**REMARKS OF FCC COMMISSIONER ROBERT M. McDOWELL**

**MEDIA INSTITUTE LUNCHEON**

**FOUR SEASONS HOTEL, WASHINGTON, D.C.**

**November 19, 2007**

**As prepared for delivery**

Thank you for having me here today. Many thanks to Dick and Patrick for
inviting me. When I agreed several months ago to speak here, I didn't
realize just how timely my visit would be. Patrick and Dick must have
been clairvoyant to have known last summer that I'd be speaking just a
few days after Chairman Martin released his de-regulatory idea for
softening of the newspaper/broadcast cross ownership ban, and at the
same time, laying the foundation for unprecedented regulation of the
cable industry. If this were a classic novel, it might be entitled, "A
Tale of Two Regimes." It is the best of times, and it is the worst of
times. Maybe newspaper publishers and smaller broadcasters in the top 20
markets feel as though it could be the best of times (well, at least
since 1975). But maybe not; they don't seem too excited by the
Chairman's proposal. The cable industry says it is the worst of times.
But their critics are saying that they aren't facing any competition, so
they should stop their bellyaching. Perhaps they'd prefer the classic
title "Hard Times." And I don't know if it's true, but I've heard that a
graffiti artist emblazoned across NCTA's door the motto: "the beatings
shall continue until morale improves."

Anyway, here we are just a couple of weeks before some Congressional
hearings on these matters, and only a few days before some big votes.
The debates are reaching a fever pitch and we have before us tinder
boxes of controversy. I'm not here today to spark a firestorm. I'm too
late. That has already happened. The flames are rising, and the heat is
on. But I'm hoping that cooler heads will prevail. So, today I'd like to
give you my perspective on these proceedings. Let's look at how we got
here, the process of the past several months, and what Congress and the
courts have told us to do. But first, let's look at the concept of
competition, which is at the heart of all of these decisions.

In the business context, Webster's Dictionary defines "competition" as
a, "rivalry between two or more businesses striving for the same
customers or market." Increased competition among newspapers, broadcast
radio and television, cable television, satellite radio and TV, and the
Internet have all been cited by many, including the Chairman, over the
years as the evidentiary basis for updating or eliminating the
newspaper/broadcast cross ownership ban. These media, he maintains, are
all competing for the attention of the same customers and, therefore,
advertising dollars.

At the same time, however, he is asserting that the cable industry, and
the cable industry alone, is facing less competition and should be
subject to more regulation. This is a radical departure for the
Commission -- a departure being made without sufficient chance for
public comment. In fact, just last year, the FCC determined that cable
subscribership was at about 60% penetration. Nielsen and Kagan numbers
support this figure. According to the vast majority of other analyses,
the cable industry's share of video customers has declined steadily in
recent years. In fact in just the last year, six of the largest cable
operators lost nearly 200,000 video customers. These are figures that
cable companies have to report under the Sarbanes-Oxley Act, so
presumably they are accurate \-- seeing as how prison time could
otherwise be involved. In the meantime, the two satellite companies,
DirecTV and EchoStar, gained 1.8 million customers in the last year and
are now the second and third largest multichannel video program
distributors. AT&T, Verizon and other incumbent telephone companies, are
now also competing for video customers. Verizon is rapidly approaching 1
million video subscribers.

But now the Commission is proposing to throw out that data and insert
new studies from Warren Communications even though Warren
Communication's Managing Editor says that his figures "aren't well
suited" for determining whether the 23-year-old 70/70 rule has been
triggered. He says he had no idea that the information he provided to
the mysterious FCC staffer who requested it would be used for such
purposes. And, had he known, he said he would have used footnotes and
caveats to put his study in the proper factual and analytical context.
All of this uncertainty is precisely why Commissioner Tate and I sought
more data to illuminate this mysterious development.

I have a lot of questions that need answering. Why is the FCC suddenly
changing its evidentiary standard and methodology just for this one
industry? How will this abrupt and radical departure affect other
analyses and proceedings? Doesn't this shift weaken arguments for
updating the cross ownership ban? Does our proposed change affect our
analysis of the proposed XM-Sirius merger? How do we reconcile decades
of data showing more convergence and more competition among more
delivery platforms with this sudden reversal? I am searching for
credible answers to these and many other questions---thus far to no
avail.

