously 
has questioned whether changes in the mix of programming on the prime 
time lineup can be attributed to regulatory changes or to business 
considerations.
    499. Moreover, the reduction in independently produced prime time 
programming on a small subset of television networks is not, by itself, 
a public interest harm. Our concern is to promote the interests of 
consumers and viewers, not to protect the financial interests of 
independent producers. The record does not demonstrate that consumers 
and viewers are harmed as a result of network financial interests in 
the programming they carry, particularly in light of the quantity and 
variety of media outlets for programming in today's media marketplace.
    500. In particular, the record does not convince us that an 
``access'' rule for independent producers will advance viewpoint 
diversity. CPD's argument, for example, is premised on the notion that 
the Networks are gatekeepers; if they are not, there are other outlets 
for independently-produced fare and no basis to impose fin/syn 
restrictions. To the extent that the Networks actually are gatekeepers, 
however, fin/syn rules cannot logically advance viewpoint diversity 
because the Networks, as gatekeepers, can filter messages at the 
distribution stage just as they can at the production stage. Adopting 
the Fin/Syn Proposals, therefore, is not likely to promote viewpoint 
diversity.
    501. Even if the Commission were to adopt a broader definition of 
``diversity'' to include general entertainment programming, a 
gatekeeper at distribution still may filter unwanted programming 
whether or not the programming is produced in-house. For example, if a 
network were to decide that its prime time lineup should consist only 
of ``reality programming,'' or that it should target a particular 
audience demographic, there is no reason to believe that it could not 
give effect to those plans with independently-produced programming as 
easily as it could with programming produced by itself or an affiliated 
company--it simply would make known its programming intent and allow 
independent producers to fill the void. The Fin/Syn Proposals, 
therefore, cannot be justified on grounds of programming diversity.
    502. Both CPD and WGA also fail to justify their definitions of the 
relevant market for purposes of their proposals. CPD, for example, has 
targeted its proposal only at the four major broadcast networks, and 
only at their prime time schedule. However, aside from conclusory 
allegations that ``the prime time television programming marketplace is 
a narrow, unique market,'' CPD has provided no reason to exclude other 
video programming outlets and other day-times, were we inclined to 
adopt a fin/syn-like rule. Viewers today have more programming choices 
available to them over-the-air, through cable, satellite, or home 
video, than ever before. Indeed, WGA considers a much larger market for 
these purposes (although it, too, provides little in the way of support 
for its market definition), and other commenters have suggested that 
non-prime time broadcast hours should be included in any analysis 
relating to programming diversity. Lacking the foundation of a 
sustainable market definition, the Fin/Syn Proposals cannot stand.
    503. Finally, to the extent that the Fin/Syn Proposals are based on 
an assertion that the quality of independently-produced entertainment 
programming is superior to that of the Networks, we find the record 
devoid of evidence to that effect. Cf. MOWG Study No. 5, Program 
Diversity and the Program Selection Process on Broadcast Network 
Television by Mara Einstein (Sept. 2002). The Commission has no means 
or methodology to measure the quality of entertainment programming, and 
were we to favor one type or genre of programming over another, we 
would run squarely into the teeth of the First Amendment. To be 
considered content-neutral, regulations must have neutral means and 
ends. It is up to consumers and viewers to determine what programming 
they want to watch, and networks, as they compete for viewers, must be 
responsive to those demands. It is not for this agency to intervene in 
the decisions that determine the content of programming (absent 
obscenity or indecency concerns).
    504. When the Seventh Circuit affirmed the Commission's decision 
repealing all of the fin/syn rules, it questioned whether the rules 
``ever had much basis'' and cautioned that, if the Commission ever 
decided to re-impose similar restrictions, ``it had better have an 
excellent, a compelling reason'' to do so. Capital Cities/ABC, Inc. v. 
FCC, 29 F.3d 309, 316 (7th Cir. 1994). None appears on this record. 
Accordingly, the Commission rejects the Fin/Syn Proposals. Aside from 
these reasons, we reject WGA's proposal because it is far from clear 
that the Commission has jurisdiction over the programming carried on 
cable networks.

Administrative Matters

    505. Paperwork Reduction Act of 1995 Analysis. This R&O contains 
new and modified information collections. The Commission, as part of 
its continuing effort to reduce paperwork burdens, will publish, as 
required by the Paperwork Reduction Act of 1995, Public Law 104-13, a 
separate notice in the Federal Register inviting the general public to 
comment on the information collections contained in this R&O and 
establishing a timeframe for accepting such comment.
    506. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared a Final Regulatory Flexibility Analysis (FRFA) 
of the estimated significant economic impact on small entities of the 
policies and rules adopted in the R&O. The analysis may be found in 
Appendix G of the full text of the R&O. This is a summary of the full 
FRFA. An Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Notice of Proposed Rulemaking (NPRM) initiating 
this proceeding. This present FRFA conforms to the RFA.

A. Need for, and Objectives of the Report and Order (R&O)

    507. The R&O is the culmination of the Commission's third biennial 
ownership review and addresses all six broadcast ownership rules. This 
review is undertaken pursuant to section 202(h) of the 
Telecommunications Act of 1996, which requires the Commission to

[[Page 46349]]

review its broadcast ownership rules every two years. The NPRM 
initiated review of four ownership rules; the national television 
multiple ownership rule, the local television multiple ownership rule, 
the radio television cross-ownership rule; and the dual network rule. 
The R&O: (1) Replaces the newspaper/broadcast and radio/television 
cross/ownership rules with a set of cross-media limits; (2) modifies 
the local television multiple ownership rule; (3) modifies the local 
radio ownership rule and its market definition; (4) modifies the 
national TV ownership rule by changing the 35% limit in the current 
rule to 45%; and (5) retains the current dual network rule. The 
Commission believes these actions are necessary not only to comply with 
its section 202(h) obligation, but to protect the Commission's chief 
goals in effectively regulating broadcasting, to promote diversity, 
localism, and competition.
    508. The changes adopted in the R&O provide a new, comprehensive 
framework for broadcast ownership regulation. The march of technology 
has brought to homes, schools, and places of employment across America 
unprecedented access to information and programming, while the 
Commission's broadcast ownership rules continue to restrict who may 
hold radio and television licenses. The current rules inadequately 
account for the competition presence of cable, ignore the diversity-
enhancing value of the Internet, and lack any sound basis for a 
national audience reach cap. Our current rules are, in short, a 
patchwork of unenforceable and indefensible restrictions that, while 
laudable in principle, do not serve the interests they purport to 
serve.
    509. The adoption of the R&O is critical to the realization of the 
Commission's public interest goals in that it puts an end to any 
uncertainty regarding the scope and effect of our structural broadcast 
ownership rules. Most importantly, the rules discussed and adopted in 
the R&O serve the Commission's competition, diversity and localism 
goals in highly targeted ways and, working together, form a 
comprehensive framework that is responsive to today's media 
environment.

B. Legal Basis

    510. This R&O is adopted pursuant to Sec. Sec.  1, 2(a), 4(j), 303, 
307, 309, and 310 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 152(a), 154(i), 303, 307, 309, and 310, and section 202(h) 
of the Telecommunications Act of 1996.

C. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    511. In addition to comments filed in direct response to the IRFA, 
the Commission received hundreds of thousands of comments, some of 
which concerned matters of particular interest to small entities. These 
comments are discussed in the section of this FRFA discussing the steps 
taken to minimize significant impact on small entities, and the 
significant alternatives considered. The Small Business Administration 
(SBA) filed comments in response to the IRFA in the NPRM and also in 
response to the IRFAs in Dockets 01-317 and 00-244. In both letters, 
SBA argues that the Notices of Proposed Rulemaking were not specific 
enough to comply with the Administrative Procedure Act or the 
Regulatory Flexibility Act., and that the IRFA did not fully discuss 
the possible impact of the proposed actions on small entities or offer 
alternatives that could minimize that impact. SBA contends that the 
general nature of the decisions made it difficult for small entities to 
file meaningful comments and so ``frustrates the spirit of the RFA.'' 
Therefore, SBA asks us to issue a Further Notice of Proposed Rulemaking 
in this proceeding. We disagree with SBA and deny its request. Contrary 
to the implication of SBA, the actual rules at issue in this proceeding 
are specifically identified in the NPRM and are well-known by 
interested parties--they are our current broadcast ownership rules. 
Congress has directed us to review those rules every two years to 
determine whether those exact rules remain necessary in the public 
interest. That we have done in this proceeding and in accordance with 
the NPRM. Further, Congress has directed the Commission to eliminate or 
modify any of its broadcast ownership rules that no longer are 
necessary. Again, it was explicit in the NPRM that we might eliminate 
any rule that could not be justified in light of the current media 
marketplace. To the extent that we have eliminated rules in the Order, 
there has been no failure of notice. With respect to those rules that, 
having been found unnecessary, have been modified in the Order, the 
question is the familiar one--were the modifications a ``logical 
outgrowth'' of the issues identified in the NPRM. The Commission 
concludes that the R&O and its accompanying rules are a logical 
outgrowth of the questions posed in the NPRM. The modifications made in 
the R&O are consistent with the issues and questions posed in the NPRM, 
and take account of the full record in this proceeding. The Commission 
takes seriously the mandate of section 202(h) to review our broadcast 
ownership rules every two years. It would be impractical to complete 
such a Herculean task, in this case, to review six different rules, and 
to complete that review in time to start another review, if we issued a 
separate notice detailing modifications to rules and initiated another 
comment period.
    512. SBA's contentions that the general nature of the IRFA in the 
NPRM made it financially and practically difficult for small entities 
to file meaningful comments and that small entities have not had an 
opportunity to comment on the potential impact of the actions adopted 
in the R&O are belied by the hundreds of thousands of comments filed in 
this proceeding. Additionally, public hearings were conducted.
    513. Hodson Broadcasting filed comments and reply comments in MM 
Dockets 01-317 and 00-244, recommending that the Commission modify the 
new entrant bidding credit in the broadcast auction process from the 
current percentages of 25 percent and 35 percent to 30 percent and 45 
percent. Hodson also recommends, in its proposed 30 percent tier, that 
we allow an attributable interest in five mass media facilities 
nationwide instead of the current three, with the condition that the 
winning bidder has no attributable interest in a broadcast presence 
already in the market the proposed broadcast station intends to serve. 
Finally, for entities eligible for Hodson's proposed 45 percent tier, 
Hodson recommends that we establish a relaxed payment plan for the 
winning bid balance that would include an extended payment schedule. 
Hodson claims that its proposals would benefit small entities. Hodson's 
proposals go to our broadcast auction rules and process, not our 
ownership rules. These proposals are not a logical outgrowth of the 
NPRM and they are therefore outside the scope of this proceeding.

D. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    514. The RFA directs agencies to provide a description of and, 
where feasible, an estimate of, the number of entities that will be 
affected by the rules. The RFA defines the term ``small entity'' as 
having the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' In addition, 
the term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act, unless the Commission 
has developed one or

[[Page 46350]]

more definitions that are appropriate to its activities. A ``small 
business concern'' is one which: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the SBA.
    515. In this context, the application of the statutory definition 
to television stations is of concern. An element of the definition of 
``small business'' is that the entity not be dominant in its field of 
operation. We are unable at this time to define or quantify the 
criteria that would establish whether a specific television station is 
dominant in its field of operation. Accordingly, the estimates that 
follow of small businesses to which rules may apply do not exclude any 
television station from the definition of a small business on this 
basis and are therefore over-inclusive to that extent. An additional 
element of the definition of ``small business'' is that the entity must 
be independently owned and operated. We note that it is difficult at 
times to assess these criteria in the context of media entities and our 
estimates of small businesses to which they apply may be over-inclusive 
to this extent.
    516. Television Broadcasting. The Small Business Administration 
defines a television broadcasting station that has no more than $12 
million in annual receipts as a small business. Business concerns 
included in this industry are those ``primarily engaged in broadcasting 
images together with sound.'' According to Commission staff review of 
the BIA Publications, Inc. Master Access Television Analyzer Database 
as of May 16, 2003, about 814 of the 1,220 commercial television 
stations in the United States have revenues of $12 million or less. We 
note, however, that, in assessing whether a business concern qualifies 
as small under the above definition, business (control) affiliations 
\37\ must be included. Our estimates, therefore, likely overstate the 
number of small entities that might be affected by any changes to the 
ownership rules, because the revenue figure on which it is based does 
not include or aggregate revenues from affiliated companies.
---------------------------------------------------------------------------

    \37\ Concerns are affiliates of each other when one concern 
controls or has the power to control the other or a third party or 
parties control or has to power to control both. 13 CFR 
121.103(a)(1).
---------------------------------------------------------------------------

    517. Radio Broadcasting. The SBA defines a radio broadcast entity 
that has $6 million or less in annual receipts as a small business. 
Business concerns included in this industry are those ``primarily 
engaged in broadcasting aural programs by radio to the public. 
According to Commission staff review of the BIA Publications, Inc., 
Master Access Radio Analyzer Database, as of May 16, 2003, about 10,427 
of the 10,945 commercial radio stations in the United States have 
revenue of $6 million or less. We note, however, that many radio 
stations are affiliated with much larger corporations with much higher 
revenue, and that in assessing whether a business concern qualifies as 
small under the above definition, such business (control) affiliations 
\38\ are included.\39\ Our estimate, therefore likely overstates the 
number of small businesses that might be affected by any changes to the 
ownership rules.
---------------------------------------------------------------------------

    \38\ Concerns are affiliates of each other when one concern 
controls or has the power to control the other, or a third party or 
parties controls or has the power to control both. 13 CFR 
121.103(a)(1).
    \39\ SBA counts the receipts or employees of the concern whose 
size is at issue and those of all its domestic and foreign 
affiliates, regardless of whether the affiliates are organized for 
profit, in determining the concern's size. 13 CFR 121(a)(4).
---------------------------------------------------------------------------

    518. Daily Newspapers. The SBA defines a newspaper publisher with 
no more than 500 employees as a small business. According to the 1997 
Economic Census, 8,620 of 8,758 newspaper publishers had less than 500 
employees. The data does not distinguish between newspaper publishers 
that publish daily and those that publish less frequently, and the 
latter are more likely to be small businesses than the former because 
of the greater expense to publish daily. The new cross ownership limits 
apply only to daily newspapers. It is likely that not all of the 8,620 
small newspaper publishers are affected by the current rule.

E. Description of Projected Reporting, Recordkeeping, Other Compliance 
Requirements

    519. The R&O generally relaxes or retains the existing broadcast 
ownership rules. The R&O does, however, adopt a paperwork and 
compliance requirement in connection with the local radio ownership 
rules. The R&O requires that parties with existing attributable Joint 
Sales Agreements (JSAs) covering radio stations located in Arbitron 
Metros file a copy of the JSA with the Commission within 60 days of the 
effective date of the R&O. Parties with JSAs for radio stations not 
located in Arbitron Metros will have to file JSAs within 60 days of the 
effective date of the Order. Additionally, we are modifying FCC 
Application Forms 314 and 315 to require applicants to file 
attributable JSAs at the time an application is filed. In addition, 
parties may be required to file a copy of Local Marketing Agreements 
(LMAs) that have become attributable because of the decision to modify 
the market definition for radio stations.
    520. Further, in connection with the local TV ownership rule, the 
R&O states that any licensee with a temporary waiver or pending waiver 
extension request must, by no later than 60 days after the effective 
date of the R&O, file either a statement describing how ownership of 
the subject station complies with the local TV ownership rule or an 
application for transfer or assignment of license for one of the 
stations that is subject of the waiver.
    521. The R&O modifies the standards for rule waiver requests 
involving failed, failing, and unbuilt local television stations by 
removing the requirement to demonstrate that there is no reasonably 
available out-of-market buyer. It also provides guidelines for waiver 
of the top four-ranked restriction in markets of certain sizes, and 
addresses existing combinations that may not comply with the modified 
local television ownership rule. The R&O indicates that waiver 
applicants should supply: television ratings information for all the 
television stations in the market for the four most recent ratings 
periods; and information about current local news production for all 
stations in the local market and the effect of the proposed merger on 
local news and public affairs programming for the affected stations. 
Waiver applicants claiming that the merger is needed to facilitate the 
digital transition should provide data supporting this assertion. 
Applicants stating that the merger is needed to preserve a local 
newscast should document the financial performance of the affected news 
division. Applicants for waiver of our top four-ranked restriction must 
demonstrate that the proposed combination will produce public interest 
benefits. As in the context of the failing station waiver, the 
Commission will require that, at the end of the merged stations' 
license term, the owner of the merged stations must certify to the 
Commission that the public interest benefits of the merger are being 
fulfilled. This certification must include a specific factual showing 
of the program-related benefits that have accrued to the public. The 
Commission will consider waivers of our local TV ownership rule where a 
party can demonstrate that the signals of the stations in a proposed 
combination do not have overlapping Grade B contours and have not been 
carried, via DBS or cable, to any of the same geographic areas within 
the past year. The R&O also adopts a paperwork and compliance 
requirement in connection with parties who have a

