# **[W. Kenneth Ferree, Chief]{.smallcaps}**

# **[Media Bureau Bureau]{.smallcaps}**

# **[Federal Communications Commission]{.smallcaps}**

# **[at the]{.smallcaps}**

# **[NAB ABA and FCBA Seminar]{.smallcaps}**

## ["2002 Media Ownership Rules Awards"]{.smallcaps}

## 

## [Sunday, April 7, 2002]{.smallcaps}

# **[[Remarks As Prepared For Delivery]{.underline}]{.smallcaps}**

Good afternoon. I want to thank Jerry for that kind introduction and
thank NAB for inviting me. I'm pleased to be here with you here in Las
Vegas today.

T.S. Eliot said that April is the cruelest month. That certainly is the
case in Washington. You're just about ready for Spring to spring, and
the cold air descend upon the city again. This past week we had several
nights of hard freeze...and I've already put away my cold weather gear
for the motorcycle, so I've had some cold rides in to the Commission the
past few days.

In any event, as Jerry noted in his introduction, I am chief of the
Media Bureau of the FCC. If you have not been following closely the
FCC's reorganization efforts, which you likely have not, the Media
Bureau is responsible for cable, Direct Broadcast Satellite, and
broadcast television and radio policy.

So there is a lot on our plates, and a lot of topics that I could
discuss here today.

Given that I have limited time, however, and to stay within a realm of
reasonable interest for this audience, I'm going to confine my remarks
today to the FCC's recent approach to media ownership rules and
policies.

Now, even that topic opens itself to hours of debate and discussion, so
I intend to keep these remarks at a fairly high level of abstraction.

Avoiding specifics also helps keep me out of trouble with my boss.

But an overly vague, heavily bureaucratic talk about FCC ownership
policies might leave even the most patient and uncomplaining among you
with leaden eyelids.

So I've tried to add a bit of color to my remarks.

While I was thinking about the material that I would cover today, the
Academy of Motion Pictures Arts and Sciences announced their annual
awards for excellence in the motion picture business.

I've often thought that these kinds of self-laudatory awards shows that
the entertainment industries seem to like to hold are rather gratuitous.

They also, however, are proliferating.

We not only now have the major awards shows like the Academy awards, the
EMMY Awards, the TONY Awards, and the Grammy Awards, but also:

The People's Choice Awards,

The Golden Globe Awards,

The Screen Actors Guild Awards,

The American Music Awards,

The Country Music Awards,

The MTV Video Music Awards,

The Soul Train Music Awards,

And so many others that they defy listing.

Moreover, others, outside of the entertainment industries, are getting
on the bandwagon.

There are the Webby Awards for web sites.

The CLIO Awards for advertising.

The Reuben Awards for cartoonists.

And it only gets more arcane from there.

There is, for example, the Masaoka Shiki International Haiku Award.

But my favorite and one that I am hoping to receive, is the Arthur S.
Flemming Award honoring outstanding Federal employees. I'll bet you
didn't know there was such a thing, right? --- As such an award, not as
an outstanding Federal employee!

Of course, you won't see any of these other awards ceremonies on prime
time television.

The networks reserve that time for really compelling programming like
the Playmate Fear Factor, or the Victoria's Secret Fashion Show, or the
latest version of Survivor.

To be fair, I should recognize that the American Bar Association doesn't
have an award show for lawyers. The problem is that the categories would
have to be things like, "Best use of media to prejudice the jury pool,"
or "Best obfuscation before a Congressional Committee."

I have some thoughts on nominees for that award.

In any event, in the spirit of this year's Academy awards, I'd like to
offer some awards relating to the FCC's media ownership rules.

The first category today is for "Best commitment to diversity, localism,
and competition."

The nominees are:

[Charlie Ergen for SHREIK]{.underline} --- A gentle ogre named Charlie
and his talkative sidekick donkey David (Charlie's lobbyist), kidnap the
beautiful and spirited Princess Carrie Must. Despite his early revulsion
to Princess Carrie, Charlie later comes to profess his love for her.
Yet, without warning, he whisks her away to the hidden land of the
second dish where few will ever find her.