But let me get back to the original topic of this now verbose speech:
media ownership. In contrast, we are rushing toward a decision in media
ownership the way a slug races across a garden. Let's review the
procedural history.

The current proceeding began at my first open meeting as a Commissioner,
17 months ago. This proceeding has been unprecedented in scope and
thoroughness. We gathered and reviewed over 130,000 initial and reply
comments and extended the comment deadline once. We released a Second
Further Notice in response to concerns that our initial notice was not
specific enough about proposals to increase minority and female
ownership of stations. We gathered and reviewed even more comments and
replies in response to the Second Notice. We traveled across our great
nation to hear directly from the American people during six field
hearings on ownership in: Los Angeles and El Segundo, Nashville,
Harrisburg, Tampa-St. Pete, Chicago, and Seattle. We held two additional
hearings on localism, in Portland, Maine and here in our nation's
capital. In those hearings, we've heard from 115 expert panelists on the
state of ownership in those markets and we've stayed late into the
night, or early into the next morning, to hear from concerned citizens
who signed up to speak.

We also commissioned and released for public comment ten economic
studies by respected economists from academia and elsewhere. These
studies examine ownership structure and its effect on the quantity and
quality of news and other programming on radio, TV and in newspapers; on
minority and female ownership in media enterprises; on the effects of
cross-ownership on local content and political slant; and on vertical
integration and the market for broadcast programming. We received and
reviewed scores more comments and replies in response. Some commenters
did not like the studies and their critiques are part of the record.

So, during my entire term as a Commissioner, we have been reviewing this
matter. But our review didn't begin last year. The previous round began
in 2002. At that time, the Commission received thousands of formal
comments and millions of informal comments. The Commission held four
localism hearings across the country to gather additional evidence. The
FCC also produced twelve media ownership working group studies. We all
know that the 2002 review ended badly for the Commission -- with both
the legislative and judicial branches reacting through a Congressional
override of the national ownership cap, and a reversal and remand from
the Third Circuit in the *Prometheus* case. By the way, while the court
threw out almost all of the Commission's order, it concluded that,
"reasoned analysis supports the Commission's determination that the
blanket ban on newspaper/broadcast cross-ownership was no longer in the
public interest."

But our story didn't begin in 2002 either. In 2001, the FCC issued a
rulemaking focused on the newspaper-broadcast cross ownership ban -- a
concept that has been around since at least 1975. Comments and replies
were gathered there too. That proceeding sprouted up as the result of a
June 2000 report from a Democrat-controlled FCC, which found that the
ban may not be necessary to protect the public interest in certain
circumstances. That report was the result of yet another proceeding,
which commenced in 1998. The 1998 proceeding stemmed from a 1996
proceeding; which was sparked by legislation; which was engendered by an
overwhelming and bi-partisan vote of a Republican-controlled Congress
and signed into law by a Democrat President.

In my 17 years of being in and around the FCC, I can't think of any
issue that has been examined more thoroughly. I can't remember any
proceeding where the Commission has solicited as much comment and given
the American people as much opportunity to be heard. If anyone knows of
an FCC proceeding where there has been more opportunity for debate over
an 11-year period, please let me know. I just hope the Commission
doesn't fumble the procedural ball now that it's fourth down and goal.

One of the many things I have learned during my adventure at the FCC is
that opponents of any further de-regulation have been far more vocal and
organized than proponents of more relaxed rules. In fact, while
broadcasters have prioritized their opposition to the XM-Sirius merger
and the use of TV white spaces over their advocacy for relief under
media ownership rules, their opponents have skillfully recast the debate
into whether old and new media should live under additional regulations,
not fewer. In the meantime, at our hearings, witnesses on behalf of
broadcasters prefer to discuss the positive contributions broadcasters
make to their communities rather than the competitive threats they may
face that might warrant deregulation. Don't get me wrong, broadcasters'
community involvement and support are beneficial endeavors. But the
legal question before us involves some measurement of the competition
faced by broadcasters. Much of their oral testimony fell short of
shedding light on that subject.