[[Page 46351]]

conditional waiver or a pending waiver request concerning newspaper/
broadcast or television/radio cross-ownership situations. These parties 
must notify the Commission as to whether or not the combinations are in 
at-risk markets or whether the combinations would otherwise be 
prohibited pursuant to the Commission's Cross-Media Limits.
    522. The R&O addresses issues relating to existing combinations 
that may not comply with the modified rules. The R&O grandfathers 
existing holdings. The R&O requires that parties come into compliance 
with the modified rules upon sale of the grandfathered combination, 
except when such transfers are made to, or by, ``eligible entities.'' 
The R&O defines an eligible entity as a small business consistent with 
SBA standards for industry groupings. The R&O prohibits an eligible 
entity from selling a grandfathered combination acquired after the 
adoption date of the R&O unless it has held the combination for a 
minimum of three years. The R&O adopts processing guidelines for 
pending broadcast assignment and transfer of control applications. 
Applicants with pending long-form applications (FCC Forms 314 and 315) 
that require a multiple ownership showing may amend applications by 
submitting a new multiple ownership showing demonstrating compliance 
with the rules adopted in the R&O. Applicants may begin filing such 
amendments once notice has been published by the Commission in the 
Federal Register that OMB has approved the information collection 
requirements contained in such amendments. Applications pending as of 
the effective date of the rules adopted in the R&O will be processed 
under the new rules.
    523. Finally, the R&O establishes a freeze on the filing of new 
broadcast assignment and transfer of control applications that require 
the use of FCC Form 314 or 315.
    524. The freeze began on the adoption date of the R&O and ends on 
the date that notice has been published by the Commission in the 
Federal Register that OMB has approved the revised forms. The 
Commission will continue to process short-form (FCC 316) applications. 
The Commission is modifying and releasing revised forms 301, 314, and 
315 based on the changes in the R&O, and these revised forms will be 
effective upon OMB approval.

F. Steps Taken To Minimize Significant Impact on Small Entities and 
Significant Alternatives Considered

    525. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    526. Any discussion of alternatives which were available to the 
Commission in reviewing these broadcast ownership rules must begin with 
an understanding that section 202(h) mandates that the Commission 
review these rules to determine whether they remain ``necessary in the 
public interest.'' Section 202(h) carries with it a presumption in 
favor of repealing or modifying the ownership rules if the Commission 
finds the rules are not ``necessary in the public interest.'' Thus, the 
Commission has three chief alternatives available in analyzing each of 
these rules--to eliminate the rule, modify it, or, if the Commission 
determines that the rule is ``necessary in the public interest,'' 
retain the rule. As discussed in paragraphs 10-16 of the R&O, the 
Commission in reviewing the broadcast ownership rules is acting under 
its legislative mandate and, guided by recent court decisions, finds 
that section 202(h) carries with it a presumption in favor of repealing 
or modifying the ownership rules. Given these limitations, the 
Commission is limited in the relief it can offer small entities.
    527. The Commission received more than 500,000 brief comments and 
form letters from individual citizens. These commenters expressed 
general concerns about the potential consequences of media 
consolidation, including concerns that such consolidation would result 
in a significant loss of viewpoint diversity, and affect competition 
from all entities, including small entities. The Commission shares 
these concerns and believes that the rules adopted in the R&O serve our 
public interest goals, take account of and protect the vibrant media 
marketplace, including the continued viability of small entities, and 
comply with our statutory responsibilities and limits.
    528. The decisions made in the R&O reduce or remove regulatory 
restrictions for all entities, including small entities. The Commission 
also adopts waiver processes that will enable licensees to seek relief 
from the impact of the rules in appropriate circumstances. 
Additionally, we are grandfathering existing combinations, both intra- 
and inter-media, that would not comply with the new regulations. This 
will prevent the harmful economic impact of forced divesture at fire-
sale prices that would have been burdensome to all affected licensees, 
including small entities. Also, the Commission generally elects to 
establish bright-line ownership rules rather than case-by-case 
determinations. This will reduce the delay, cost, and uncertainty that 
sometimes accompanies case-by-case reviews. This is of special interest 
to small entities as such costs could weigh disproportionately on small 
businesses if the subject matter of the proposed transaction is a 
substantial portion of the small business's total assets. Generally 
speaking, by adopting bright-line rules rather than a case-by-case 
approach, the Commission takes action that will benefit small 
businesses by lowering transaction costs and increasing regulatory 
certainty.
    529. Local TV Multiple Ownership Rule (Paragraphs 132-234). The R&O 
modifies the current local TV multiple ownership rule to permit an 
entity to have an attributable interest in two television stations in 
markets with 17 or fewer stations; and up to three stations in markets 
with 18 or more stations, provided that no more than one of the 
stations in the combination is ranked among the top four in terms of 
audience share. As a result of the top four-ranked standard, 
combinations in markets with fewer than five stations are not 
permitted. The R&O eliminates the provision of the current rule that 
permits combinations of two television stations that do not have 
overlapping signal contours. Because of mandatory carriage of 
television broadcast stations by multichannel video programming 
distributors, the geographic market in which a station competes is 
generally its Nielsen Designated Market Area (DMA), rather than its 
over-the-air service area. Therefore all proposed stations combinations 
will be subject to the restrictions described above, without regard to 
contour overlap.
    530. Commenters proposing elimination or relaxation of the local TV 
multiple ownership rule argue that the rule is no longer ``necessary in 
the public interest'' because it prevents broadcasters from achieving 
efficiencies that will allow them to compete more

[[Page 46352]]