[The Network Affiliated Stations Alliance for MONSTER NETWORKS,
INC.]{.underline} --- In the land of Monster networks, the affiliates
attempt to increase network viewership, yet the ungrateful networks
forbid them from preempting network programming. Surprising things
happen when the affiliates ask the FCC to protect them from the monster
networks.

Finally, [FCC Chairman Michael Powell for MICHAEL NEUTRON POWELL: BOY
GENIUS]{.underline} --- Michael Neutron Powell is a brilliant young
Chairman with a talent for protecting the public interest through
limited regulation. When actual market developments overtake the FCC's
outdated media regulations, Michael is forced to establish a task force.

And the award goes to Chairman Michael Powell.

The Chairman wins this award for establishing the Media Ownership
Working Group.

In setting up the Media Ownership Working Group, Chairman Powell has,
more so than he ever could with mere words, reaffirmed the FCC's
commitment to its traditional goals of promoting diversity, localism,
and competition in the broadcast industry.

The Media Ownership Working Group is charged with the daunting, but
critically important task of rebuilding the very foundations of the
Commission's media ownership rules and policies.

It will do this by delving unrelentingly and un-apologetically into the
facts of how the media markets work, how consumers view and use various
media, and how the FCC's existing rules and policies have affected
market performance.

This kind of sweeping review is long overdue. Most of the current rules
applicable to media services were written to address perceived harms and
to optimize market performance at a time when the prevailing conditions
in the media market were quite different than they are today.

As a result, the structure of our rules today rests on foundational
assumptions about the market that are, at best, questionable and, at
worst, patently invalid.

No structure can stand for long after its underlying foundation has
begun to crumble.

Nor can we just stand by and hope that the gradual disintegration of the
factual underpinning to the FCC's media ownership rules will slow or
stop.

To the contrary, the changes that are taking place in this space are
accelerating, rather than slowing.

This is no time to be in denial.

The time has come to construct a set of contemporary media ownership
rules and policies to promote a diverse and robustly competitive media
market.

And where do we begin but at the foundation.

That is where the people with the hard hats and the heavy equipment come
into action.

At the FCC, those people are the Media Ownership Working Group.

They'll need to start with front shovels, trenchers, and track loaders
to dig deeply into the media landscape, and then backfill with
information garnered in their studies about how the media markets
actually work today.

Only then can we begin to build and develop new ownership policies that
will guard against anti-competitive or anti-consumer conduct, while
optimizing market performance.

The digging must be focused and direct.

The Media Ownership Working Group has started by gathering data on the
ways in which the current market structures and FCC rules are working to
either promote or frustrate the FCC's traditional goals of competition,
diversity, and localism.

But the work can't end there. Broadcasters cannot continue to serve the
public, if broadcasting, as a service, cannot compete in an increasingly
diverse and fragmented media marketplace.

Inefficient rules reduce the incentives to invest in broadcast
television. They also reduce the ability of radio and television
broadcasting to compete against the growing number of outlets for video
programming distribution.

We simply are kidding ourselves if we think that broadcasters can go on
providing the same service they were providing in 1960 and remain
relevant and viable in 2002 and beyond.

Broadcasters must have the ability to use their valuable public spectrum
in new, efficient, and compelling ways; and they must have the
flexibility to develop their business models to match advances in
technology, the evolution in consumer preferences, and changes in the
competitive landscape.

The time has come, therefore --- if we care about broadcasting, if we
want to see the service thrive --- to see whether the broadcasting
industry is adapting to the new information marketplace, or whether it
is being held back by restraints that were placed upon it when different
market conditions prevailed.

In saying this, I am in no sense prejudging any particular approach.

In private, off-the-record sessions with broadcasters, I've heard a
number of interesting, sometimes revolutionary, suggestions about ways
in which the service might evolve if one or another set of rules
obtains.

I don't know which, if any, of these suggestions are realistic, I don't
have any favorites among them, and I don't know whether they even have
much appeal beyond the particular proponent of the model.

