| Section III |
On-Line Issues: C |
|---|
C. Rulings Force FCC To Review
Broadcast Ownership Regulations
The U.S. Court of Appeals for the District of Columbia Circuit had its hands full with challenges to the Federal Communications Commission’s regulations limiting ownership of broadcast media, hearing two challenges to such rules early in 2002. In both cases the challengers emerged victorious, forcing the Commission to review the regulations at issue. Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, reh’g en banc, 293 F.3d 537 (D.C. Cir. 2002); Sinclair Broadcast Group v. FCC, 284 F.3d 148 (D.C. Cir. 2002).
Meanwhile, the FCC announced plans to consolidate several ownership review proceedings into one comprehensive review, with the goal of resolving a number of long-standing ownership issues by the summer of 2003.
In 2000, as part of its biennial review of broadcast ownership regulations, the Commission decided that it would not modify or repeal its “national television station ownership rule,” 47 C.F.R. Sec. 73.3555(e) (2002). This rule prohibits any entity from controlling television stations if the combined potential audience reach of these stations exceeds 35 percent of the television households in the United States.
The Commission gave three reasons justifying its decision not to repeal the rule: (1) to observe the effects of recent changes to the rules governing local ownership of television stations; (2) to observe the effects of the increase in the national ownership cap to 35 percent (the threshold had been in place only since passage of the Telecommunications Act of 1996); and (3) to preserve the power of affiliates in bargaining with their networks, thereby allowing affiliates to serve their local communities better. 1998 Biennial Regulatory Review, Biennial Review Report, 15 F.C.C.R. 11058 (2000).
At the same time, the Commission also had in place the “cable/broadcast cross ownership rule,” which prohibits a cable television system from carrying the signal of any television broadcast station if the system owns a broadcast station in the same local market. This rule has the practical effect of prohibiting common ownership of a broadcast station and a cable television system in the same market. The Commission justified this decision by stating that the rule contributes to the diversity of viewpoints in local markets by preserving the voices of independent broadcast stations, as well as preventing discrimination against stations owned by others.
Several petitioners challenged these rules, including Fox Television Stations, Inc., NBC, Viacom Inc., CBS Broadcasting, Inc., and Time Warner Inc. They contended that both rules violated the First Amendment and that the decision to retain the rules was arbitrary and capricious.
The networks argued that the national television station ownership cap was arbitrary and capricious because: (1) the rule was fundamentally irrational and the Commission’s justifications for retaining it were flawed; (2) the Commission failed to meaningfully consider whether the rule was “necessary” for the public interest; and (3) the Commission failed to explain why it departed from a previous decision that the rule should be repealed.
The U.S. Court of Appeals for the District of Columbia Circuit agreed that the rule was irrational and, therefore, arbitrary in its application. The court agreed with the networks’ argument that there is no evidence that broadcasters have undue market power that dampens competition in any relevant market.
The Commission had cited a single and “barely relevant” study by Philip A. Beutel, et al, entitled Broadcast Television Networks and Affiliates: Economic Conditions and Relationship -- 1980 and Today (1995), to support its assertion of undue market power. This, in and of itself, was not enough justification that the rule was required to maintain competition. Fox, 280 F.3d at 1042. Similarly, the rule is not necessary to enhance diversity in the broadcast television arena. The Commission made only a passing reference to the importance of national diversity as support for this assertion, with no substantive evidence regarding the furthering of diversity through the application of this rule.
The Commission also failed to address whether the rule was “necessary” for the public interest, despite a statutory mandate from the Telecommunications Act of 1996 to do so. The Commission provided no analysis of the state of competition in the television industry to justify its decision to retain the national ownership cap.
Finally, the Commission failed to address a 1984 Report and Order in which it had concluded that the national television station ownership rule should be repealed. Amendment of Multiple Ownership Rules, Mem. Op. & Order, 100 F.C.C.2d 74 (1984). The failure to explain this change in policy constituted arbitrary and capricious decisionmaking.
In addressing the First Amendment challenge to the rule, the court of appeals first struggled with the proper level of scrutiny to apply. It noted that it was not in a position to reject the scarcity rationale that has led to a relaxed review of broadcast regulations, citing the U.S. Supreme Court’s reaffirmation of that rationale in Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622 (1994). Therefore, the court of appeals engaged in a deferential review in determining that the rule is constitutional.
Because the regulation was found only to be arbitrary and capricious, but not unconstitutional, the court remanded the rule to the FCC for further proceedings.
The petitioners made the same two challenges to the cable/broadcast cross ownership rule. However, in this case the court vacated the rule after finding it was the product of arbitrary and capricious decisionmaking. In so doing, the court of appeals avoided the First Amendment question.
Once again, the appeals court found that the Commission had failed to justify its retention of the rule as necessary to safeguard competition. The Commission had fallen short by providing less than credible evidence, both in amount and substance, to support its conclusion. Further, the Commission could not justify the rule as a way to promote diversity, because there was no evidence in the record of this proceeding that it had ever considered and assessed the impact that the large increase in the number of television stations had upon diversity in this marketplace. Rather than simply remanding this regulation, however, the court of appeals vacated the rule entirely, finding that the Commission would have little chance of justifying this rule on remand.