effectively with other media outlets and to provide improved services 
to the public. Several commenters contend that this is especially true 
for broadcasters in small and mid-sized markets. The Commission agrees 
that, by limiting common ownership of television stations in local 
markets where at least eight independently owned TV stations would 
remain post merger, the current rule prohibits mergers that would 
result in efficiencies that will benefit the public interest, 
especially mergers in small and mid-sized markets. The modifications to 
the rule adopted in the Order will permit broadcasters in more small 
and mid-sized markets, including small entities, to combine and thereby 
achieve such efficiencies. The modified rule accounts for the 
competitive realities faced by broadcasters in small and medium 
markets. Although the modified rule ensures that there will be at least 
six competitors in markets with 12 or more television stations, in 
markets with 11 or fewer television stations the R&O permits higher 
levels of concentration in light of the differences in the economics of 
broadcasting in smaller markets. The top four--ranked restriction of 
the modified local TV ownership rule also protects small entities by 
preventing the largest firms in a given local market from combining to 
achieve excessive market power. By prohibiting combinations involving 
stations with the largest audience shares, the restriction protects 
against potential harm to broadcasters with smaller market shares, 
including small entities.
    531. The R&O also addresses competitive challenges faced by 
broadcasters in small markets through modified waiver standards. The 
R&O modifies the standards for rule waiver requests involving failed, 
failing, and unbuilt local television stations by removing the 
requirement to demonstrate that there is no reasonably available out-
of-market buyer. The R&O further adopts two additional waiver 
standards. First, it provides for consideration of requests for waiver 
of the top four-ranked prohibition of the local TV ownership rule in 
markets with 11 or fewer TV stations where an applicant can show that 
the public interest benefits of a proposed combination outweigh 
potential harms to competition, diversity, and localism. In evaluating 
such waiver requests, the Commission also will account for the 
diminished reach of UHF stations by considering whether the proposed 
combination involves a UHF station. Reduced audience reach diminishes 
UHF stations' impact on diversity and competition in local markets. 
Because this standard applies only in smaller markets, it may benefit 
smaller entities that would otherwise be unable to combine under the 
current rule. In addition, because it will account for competitive 
disparities faced by UHF stations, it will benefit small entities that 
may own such stations. The Order also provides guidelines for waivers 
for combinations involving stations that do not have overlapping signal 
contours and are not carried in the same geographic area by MVPDs.
    532. The Commission received a proposal that, if the local TV 
multiple ownership rule is relaxed, the Commission require periodic 
certification by owners of same-market combinations that they are not 
engaged in certain types of anticompetitive conduct that would 
adversely affect smaller broadcasters in their markets. The Commission 
denies this proposal, on grounds that the modified local television 
ownership rule does not increase the likelihood that broadcasters will 
engage in anticompetitive conduct. The R&O notes that, if broadcasters 
engage in anticompetitive conduct that is illegal under antitrust 
statutes, remedies are available pursuant to those statutes. In 
addition, an antitrust law violation would be considered as part of the 
Commission's character qualifications review in connection with any 
renewal, assignment, or transfer of a license.
    533. The Commission, as discussed in paragraphs 209-220 of the R&O, 
received several suggestions for modifying the local TV multiple 
ownership rule, but concludes that, as compared to the modified rule, 
the proposals advanced by commenters are more likely to result in 
anomalies and inconsistencies or will otherwise fail to serve our 
policy goals. Examining each proposal in turn, the R&O concludes that 
these proposals would permit unacceptable levels of concentration in 
local markets or would permit combinations among top four-ranked 
stations, which are likely to result in competitive harm, with no 
offsetting public interest benefits. One commenter, the National 
Association of Broadcasters (NAB) proposes a ``10/10'' alternative that 
would permit combinations where at least one of the stations has had, 
on average over the course of the year, an all-day audience share of 10 
or less. NAB maintains that its proposal would provided needed 
financial relief for struggling stations in small and medium markets 
and those that are lower rated, and, by prohibiting combinations of 
leading stations, would effectuate the Commission's diversity and 
competition goals. The Commission dismisses this proposal, finding that 
the proposal would permit mergers between financially strong stations, 
including top four-ranked stations, in a significant number of markets, 
and offers no justification for using 10 as a threshold. The R&O finds 
that, rather than allowing combinations involving top four-ranked 
stations as a general rule, consideration of waivers of the top four-
ranked restriction in smaller markets on a case-by-case basis, as 
described above, will better effectuate its policy goals, and will 
address the concerns of broadcasters in smaller markets, including 
small entities operating in such markets.
    534. Local Radio Ownership Rule (Paragraphs 235-326). The local 
radio ownership rule limits the number of commercial radio stations 
overall and the number of commercial radio stations in a service (AM or 
FM) that a party may own in a local market. The Commission finds that 
the numerical limits in the current rule are ``necessary in the public 
interest,'' but finds that the rule must be modified to change the 
method for defining radio markets and to count noncommercial stations 
in the market. The R&O thus modifies the rule by adopting a market 
definition that reflects more accurately the competitive impact of 
proposed radio station combinations, and by providing that the 
Commission will count non-commercial radio stations in calculating 
market size. The R&O also makes joint sales agreements (JSAs) 
attributable for purposes of determining compliance with the local 
radio ownership rule and adopts ``grandfathering'' rules and procedures 
to address any existing station ownership patterns or JSAs that may 
cause a party to be out of compliance with the modified rule. The 
Commission dismisses requests to repeal the local radio ownership rule. 
Commenters favoring repeal argue that, for example, the rule is 
unjustified because consolidation has resulted in efficiencies and has 
produced significant public interest benefits. While the Commission 
does not dispute that a certain level of consolidation of radio 
stations can improve the ability of a group owner to make investments 
that benefit the public, we seek to ensure that radio stations outside 
of the dominant groups, including small entities can remain viable and, 
beyond that, can prosper. Other commenters dispute these contentions, 
expressing concern that, in a concentrated market, dominant radio 
station groups can exercise market power to attract revenue at the 
expense of the small owner. As a

[[Page 46353]]

result, they argue, the small owner has greater difficulty obtaining 
the revenue it needs to develop and broadcast attractive programming 
and to compete generally against the dominant station groups. Although 
the Commission declines to pass on the competitive situation in any 
particular radio market in the context of this proceeding, the concerns 
raised by the latter commenters comport with the competition analysis 
that underlies this R&O and supports our decision not to repeal the 
local radio ownership rule.
    535. The Commission decides not to require divestiture of existing 
combinations of broadcast stations that violate the modified multiple 
ownership rules adopted in the Order. The Commission determined that 
the alternative, requiring divestiture, would be too disruptive on the 
broadcast industry, which includes small broadcast owners. However, the 
Commission will require that combinations comply with the modified 
multiple ownership rules upon the assignment or transfer of control of 
the station group. The Commission rejected the alternative, allowing 
grandfathered combinations to be sold in perpetuity, because such a 
decision would disserve our competition goals discussed in the Order. 
Any spin-offs that would be required upon sales of stations in a 
grandfathered group could afford new entrants the opportunity to enter 
the media marketplace. It could also give small station owners already 
in the market the opportunity to acquire more stations and take 
advantage of the benefits of combined ownership.
    536. The Commission adopts an exception to the prohibition on the 
transfer of grandfathered combinations that violate the new rules. The 
Commission will allow transfers to ``eligible entities.'' The 
Commission defines an eligible entity as a small business consistent 
with SBA standards for industry groupings. This exception was adopted 
to facilitate new entry by, and growth of, small businesses in the 
broadcast industry, and thereby further our goals of diversity of 
ownership, competition, and localism. The Commission will allow 
eligible entities to sell grandfathered combinations generally without 
restriction. The Commission believes that small businesses require 
greater flexibility than do larger entities for the disposition of 
assets. Restrictions on the sale of assets could disproportionately 
harm the financial stability of smaller firms, compared to that of 
larger firms that have other revenue streams. To prevent abuse of the 
policy, the Commission prohibits eligible entities from selling 
grandfathered combinations acquired after adoption date of the Order 
unless it has held the combination for a minimum of three years.
    537. Paragraphs 316-325 of the R&O discuss attribution of JSAs. In 
this regard, the Commission has the option, supported by some 
commenters, of maintaining its current policy of that JSAs are not 
attributable under the Commission's rules. Commenters supporting 
retention of this exemption argue that JSAs produce a public interest 
benefit. Although the Commission continues to believe that JSAs may 
have some positive effects on the local radio industry, the threat to 
competition and the potential impact on the influence over the brokered 
stations and requires attribution. As indicated in paragraph 319 of the 
R&O, the Commission recognizes that JSAs raise concerns regarding the 
ability of smaller broadcasters to compete, and may negatively affect 
the health of the local radio industry generally. Therefore, the R&O 
states that the Commission will now count such brokered stations toward 
the brokering licensee's attributable interest in one or more stations 
in a local radio market.
    538. Newspaper/Broadcast and Radio/Television Cross Ownership 
Rules. (Paragraphs 327-481). Based on the extensive record in this 
proceeding, the Commission finds that neither the current nationwide 
prohibition on common ownership of daily newspapers and broadcast 
outlets in the same market, nor our cross-service restriction on 
commonly owned radio and television outlets in the same market, is 
``necessary in the public interest.'' With respect to both rules, the 
Commission concludes that the ends sought can be achieved with more 
precision and with greater deference to First Amendment interests by 
modifying the rules into a single set of cross media limits. The 
modified rules adopted in the R&O are, in sum, designed to protect 
against markets becoming highly concentrated, in a qualitative sense, 
for diversity purposes.
    539. Although our conclusions pertain to markets of all sizes, 
newspaper-broadcaster combinations may produce tangible public benefits 
in smaller markets in particular. In this regard, West Virginia Media 
contends that the cross-ownership restriction impairs coverage of local 
news and public affairs in small markets by prohibiting combinations 
that would produce efficiencies and synergies particularly necessary in 
smaller markets. It argues that the rule may have the unintended effect 
of stifling local news by prohibiting efficient combinations that would 
produce better output. We assume that the efficiencies cited by West 
Virginia Media can benefit small businesses with respect to the 
production of news and public affairs programming.
    540. National Ownership Rules (Paragraphs 499-621). The R&O 
modifies the national TV ownership rule by raising the audience cap 
from 35% of the country's television households to 45%. The Commission 
received a significant amount of public comment in this regard and, 
based on the record, finds that, although retention of a national cap 
is necessary to limit the percentage of television households that an 
entity may reach through the station it owns, a cap of 35% is not 
necessary to preserve the balance of bargaining power between networks 
and affiliates and may have other drawbacks. The Commission believes 
that the current affiliate/network dynamic is beneficial to viewers and 
should be preserved and that eliminating the cap altogether would shift 
the balance of power with respect to programming decisions toward the 
national broadcast networks in a way that would disserve the 
Commission's localism policy. But the evidence suggests that 35% is 
overly restrictive and that the cap may safely be raised and the 
benefits of wider network station ownership achieved without disturbing 
either this balance or affiliates' ability to preempt network 
programming.
    541. The R&O cites three primary reasons for settling on the 45% 
cap: (1) Given that the Commission is interested in finding a point at 
which the balance of bargaining power between networks and affiliates 
is roughly equal, a national audience reach cap of approximately half 
of all homes is appropriate; (2) because the Commission has some 
concern about allowing significant new aggregation of network power 
absent more compelling evidence regarding the possible effects of that 
aggregation above current limits and in light of the fact that Congress 
raised the ownership cap by ten percentage points in 1996, the 
Commission is inclined to take a similarly incremental approach; and 
(3) a 45% cap will allow some, but not unconstrained, growth for each 
of the top largest network owners. Permitting the networks a modest 
amount of growth will enable them to compete more effectively with 
cable and DBS operators and may help preserve free, over-the-air 
television by reducing the likelihood that networks will migrate 
expensive programming to their cable