The regulatory point, however, is, to the extent possible without
abandoning our responsibility to protect the public from harm, we should
allow business men and women who hold broadcast licenses to adjust their
market activities in response to competitive forces.

For example, it may be that, by allowing certain combinations that
previously were "unthinkable," licensees may realize operational
efficiencies that produce higher quality programming for the public.

And I am deliberately avoiding the normative question of what "higher
quality" means. For my purposes, it is whatever produces the maximum
consumer welfare as measured by traditional market mechanisms --- even
if that is "Survivor Guantanamo Bay" rather than "I, Claudius."

For better or worse, we do not, in this country, require or expect
broadcasters (or any other media conduit) to elevate consumer
preferences. And this is not the forum to debate whether that is the
right approach or whether some more heavy-handed interventionist model
might make us all better as human beings.

The time has come to recognize that some of our own rules, even those
that once were quite important and sensible, may be inhibiting the free
flow of information and the delivery of programming to the public.

For example, if stations are not able to realize cost savings through
operational efficiencies, they may turn to other measures to remain
afloat, such as decreasing the amount of locally produced news and
information programming, or reducing programming expenditures in
general.

Neither of these outcomes, it seems to me, can be said to benefit the
public in general.

There also may be ways, if our rules at the FCC were slightly different,
that broadcast licensees might aggregate spectrum to provide new, more
competitive, and perhaps in some cases subscription-based services.

This might not only allow broadcasters to better compete in the
marketplace, it might also play a part in improving the quality and
diversity of programming available to the public, again reserving the
question of what constitutes quality programming.

And so, the time has come to evaluate in as rigorous and thorough a
manner as possible, how the media markets operate and how the FCC's
rules affect those markets.

Chairman Powell's willingness to take on this responsibility, amid
sometimes harsh criticism, more than merits our respect, recognition,
and support.

Which leads me to my second award today. This one is in the category of
"Best Supporting Precedent."

This category recognizes the authoritative body that has done the most
to require the Commission to be rigorous in justifying its media
ownership rules and policies.

And the nominees are:

The U.S. Supreme Court's Red Lion decision in "[LEON ROUGE"]{.underline}
--- Set in 1969, this musical follows a struggling independent agency
that falls for a beautiful and tempting legal theory named "Scarcity,"
who exists in a quasi-fantasy world of the agency's own creation. The
lovers must keep their affair hidden from the powerful Duke of Free
Speech.

The 104^th^ Congress for [GROSS-BILL PARK]{.underline} --- In this art
house picture, a large party of house members and senators assemble to
pass the 1996 Telecommunications Act. The Act leads to a biennial review
of media regulation. Mayhem ensues.

The DC Circuit's decision on the horizontal cable concentration limits
Court in [CABLE CAP DOWN]{.underline} --- An elite team of government
litigators is air-dropped into the US Courthouse in Washington on a
mission to uphold the cable ownership cap. When the cap is shot down,
the government finds itself trapped in an endless remand and fighting a
desperate battle against a changed ownership landscape.

The DC Circuit's national audience reach cap decision in [VANILLA SKY'S
THE LIMIT]{.underline} --- The National Association of Broadcasters
appears to lead a charmed life. Powerful and well funded, NAB's
freewheeling existence is enchanted. Complications arise when NAB
pursues a relationship with the Fox television stations. The NAB finds
itself on a mind-bending search for its soul and discovers the precious,
ephemeral nature of the network-affiliate relationship.

And the DC Circuit yet again for its TV duopoly decision in [Remanding
Day]{.underline} --- Bill Kennard is a rookie chairman at the FCC. His
first day on the job, he is sent to adopt ownership limits with the
veteran Roy Stewart. Stewart pushes his young charge to draw arbitrary
lines and bend rules. Kennard\'s misgivings about Stewart grow as he
begins to suspect that Stewart does not simply push the boundaries\...he
ignores them completely.

And the award goes to the D.C. Circuit for Cable Cap Down, Vanilla Sky's
The Limit, and Remanding Day.

This was a tough category in which to pick a winner.