The FCC and two intervenors, the National Association of Broadcasters and the Network Affiliated Stations Alliance, separately petitioned the D.C. Circuit for a rehearing en banc. The Commission asserted that the decision should be modified to reject the Time Warner argument, that the cable/broadcast cross ownership rule requires the Commission to apply a higher standard than “continues to serve the public interest” in considering whether to retain the rules covered by that provision. The court of appeals agreed, holding that its original decision did not turn at all upon interpreting “necessary in the public interest” to mean more than “in the public interest,” while the Commission was told to make that interpretation in the Telecommunications Act of 1996. The court agreed to modify its opinion accordingly. Fox Television Stations, Inc. v. FCC, 293 F.3d 537, 540 (D.C. Cir. 2002).
The Commission’s local television ownership rule was on review in Sinclair Broadcast Group, Inc. v. FCC, 284 F.3d 148 (D.C. Cir. 2002). This rule allows common ownership of two television stations in the same local market if one of the stations is not among the four highest ranked stations in the market, and if eight independently owned, full-power, operational television stations remain in that market.
Sinclair Broadcast Group, Inc. challenged the rule on three bases: (1) limiting common ownership of television stations in a local market to those with eight independent voices is arbitrary and capricious; (2) failing to fully grandfather existing local marketing agreements violates the Telecommunications Act of 1996, is impermissibly retroactive, and constitutes an unlawful taking of property in violation of the Fifth Amendment; and (3) the restrictions violate the First Amendment.
Sinclair argued that the rule was arbitrary and capricious because the exception allowing for common ownership when eight independent voices exist in the market lacked any rational foundation or connection to diversity. The court of appeals first recognized the Commission’s wide latitude in administrative line drawing, which a court will only review for abuse of discretion. Sinclair, 284 F.3d at 161 (citing AT&T Corp. v. FCC, 220 F.3d 607 (D.C. Cir. 2000)). For that reason, it did not quarrel with the Commission’s choice of eight voices as a benchmark.
However, the appeals court did find fault with the Commission’s decision to include only broadcast television stations in the overall count when it had used broadcast television stations, radio stations, independently owned daily newspapers with circulation exceeding 5 percent of all households in the market, and cable television systems when making a similar calculation with regard to the local radio ownership rule. The inclusion of extra media in determining compliance with the local radio rules, but not local television rules, without any rational justification for the different applications, was an example of arbitrary and capricious decisionmaking.
Essentially similar rules should be applied in an essentially similar manner, the court said: “Having found for purposes of cross-ownership that counting other media voices ‘more accurately reflects that actual level of diversity and competition in the market,’ the Commission never explains why such diversity and competition should not also be reflected in its definition of ‘voices’ for the local ownership rule.” Id. at 164.
The court of appeals then rejected the contention that the failure to grandfather certain local marketing agreements constituted an unlawful taking of property under the Fifth Amendment. Specifically, the Commission provided that local marketing agreements in effect prior to Nov. 5, 1996 would be grandfathered until 2004, when their status would be reviewed on a case-by-case basis. The court held that the rule did not alter the past legality of local marketing agreements, nor did it impose any liability for having engaged in local marketing agreements that now constitute an impermissible duopoly. Sufficient notice was given to all parties involved in local marketing agreements as to when they must terminate such agreements.
Finally, the court of appeals rejected the assertion that this rule violated the First Amendment. It disagreed with Sinclair’s claim that this was a content-based restriction on speech and thus subject to strict scrutiny. The court instead analyzed the rule under a “rational basis” standard of review, asking whether the rule was rationally connected to its goals of ensuring a diversity of voices and adequate competition in television broadcasting. Held out against this low standard, the rule passed constitutional muster, the court determined, noting that the Supreme Court has found “‘nothing in the First Amendment to prevent the Commission from allocating licenses so as to promote the public interest in diversification of the mass communications media.’” Id. at 168 (citing FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775, 795 (1978)).
The D.C. Circuit remanded the rule to the FCC for further consideration.
Perhaps as a result of these decisions, the FCC announced on Sept. 12, 2002 that it would engage in a comprehensive review of several of its ownership regulations. These included the: (1) newspaper/broadcast cross ownership prohibition; (2) local radio ownership rule; (3) national television ownership rule; (4) local TV multiple ownership rule; (5) radio/TV cross ownership restriction; and (6) dual television network rule. Absent from this list, however, was the cable/broadcast cross ownership rule.
On Oct. 1, 2002, the Commission released 12 studies conducted on these issues by outside researchers, which were intended to provide empirical evidence related to the effectiveness of the various ownership caps. The public and industry were invited to file comments on these studies, and the rules generally, by Jan. 2, 2003; reply comments were due Feb. 3, 2003. Public “field hearings” were planned for the early part of 2003, with the Commission expected to release an order in the summer of 2003.
--Kevin Goldberg and Richard M. Schmidt, Jr.
| Previous Article | Table of Contents | Next Article |
|---|