[[Page 46354]]

networks. The R&O retains the 50% UHF discount when calculating a 
television station owner's national reach, which could benefit small 
businesses by encouraging the emergence of new broadcast networks. The 
R&O sunsets the application of the UHF discount for the stations owned 
by the top four broadcast networks when the digital transition is 
completed on a market by market basis.
    542. The Commission retains the dual network rule, which permits 
common ownership of multiple broadcast networks, but prohibits a merger 
between or among the ``top-four'' networks, finding that the rule is 
``necessary in the public interest'' to promote competition and 
localism. The R&O concludes that a top-four network merger would give 
rise to competitive concerns that the merged firm would be able to 
reduce its program purchases and/or the price it pays for programming, 
and that this would in turn harm viewers through reduction in program 
output, program choices, program quality, and innovation. Further, a 
top-four network merger would harm localism by providing the networks 
with undue economic leverage over their affiliates.
    543. Minority and Women Proposals (Paragraphs 46-52). MMTC proposes 
a dozen business and regulatory initiatives that ``would go a long way 
toward increasing entry into the communications industry by 
minorities.'' MMTC's initiatives include: (1) Equity for specific and 
contemplated future acquisitions; (2) enhanced outreach and access to 
debt financing by major financial institutions; (3) investments in 
institutions specializing in minority and small business financing; (4) 
cash and in-kind assistance to programs that train future minority 
media owners; (5) creation of a business planning center that would 
work one-on-one with minority entrepreneurs as they develop business 
plans and strategies, seek financing, and pursue acquisitions; (6) 
executive loans, and engineers on loan, to minority owned companies and 
applicants; (7) enhanced access to broadcast transactions through 
sellers undertaking early solicitations of qualified minority new 
entrants and affording them the same opportunities to perform early due 
diligence as the sellers afford to established non-minority owned 
companies; (8) nondiscrimination provisions in advertising sales 
contracts; (9) incubation and mentoring of future minority owners; (10) 
enactment of tax deferral legislation designed to foster minority 
ownership; (11) examination of how to promote minority ownership as an 
integral part of all FCC general media rulemaking proceedings; and (12) 
ongoing longitudinal research on minority ownership trends, conducted 
by the FCC, NTIA, or both; (13) sales to certain minority or small 
businesses as alternatives to divestitures.
    544. These comments contain many creative proposals to advance 
minority and female ownership. Clearly, a more thorough exploration of 
these issues, which will allow us to craft specifically tailored rules 
that will withstand judicial scrutiny, is warranted. Therefore, we will 
issue a Notice of Proposed Rulemaking to address these issues and 
incorporate comments on these issues received in this proceeding into 
that proceeding.
    545. We do, however, see significant immediate merit in MMTC's 
proposal regarding the transfer of media properties that collectively 
exceed our radio ownership cap. MMTC recommends that the Commission 
generally forbid the wholesale transfer of media outlets that exceed 
our ownership rules except where the purchaser qualifies as a 
``socially and economically disadvantaged business (SDB).'' MMTC 
defines SDBs as the definition contained in legislation recently 
introduced by U.S. Senator John McCain. We agree with MMTC that the 
limited exception to a ``no transfer'' policy for above-cap 
combinations would serve the public interest. We agree with MMTC that 
the benefits to competition and diversity of a limited exception 
allowing entities to sell above-cap combinations to eligible small 
entities outweigh the potential harms of allowing the above-cap 
combination to remain intact. Greater participation in communications 
markets by small businesses, including those owned by minorities and 
women, has the potential to strengthen competition and diversity in 
those markets. It will expand the pool of potential competitors in 
media markets and should bring new competitive strategies and 
approaches by broadcast station owners in ways that benefit consumers 
in those markets.
    546. In addition, MMTC proposes that we adopt an ``equal 
transactional opportunity'' rule similar in some respects to our EEO 
requirements. While such a rule is worthy of further exploration, we 
decline to adopt a rule without further consideration of its efficacy 
as well as any direct or inadvertent effects on the value and 
alienability of broadcast licenses. We see merit in encouraging 
transparency in dealmaking and transaction brokerage, consistent with 
business realities. We also reiterate that discriminatory actions in 
this, and any other context, are contrary to the public interest. For 
these reasons, we intend to refer the question of how best to ensure 
that interested buyers are aware of broadcast properties for sale to 
the Advisory Committee on Diversity for further inquiry and will 
carefully review any recommendations this Committee may proffer. As 
soon as the Commission receives authorization to form this committee we 
will ask it to make consideration of this issue among its top 
priorities.
    547. Report to Congress. The Commission will send a copy of the 
R&O, including this FRFA, in a report to be sent to Congress pursuant 
to the SBREFA. In addition, the Commission will send a copy of the 
Order, including the FRFA, to the Chief Counsel for Advocacy of the 
SBA.

Document Availability

    548. This document is available for public inspection and copying 
during regular business hours at the FCC Reference Information Center, 
Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. 
This document may also be purchased from the Commission's duplicating 
contractor, Qualex International, Portals II, 12th Street, SW., Room 
CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-
863-2898, or via e-mail [email protected]. This document is available 
in accessible formats (computer diskettes, large print, audio 
recording, and Braille) to persons with disabilities by contacting 
Brian Millin in the Consumer & Governmental Affairs Bureau at 202-418-
7426, TTY 202-418-7365, or at [email protected].

Ordering Clauses

    549. Pursuant to the authority contained in Sec. Sec.  1, 2(a), 
4(i), 303, 307, 309, and 310 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 152(a), 154(i), 303, 307, 309, and 310 and 
section 202(h) of the Telecommunications Act of 1996, this Report and 
Order in MB Docket No. 02-277 and MM Docket Nos. 01-235, 01-317, and 
00-244 is adopted.
    550. Part 73 of the Commission's rules is amended.
    551. The Interim Policy set forth in the R&O is adopted.
    552. The Motion for Revision of Procedural Dates, Expansion of the 
Scope of the Proceeding, and Inclusion of Additional Studies in the 
Record, filed on October 9, 2002 by Minority Media and 
Telecommunications Council and National Association of Black Owned 
Broadcasters, is denied in

[[Page 46355]]

part and granted in part to the extent described provided in the R&O 
the Motion to Bifurcate and Repeal, filed on March 11, 2003 by Media 
General, Inc., is dismissed, and the Motion to Postpone, filed on May 
31, 2003 by the Diversity and Competition Supporters, et al., is 
denied.
    553. Pursuant to the authority contained in Sec. Sec.  1, 2(a), 
4(i), 303, 307, 309, and 310 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 152(a), 154(i), 303, 307, 309, and 310 and 
section 202(h) of the Telecommunications Act of 1996, that the 
ownership requirements and rules adopted in this R&O shall become 
effective September 4, 2003, except for Sec. Sec.  73.3555 and 73.3613 
which contains information collection requirements that are not 
effective until approved by the Office of Management and Budget. The 
Commission will publish a document in the Federal Register announcing 
the effective date. A separate notice will be published in the Federal 
Register soliciting public and agency comment on the information 
collections, and establishing a deadline for accepting such comment.
    554. This action is taken pursuant to the authority contained in 
Sec. Sec.  1, 2(a), 4(i), 303, 307, 309, and 310 of the Communications 
Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 303, 307, 309, 
and 310 and section 202(h) of the Telecommunications Act of 1996. If 
any section, subsection, paragraph, sentence, clause or phrase of this 
R&O or the rules adopted in the R&O is declared invalid for any reason, 
the remaining portions of the R&O and the rules adopted in the R&O 
shall be severable from the invalid part and shall remain in full force 
and effect.
    555. The proceedings in MB Docket No. 02-277, MM Docket No. 01-235, 
MM Docket No. 01-317, and MM Docket No. 00-244 are terminated.
    556. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of the Report and 
Order, including the Final Regulatory Flexibility Analysis, to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 73

    Radio, Reporting and recordkeeping requirements, Television.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.