Fortunately, the voluminous written record is considerably more
data-rich and offers a more dispassionate discussion of the facts. The
public hearings have been a better measurement of emotion than
dispassionate data; but they have been very valuable. At a minimum, they
have provided our fellow Americans with the chance to vent their
frustration with the federal government. We have been yelled at about
the Iraq war, global warming, the tyranny of America's copyright laws,
and the need to legalize drugs, among other topics. And then there was
the fellow in Los Angeles who had a very strong opinion about the
Peloponnesian War. Now, I don't mean for this to sound like a cop-out,
but that was before my time at the Commission. But in all seriousness,
I've greatly valued hearing directly from the thousands of people who
have traveled to these hearings, often on short notice. While we have
been the object of a great deal of anger, being on the frontlines of
democracy in this way has deepened my love for our country and its
diverse peoples. We are truly the greatest nation on earth.

But, a point that gets lost in the emotion over these issues is that the
directly elected representatives of the American people, the Congress,
enacted a statute that contains a presumption in favor of modifying or
repealing the ownership rules as competitive circumstances change.
Section 202(h) states that we must review the rules and "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 that it determines to be no longer in the public interest."
This section appears to upend the traditional administrative law
principle requiring an affirmative justification for the modification or
elimination of a rule, and it is crucial for everyone involved in this
debate to recognize this important presumption.

But before I go further on this point, just a reminder, and full
disclosure: both of my parents were print journalists. My father, Bart
McDowell, was a senior editor of *National Geographic Magazine*. He met
my mother, Martha Shea McDowell, after World War II at the University of
Missouri's famed School of Journalism where she was on the faculty. She
went on to become a reporter for the *Chicago Daily News* at a time when
almost no women held such jobs. She went on to work for the *Washington
Post* and was there when the cross ownership ban went into effect. So I
found it especially remarkable, when I was sorting through her estate -
after she passed away in 2005 - to find a book entitled *The Fading
American Newspaper*. I've read through it and I've come across some
timely quotes. Here's one: "As journalism migrates into new areas of
communication, its practitioners, too, are on the move. The commerce in
information flourishes and quickens its tempo, new skills are developed,
and the major problem for the newspaper journalist is to keep his
readers from migrating, too." So when was this book written? 2005? 1975?
No, it was written in 1960. Its author is Carl Lindstrom who was
executive editor of the *Hartford Times* and a journalism professor at
the University of Michigan. But the point is that there is not a general
concept before us in this proceeding that hasn't been debated for
decades.

Even though the newspaper industry was already facing challenges in
1960, it has undergone dramatic change in the 32 years since the
newspaper-broadcast cross ownership ban went into effect. Now we have
five national networks, not the three I grew up with. Today we have
hundreds of cable channels spewing out of a multitude of video content
produced by more, not fewer, but more entities than existed 32 years
ago. In 1975, cable was in its infancy and had yet to develop
programming. Now we have DBS, telephone companies offering video, cable
overbuilders, the Internet and its millions of websites, iPods,
satellite radio, cell phones, Wi-Fi, video-on-demand, digital video
recorders, pay-per-view, *etc.* There is no disputing that the
marketplace has been transformed by technological advances and business
innovations into the most competitive multimedia environment in human
history. Consumers have more choices and more control over what they
read, watch and listen to than ever. As a result, at least 300 daily
newspapers have gone out of business in the last 32 years because people
are looking elsewhere for their content. Newspaper circulation has
declined year after year. Since just this past spring, average daily
circulation has declined 2.6%. Newspapers' share of advertising revenue
has shrunk while advertising for online entities, which are not subject
to cross ownership restrictions, has surged. Is the cross-ownership ban
still in the public interest, or is it a millstone around the neck of a
drowning industry? The statute demands an answer.

Has this new era of competition been helpful or harmful to localism and
diversity? Audiences seeking news, local information and entertainment
are more fragmented than ever before. But combinations allowed by the
1996 Act have occurred. What these changes mean for localism and
diversity remains an unanswered question. On the one hand, some argue
that combinations that may have been dangerous to diversity in 1975 are
no longer any threat due to the existence of an unlimited number of
delivery platforms and content producers. Not only are there more hoses
to deliver the information, there are more spigots to produce the
information. On the other hand, most people still rely primarily on
television broadcasts and newspapers for their local news and
information. With local broadcasters and newspapers still producing a
large share of local online content as well, are there really more
diverse sources of local journalism than before? All of us must handle
this question with great care.