The fact of the matter is, both Congress and the Courts have made it
quite clear that, even if the Commission wanted to avoid a top-to-bottom
media ownership review, that is today a legal impossibility.

In the 1996 Act, Congress made it clear that our media ownership rules
cannot rest on ancient and unsupported assumptions.

The biennial review provisions require us to re-evaluate our media
ownership restrictions every two years in light of changes in the media
market, and to justify our media ownership rules on the record.

We are in the process of trying to figure out exactly how to do that. In
the meantime, however, the judicial branch has weighed in just to be
certain that we did not miss the message: we can't impose ownership
limits based on anecdote and assumption.

The winner in this category, the D.C. Circuit, has fired more than a
warning shot across our bows.

Different panels of that court have now said, in no uncertain terms,
that the FCC must be prepared to justify its media ownership rules and
policies on a substantial factual record.

For example, with regard to the Commission's former 40% channel
occupancy rule, the Court complained that the FCC \"seems to have
plucked the 40% limit out of thin air.\"

Just a few weeks ago, that same court issued a major decision in the Fox
case. The court characterized the FCC's analysis of today's market as
"totally inadequate" for determining whether the 35% audience reach cap
is still needed.

And with regard to the FCC's decision to retain the TV-cable
cross-ownership ban, the court called our reasoning "flimsy" and
"half-hearted."

That stings and I've made a personal commitment not to have a case
remanded on my watch with similarly dismissive language.

There is no secret to how that will be done. With better analysis of
today's media market, we can reach ownership decisions that will once
again receive the judicial deference due an expert agency.

And the cases are coming to prove it. Three ownership proceedings are
already in the pipeline at the FCC, and there is a fair chance that one
or all of them, once complete, will be subject to judicial review.

Those three are the cable caps remand proceeding, the
broadcast-newspaper cross-ownership proceeding, and the NPRM on local
radio caps.

Further, now that the DC Circuit has remanded the FCC's 35% national
broadcast audience cap and our TV duopoly rule, we have additional work
to do in those areas.

The time is fast approaching, therefore, when we will be back in front
of a panel of the D.C. Circuit trying to justify our rules. And there is
no way to fake it in that court. One can argue about the law, but either
we will have record evidence to back-up our rules or we will not.

Now that's not to say that the evidence must lead to a single
incontrovertible answer. The Commission is permitted to make judgment
calls, and even predictive judgment calls, so long as they are informed
judgment calls. And again, that requires facts on the record.

And as the Scottish satirical novelist Tobias Smollett noted, "facts are
stubborn things." It is that stubbornness and resiliency that ultimately
will be our best shield, whether we are defending policies in a court of
law, or in the court of public opinion.

So we have no alternative. This is not ideological; it's not political,
it's not merely for show. We are on a mission to develop facts about the
media market.

Which brings me to my third and final award today. One area in which a
lot of this work is going to hit the ground will be in the FCC's review
of merger applications.

So, the third category is for "Best Corporate Combination." The nominees
are:

[EchoStar and DirecTV for "THE LORD OF THE DISH"]{.underline} --- In an
ancient world of sorcerers, elves and the Justice Department, a timid
hobbit named Charlie undertakes a perilous mission. Charlie must merge
his company with a competitor before it falls into the hands of the Dark
Lord Murdoch.

[Comcast and AT&T Broadband for A BEAUTIFUL MERGER]{.underline} --- A
behemoth telecommunications company struggles with schizophrenia and
tries to explain what M life is. The love of a strong and committed
partner rescues the company from its peril.

[Telemundo and NBC for IN THE BOARDROOM]{.underline} --- A young Spanish
network's affair with an older mature network upsets the network's
fiancée, Bud. The strife that results allows many attorneys to buy new
Mercedes.

And the winner goes to... Oh my, the CPA firm, Arthur Andersen, has not
finished tabulating the results. I guess they've been busy lately. We
will have to wait and see whether any of these proposed combinations are
winners.

Thank you for your attention today and for indulging my fantasy of
presenting at the Academy Awards.