Rule Changes

0
For the reasons discussed in the preamble the FCC amends 47 CFR part 73 
as follows:

PART 73--RADIO BROADCAST SERVICES


Sec.  73.3555  [Amended]

0
1. The authority citation for part 73 continues to read as follows:

    Authority: 47 U.S.C. 154, 303, 334, and 336.

0
2. Amend Sec.  73.3555 as follows;
0
a. Revise paragraphs (a) through (c);
0
b. Remove paragraph (d);
0
c. Redesignate paragraphs (e) and (f) as paragraphs (d) and (e);
0
d. Revise newly redesignated paragraph (d);
0
e. Revise Note 1 to Sec.  73.3555;
0
f. Revise Note 2 to Sec.  73.3555;
0
g. Revise Notes 4 through 7 to Sec.  73.3555; and
0
h. Add Notes 11 and 12 to Sec.  73.3555.


Sec.  73.3555  Multiple ownership.

    (a)(1) Local radio ownership rule. A person or single entity (or 
entities under common control) may have a cognizable interest in 
licenses for AM or FM radio broadcast stations in accordance with the 
following limits:
    (i) In a radio market with 45 or more full-power, commercial and 
noncommercial radio stations, not more than 8 commercial radio stations 
in total and not more than 5 commercial stations in the same service 
(AM or FM);
    (ii) In a radio market with between 30 and 44 (inclusive) full-
power, commercial and noncommercial radio stations, not more than 7 
commercial radio stations in total and not more than 4 commercial 
stations in the same service (AM or FM);
    (iii) In a radio market with between 15 and 29 (inclusive) full-
power, commercial and noncommercial radio stations, not more than 6 
commercial radio stations in total and not more than 4 commercial 
stations in the same service (AM or FM);
    (iv) In a radio market with 14 or fewer full-power, commercial and 
noncommercial radio stations, not more than 5 commercial radio stations 
in total and not more than 3 commercial stations in the same service 
(AM or FM); provided, however, that no person or single entity (or 
entities under common control) may have a cognizable interest in more 
than 50% of the full-power, commercial and noncommercial radio stations 
in such market unless the combination of stations comprises not more 
than one AM and one FM station.
    (2) [Reserved]
    (b) Local television multiple ownership rule. (1) For purposes of 
this section, a television station's market shall be defined as the 
Designated Market Area (DMA) to which it is assigned by Nielsen Media 
Research or any successor entity at the time the application to acquire 
or construct the station(s) is filed. Puerto Rico, Guam, and the U.S. 
Virgin Islands each will be considered a single market.
    (2) An entity may have a cognizable interest in more than one full-
power commercial television broadcast station in the same DMA in 
accordance with the following conditions and limits:
    (i) At the time the application to acquire or construct the 
station(s) is filed, no more than one of the stations that will be 
attributed to such entity is ranked among the top four stations in the 
DMA, based on the most recent all-day (9 a.m.-midnight) audience share, 
as measured by Nielsen Media Research or by any comparable 
professional, accepted audience ratings service; and
    (ii) (A) Subject to paragraph (b)(2)(i) of this section, in a DMA 
with 17 or fewer full-power commercial and noncommercial television 
broadcast stations, an entity may have a cognizable interest in no more 
than 2 commercial television broadcast stations; or
    (B) Subject to paragraph (b)(2)(i) of this section, in a DMA with 
18 or more full-power commercial and noncommercial television broadcast 
stations, an entity may have a cognizable interest in no more than 3 
commercial television broadcast stations.
    (c) Cross-Media Limits. Cross-ownership of a daily newspaper and 
commercial broadcast stations, or of commercial broadcast radio and 
television stations, is permitted without limitation except as follows:
    (1) In Nielsen Designated Market Areas (DMAs) to which three or 
fewer full-power commercial and noncommercial educational television 
stations are assigned, no newspaper/broadcast or radio/television 
cross-ownership is permitted.
    (2) In DMAs to which at least four but not more than eight full-
power commercial and noncommercial educational television stations are 
assigned, an entity that directly or indirectly owns, operates or 
controls a daily newspaper may have a cognizable interest in either:
    (i) One, but not more than one, commercial television station in 
combination with radio stations up to 50% of the applicable local radio 
limit for the market; or,
    (ii) Radio stations up to 100% of the applicable local radio limit 
if it does not have a cognizable interest in a television station in 
the market.
    (3) The foregoing limits on newspaper/broadcast cross-ownership do 
not apply to any new daily

[[Page 46356]]

newspaper inaugurated by a broadcaster.
    (d) National television multiple ownership rule. (1) No license for 
a commercial television broadcast station shall be granted, transferred 
or assigned to any party (including all parties under common control) 
if the grant, transfer or assignment of such license would result in 
such party or any of its stockholders, partners, members, officers or 
directors having a cognizable interest in television stations which 
have an aggregate national audience reach exceeding forty-five (45) 
percent.
    (2) For purposes of this paragraph (d):
    (i) National audience reach means the total number of television 
households in the Nielsen Designated Market Areas (DMAs) in which the 
relevant stations are located divided by the total national television 
households as measured by DMA data at the time of a grant, transfer, or 
assignment of a license. For purposes of making this calculation, UHF 
television stations shall be attributed with 50 percent of the 
television households in their DMA market.
    (ii) No market shall be counted more than once in making this 
calculation.
* * * * *