That question begs yet another question that is vexing to me: what can
the FCC do to promote ownership among people of color and women? Many
positive ideas put the Commission into a legal vice grip, with Supreme
Court prohibitions against race-specific help on one side, and a lack of
statutory authority for doing much more on the other side. Like it or
not, whatever the FCC or Congress does must withstand constitutional
muster. The strict scrutiny standard adopted by the Supreme Court in
*Adarand v. Pena* applies to all racial classifications imposed by the
federal government. It is a difficult standard to satisfy. Like it or
not, post-*Adarand*, regulators have to walk a constitutional tight rope
when considering how to define the class that should benefit from
policies intended to encourage ownership diversity. Adopting rules that
would be struck down on appeal would only provide false and fleeting
hope to the very people the rules were intended to help. So let's focus
on the possible \-- and the legally sustainable.

One of our ownership studies (Study #7) finds that women and people of
color are clearly underrepresented in the radio, TV and newspaper
industries -- no surprise there, sadly. But it also finds that this
pattern holds across a broad sampling of industries at relatively
similar rates, so that the radio, TV and newspaper businesses are not
unique. The study also finds that access to capital is the primary cause
of under-representation. Or, to quote Jack Kemp, "you can't have
capitalism without capital." Accordingly, the study recommends several
improvements to the FCC data collection process to track race and gender
in ownership. Gathering better data could easily be fixed. Putting
incentives in the right place so that it's in the economic interest of
businesspeople to solve the access to capital problem? Not so simple.

The most promising idea may be renewal of the tax certificate program,
which permitted deferral of gain realized upon the sale of a broadcast
station to a minority-owned or controlled entity. It was successful in
increasing the number of minority owners. During the program's lifespan,
364 tax certificates were issued for transactions involving sales to
minorities: 290 radio, 43 television, and 31 cable television. But it
was repealed in Congress by an overwhelmingly bi-partisan vote in 1995.
Today, Chairman Rangel's bill to restore it allows for a tax deferral of
up to \$50 million from a sale to small businesses that own 10 or fewer
broadcast stations. Chairman Rush's bill permits a taxpayer to exclude
from gross income some of the gain for a sale to an eligible purchaser,
such as an economically and socially disadvantaged business. While our
role at the Commission is not to lobby for any particular legislation, I
am encouraged that Congress is considering tax incentives to bolster
minority ownership. Putting the incentives in the right place so that
sellers have an economic interest to sell stations to minorities or
small businesses may be the most effective means of increasing minority
ownership.

But here we are, in the middle of another public comment period. Soon
the Commission might be testifying before both Houses of Congress.
Further deliberation ensues. While the FCC races ahead like "a runaway
glacier," as one analyst put it, the private sector has been busy
working around the regulations of yore. Is it any wonder that most of
the energy, creativity, capital and growth have been focused on areas
that are less regulated? The ironic truth is: in many cases, media
consolidation has actually become media divestiture. Companies such as
Disney, Citadel, Clear Channel and Belo actually have been shedding
properties to raise capital for new ventures. They are directing new
capital investment toward new media ventures. That's where America's
eyeballs are looking; so that means that's where the ad dollars are
flowing. The Hollywood writers' strike is all about the concept of
following the eyeballs and ad dollars. For instance, over one-third of
Americans go online to get their news. That number is growing.
Traditional media's numbers are shrinking.

While heavily-regulated newspapers and broadcast properties decline,
unregulated new media is in its ascendancy. This new frontier is
especially promising for people of color and women. The rise of
so-called "niche" markets is benefiting people who have been underserved
in the past. The low barriers to entry and low capital requirements to
get started have spawned a plethora of minority and women oriented new
media outlets such as: NetNoir.com, a minority owned online destination
that connects people interested in African American culture and
lifestyle; or iVillage.com, which provides daily hot topics for women;
or Women's eNews.com, an online source for news and perspectives of
particular concern to women. The exciting news is that all Americans
will benefit from this new paradigm because new technology empowers the
sovereignty of the individual regardless of who you are. While this new
era is in its infancy, and we have a long way to go before it matures, I
am confidently optimistic that the media ownership debates of the early
21^st^ Century will fade into obscurity as technology and competition
advance.

Thank you again for inviting me here today. Please have a happy
Thanksgiving. And I look forward to taking your questions.