    Note 1 to Sec.  73.3555: The words ``cognizable interest'' as 
used herein include any interest, direct or indirect, that allows a 
person or entity to own, operate or control, or that otherwise 
provides an attributable interest in, a broadcast station.
    Note 2 to Sec.  73.3555: In applying the provisions of this 
section, ownership and other interests in broadcast licensees, cable 
television systems and daily newspapers will be attributed to their 
holders and deemed cognizable pursuant to the following criteria
    (a) Except as otherwise provided herein, partnership and direct 
ownership interests and any voting stock interest amounting to 5% or 
more of the outstanding voting stock of a corporate broadcast 
licensee, cable television system or daily newspaper will be 
cognizable;
    (b) Investment companies, as defined in 15 U.S.C. 80a-3, 
insurance companies and banks holding stock through their trust 
departments in trust accounts will be considered to have a 
cognizable interest only if they hold 20% or more of the outstanding 
voting stock of a corporate broadcast licensee, cable television 
system or daily newspaper, or if any of the officers or directors of 
the broadcast licensee, cable television system or daily newspaper 
are representatives of the investment company, insurance company or 
bank concerned. Holdings by a bank or insurance company will be 
aggregated if the bank or insurance company has any right to 
determine how the stock will be voted. Holdings by investment 
companies will be aggregated if under common management.
    (c) Attribution of ownership interests in a broadcast licensee, 
cable television system or daily newspaper that are held indirectly 
by any party through one or more intervening corporations will be 
determined by successive multiplication of the ownership percentages 
for each link in the vertical ownership chain and application of the 
relevant attribution benchmark to the resulting product, except that 
wherever the ownership percentage for any link in the chain exceeds 
50%, it shall not be included for purposes of this multiplication. 
For purposes of paragraph (i) of this note, attribution of ownership 
interests in a broadcast licensee, cable television system or daily 
newspaper that are held indirectly by any party through one or more 
intervening organizations will be determined by successive 
multiplication of the ownership percentages for each link in the 
vertical ownership chain and application of the relevant attribution 
benchmark to the resulting product, and the ownership percentage for 
any link in the chain that exceeds 50% shall be included for 
purposes of this multiplication. [For example, except for purposes 
of paragraph (i) of this note, if A owns 10% of company X, which 
owns 60% of company Y, which owns 25% of ``Licensee,'' then X's 
interest in ``Licensee'' would be 25% (the same as Y's interest 
because X's interest in Y exceeds 50%), and A's interest in 
``Licensee'' would be 2.5% (0.1 x 0.25). Under the 5% attribution 
benchmark, X's interest in ``Licensee'' would be cognizable, while 
A's interest would not be cognizable. For purposes of paragraph (i) 
of this note, X's interest in ``Licensee'' would be 15% (0.6 x 0.25) 
and A's interest in ``Licensee'' would be 1.5% (0.1 x 0.6 x 0.25). 
Neither interest would be attributed under paragraph (i) of this 
note.]
    (d) Voting stock interests held in trust shall be attributed to 
any person who holds or shares the power to vote such stock, to any 
person who has the sole power to sell such stock, and to any person 
who has the right to revoke the trust at will or to replace the 
trustee at will. If the trustee has a familial, personal or extra-
trust business relationship to the grantor or the beneficiary, the 
grantor or beneficiary, as appropriate, will be attributed with the 
stock interests held in trust. An otherwise qualified trust will be 
ineffective to insulate the grantor or beneficiary from attribution 
with the trust's assets unless all voting stock interests held by 
the grantor or beneficiary in the relevant broadcast licensee, cable 
television system or daily newspaper are subject to said trust.
    (e) Subject to paragraph (i) of this note, holders of non-voting 
stock shall not be attributed an interest in the issuing entity. 
Subject to paragraph (i) of this note, holders of debt and 
instruments such as warrants, convertible debentures, options or 
other non-voting interests with rights of conversion to voting 
interests shall not be attributed unless and until conversion is 
effected.
    (f)(1) A limited partnership interest shall be attributed to a 
limited partner unless that partner is not materially involved, 
directly or indirectly, in the management or operation of the media-
related activities of the partnership and the licensee or system so 
certifies. An interest in a Limited Liability Company (``LLC'') or 
Registered Limited Liability Partnership (``RLLP'') shall be 
attributed to the interest holder unless that interest holder is not 
materially involved, directly or indirectly, in the management or 
operation of the media-related activities of the partnership and the 
licensee or system so certifies.
    (2) For a licensee or system that is a limited partnership to 
make the certification set forth in paragraph (f)(1) of this note, 
it must verify that the partnership agreement or certificate of 
limited partnership, with respect to the particular limited partner 
exempt from attribution, establishes that the exempt limited partner 
has no material involvement, directly or indirectly, in the 
management or operation of the media activities of the partnership. 
For a licensee or system that is an LLC or RLLP to make the 
certification set forth in paragraph (f)(1) of this note, it must 
verify that the organizational document, with respect to the 
particular interest holder exempt from attribution, establishes that 
the exempt interest holder has no material involvement, directly or 
indirectly, in the management or operation of the media activities 
of the LLC or RLLP. The criteria which would assume adequate 
insulation for purposes of this certification are described in the 
Memorandum Opinion and Order in MM Docket No. 83-46, FCC 85-252 
(released June 24, 1985), as modified on reconsideration in the 
Memorandum Opinion and Order in MM Docket No. 83-46, FCC 86-410 
(released November 28, 1986). Irrespective of the terms of the 
certificate of limited partnership or partnership agreement, or 
other organizational document in the case of an LLC or RLLP, 
however, no such certification shall be made if the individual or 
entity making the certification has actual knowledge of any material 
involvement of the limited partners, or other interest holders in 
the case of an LLC or RLLP, in the management or operation of the 
media-related businesses of the partnership or LLC or RLLP.
    (3) In the case of an LLC or RLLP, the licensee or system 
seeking insulation shall certify, in addition, that the relevant 
state statute authorizing LLCs permits an LLC member to insulate 
itself as required by our criteria.
    (g) Officers and directors of a broadcast licensee, cable 
television system or daily newspaper are considered to have a 
cognizable interest in the entity with which they are so associated. 
If any such entity engages in businesses in addition to its primary 
business of broadcasting, cable television service or newspaper 
publication, it may request the Commission to waive attribution for 
any officer or director whose duties and responsibilities are wholly 
unrelated to its primary business. The officers and directors of a 
parent company of a broadcast licensee, cable television system or 
daily newspaper, with an attributable interest in any such 
subsidiary entity, shall be deemed to have a cognizable interest in 
the subsidiary unless the duties and responsibilities of the officer 
or director involved are wholly unrelated to the broadcast licensee, 
cable television system or daily newspaper subsidiary, and a 
statement properly documenting this fact is submitted to the 
Commission. [This statement may be

[[Page 46357]]

included on the appropriate Ownership Report.] The officers and 
directors of a sister corporation of a broadcast licensee, cable 
television system or daily newspaper shall not be attributed with 
ownership of these entities by virtue of such status.
    (h) Discrete ownership interests will be aggregated in 
determining whether or not an interest is cognizable under this 
section. An individual or entity will be deemed to have a cognizable 
investment if:
    (1) The sum of the interests held by or through ``passive 
investors'' is equal to or exceeds 20 percent; or
    (2) The sum of the interests other than those held by or through 
``passive investors'' is equal to or exceeds 5 percent; or
    (3) The sum of the interests computed under paragraph (h)(1) of 
this note plus the sum of the interests computed under paragraph 
(h)(2) of this note is equal to or exceeds 20 percent.
    (i) Notwithstanding paragraphs (e) and (f) of this note, the 
holder of an equity or debt interest or interests in a broadcast 
licensee, cable television system, daily newspaper, or other media 
outlet subject to the broadcast multiple ownership or cross-
ownership rules (``interest holder'') shall have that interest 
attributed if:
    (1) The equity (including all stockholdings, whether voting or 
nonvoting, common or preferred) and debt interest or interests, in 
the aggregate, exceed 33 percent of the total asset value, defined 
as the aggregate of all equity plus all debt, of that media outlet; 
and
    (2)(i) The interest holder also holds an interest in a broadcast 
licensee, cable television system, newspaper, or other media outlet 
operating in the same market that is subject to the broadcast 
multiple ownership or cross-ownership rules and is attributable 
under paragraphs of this note other than this paragraph (i); or
    (ii) The interest holder supplies over fifteen percent of the 
total weekly broadcast programming hours of the station in which the 
interest is held. For purposes of applying this paragraph, the term, 
``market,'' will be defined as it is defined under the specific 
multiple ownership rule or cross-media limit that is being applied, 
except that for television stations, the term ``market,'' will be 
defined by reference to the definition contained in the local 
television multiple ownership rule contained in paragraph (b) of 
this section.
    (j) ``Time brokerage'' (also known as ``local marketing'') is 
the sale by a licensee of discrete blocks of time to a ``broker'' 
that supplies the programming to fill that time and sells the 
commercial spot announcements in it.
    (1) Where two radio stations are both located in the same 
market, as defined for purposes of the local radio ownership rule 
contained in paragraph (a) of this section, and a party (including 
all parties under common control) with a cognizable interest in one 
such station brokers more than 15 percent of the broadcast time per 
week of the other such station, that party shall be treated as if it 
has an interest in the brokered station subject to the limitations 
set forth in paragraphs (a) and (c) of this section. This limitation 
shall apply regardless of the source of the brokered programming 
supplied by the party to the brokered station.
    (2) Where two television stations are both located in the same 
market, as defined in the local television ownership rule contained 
in paragraph (b) of this section, and a party (including all parties 
under common control) with a cognizable interest in one such station 
brokers more than 15 percent of the broadcast time per week of the 
other such station, that party shall be treated as if it has an 
interest in the brokered station subject to the limitations set 
forth in paragraphs (b) and (c) of this section. This limitation 
shall apply regardless of the source of the brokered programming 
supplied by the party to the brokered station.
    (3) Every time brokerage agreement of the type described in this 
Note shall be undertaken only pursuant to a signed written agreement 
that shall contain a certification by the licensee or permittee of 
the brokered station verifying that it maintains ultimate control 
over the station's facilities including, specifically, control over 
station finances, personnel and programming, and by the brokering 
station that the agreement complies with the provisions of 
paragraphs (b) and (c) of this section if the brokering station is a 
television station or with paragraphs (a) and (c) if the brokering 
station is a radio station.
    (k) ``Joint Sales Agreement'' is an agreement with a licensee of 
a ``brokered station'' that authorizes a ``broker'' to sell 
advertising time for the ``brokered station.''
    (1) Where two radio stations are both located in the same 
market, as defined for purposes of the local radio ownership rule 
contained in paragraph (a) of this section, and a party (including 
all parties under common control) with a cognizable interest in one 
such station sells more than 15 percent of the advertising time per 
week of the other such station, that party shall be treated as if it 
has an interest in the brokered station subject to the limitations 
set forth in paragraphs (a) and (c) of this section.
    (2) Every joint sales agreement of the type described in this 
Note shall be undertaken only pursuant to a signed written agreement 
that shall contain a certification by the licensee or permittee of 
the brokered station verifying that it maintains ultimate control 
over the station's facilities, including, specifically, control over 
station finances, personnel and programming, and by the brokering 
station that the agreement complies with the limitations set forth 
in paragraphs (a) and (c) of this section.
* * * * *

    Note 4 to Sec.  73.3555: Paragraphs (a) through (c) of this 
section will not be applied so as to require divestiture, by any 
licensee, of existing facilities, and will not apply to applications 
for assignment of license or transfer of control filed in accordance 
with Sec.  73.3540(f) or Sec.  73.3541(b), or to applications for 
assignment of license or transfer of control to heirs or legatees by 
will or intestacy, if no new or increased concentration of ownership 
would be created among commonly owned, operated or controlled media 
properties. Paragraphs (a) through (c) will apply to all 
applications for new stations, to all other applications for 
assignment or transfer, to all applications for major changes to 
existing stations, and to applications for minor changes to existing 
stations that implement an approved change in an FM radio station's 
community of license or create new or increased concentration of 
ownership among commonly owned, operated or controlled media 
properties. Commonly owned, operated or controlled media properties 
that do not comply with paragraphs (a) through (c) of this section 
may not be assigned or transferred to a single person, group or 
entity, except as provided in this Note or in the Report and Order 
in Docket No. 02-277, released July 2, 2003 (FCC 02-127).


    Note 5 to Sec.  73.3555: Paragraphs (b) and (c) of this section 
will not be applied to cases involving television stations that are 
``satellite'' operations. Such cases will be considered in 
accordance with the analysis set forth in the Report and Order in MM 
Docket No. 87-8, FCC 91-182 (released July 8, 1991) in order to 
determine whether common ownership, operation, or control of the 
stations in question would be in the public interest. An authorized 
and operating ``satellite'' television station may subsequently 
become a ``non-satellite'' station under the circumstances described 
in the aforementioned Report and Order in MM Docket No. 87-8. A 
cognizable interest in such ``non-satellite'' television stations 
may be retained by the existing interest-holder even if that 
interest would be impermissible under Sec.  73.3555(b) or (c). 
However, such ``non-satellite'' station may not be transferred or 
assigned to a single person, group, or entity except as provided for 
by Sec.  73.3555(b) and (c).


    Note 6 to Sec.  73.3555: For purposes of paragraph (c) of this 
section a daily newspaper is one that is published four or more days 
per week, is in the dominant language of the market in which it is 
published, and is circulated generally in the community of 
publication. A college newspaper is not considered as being 
circulated generally.


    Note 7 to Sec.  73.3555: The Commission will entertain 
applications to waive the restrictions in paragraph (b) of this 
section (the local television multiple ownership rule) on a case-by-
case basis. We will entertain waiver requests as follows:

    (1) If one of the broadcast stations involved is a ``failed'' 
station that has not been in operation due to financial distress for 
at least four consecutive months immediately prior to the 
application, or is a debtor in an involuntary bankruptcy or 
insolvency proceeding at the time of the application.
    (2) If one of the television stations involved is a ``failing'' 
station that has an all-day audience share of no more than four 
percent; the station has had negative cash flow for three 
consecutive years immediately prior to the application; and 
consolidation of the two stations would result in tangible and 
verifiable public interest benefits that outweigh any harm to 
competition and diversity.
    (3) If the combination will result in the construction of an 
unbuilt station. The permittee of the unbuilt station must 
demonstrate that it has made reasonable

[[Page 46358]]

efforts to construct but has been unable to do so.
    (4) If the signals of the stations in a proposed combination: 
(a) do not have overlapping Grade B contours; and (b) have not been 
carried, via DBS or cable, to any of the same geographic areas 
within the past year.
    (5) For paragraph (b)(2)(i) of this section only (the top four-
ranked restriction), if the stations in a proposed combination are 
in a market with 11 or fewer full-power television stations, we will 
consider waivers pursuant to criteria described in the Report and 
Order in MB Docket No. 02-277, released July 2, 2003 (FCC 03-127).
* * * * *

    Note 11 to Sec.  73.3555: For purposes of paragraph (c) of this 
section: (1) For radio/newspaper combinations, the Cross-Media Limit 
is triggered when the newspaper's community of publication is 
completely encompassed by: (i) for AM radio stations, the predicted 
or measured 2mV/m contour computed in accordance with Sec.  73.183 
or Sec.  73.186 of the Commission's rules; (ii) for FM stations, the 
predicted 1 mV/m contour computed in accordance with Sec.  73.313 of 
the Commission's rules; and (2) for television/newspaper 
combinations, the Cross-Media Limit is triggered when the 
newspaper's community of publication is located within the same 
Nielsen Designated Market Area to which the television station is 
assigned.


    Note 12 to Sec.  73.3555: For purposes of paragraph (c) of this 
section, for television/radio combinations, the rule is triggered 
when the radio station's community of license is located within the 
Nielsen Designated Market Area to which the television station is 
assigned.



0
3. Section 73.3613 is amended by revising paragraphs (d) and (e) to 
read as follows:


Sec.  73.3613  Filing of contracts.

* * * * *
    (d)(1) Time brokerage agreements (also known as local marketing 
agreements): Time brokerage agreements involving radio stations where 
the licensee (including all parties under common ownership) is the 
brokering entity, the brokering and brokered stations are both in the 
same market as defined in the local radio multiple ownership rule 
contained in Sec.  73.3555(a), and more than 15 percent of the time of 
the brokered station, on a weekly basis is brokered by that licensee; 
time brokerage agreements involving television stations where the 
licensee (including all parties under common control) is the brokering 
entity, the brokering and brokered stations are both licensed to the 
same market as defined in the local television multiple ownership rule 
contained in Sec.  73.3555(b), and more than 15 percent of the time of 
the brokered station, on a weekly basis, is brokered by that licensee; 
time brokerage agreements involving radio or television stations that 
would be attributable to the licensee under Sec.  73.3555 Note 2, 
paragraph (i). Confidential or proprietary information may be redacted 
where appropriate but such information shall be made available for 
inspection upon request by the FCC.
    (d)(2) Joint sales agreements: Joint sales agreements involving 
radio stations where the licensee (including all parties under common 
control) is the brokering entity, the brokering and brokered stations 
are both in the same market as defined in the local radio multiple 
ownership rule contained in Sec.  73.3555(a), and more than 15 percent 
of the advertising time of the brokered station on a weekly basis is 
brokered by that licensee. Confidential or proprietary information may 
be redacted where appropriate but such information shall be made 
available for inspection upon request by the FCC.
    (e) The following contracts, agreements or understandings need not 
be filed but shall be kept at the station and made available for 
inspection upon request by the FCC; subchannel leasing agreements for 
Subsidiary Communications Authorization operation; franchise/leasing 
agreements for operation of telecommunications services on the 
television vertical blanking interval and in the visual signal; time 
sales contracts with the same sponsor for 4 or more hours per day, 
except where the length of the events (such as athletic contests, 
musical programs and special events) broadcast pursuant to the contract 
is not under control of the station; and contracts with chief 
operators.

0
4. Section 73.5007 is amended by revising paragraphs (b)(2)(i), 
(b)(2)(ii), (b)(2)(iii), and (b)(3)(i), (b)(3)(ii), and (b)(3)(iv) to 
read as follows:


Sec.  73.5007  Designated entity provisions.

* * * * *
    (b) * * *
    (2) * * *
    (i) AM broadcast station--principal community contour (see Sec.  
73.24(i));
    (ii) FM Broadcast station--principal community contour (see Sec.  
73.315(a));
    (iii) Television broadcast station--television Grade B or 
equivalent contour (see Sec.  73.683(a) for analog TV and Sec.  
73.622(e) for DTV);
* * * * *
    (3) * * *
    (i) AM broadcast station--principal community contour (see Sec.  
73.24(i));
    (ii) FM broadcast station--principal community contour (see Sec.  
73.315(a));
* * * * *
    (iv) Television broadcast station--television Grade B or equivalent 
contour (see Sec.  73.683(a) for analog TV and Sec.  73.622(e) for 
DTV).
* * * * *
[FR Doc. 03-19106 Filed 7-29-03; 12:43 pm]
BILLING CODE 6712-01-P