**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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**REPORT AND ORDER**

**Adopted:** April 19, 2001 **Released:** May 15, 2001

By the Commission: Chairman Powell and Commissioner Ness issuing
separate statements; Commissioner Tristani dissenting and issuing a
separate statement.

# INTRODUCTION

1.  In this [Report and Order]{.underline} we amend Section 73.658(g) of
    our Rules, the "dual network" rule, to permit one of the four major
    television networks -- ABC, CBS, Fox and NBC - to own, operate,
    maintain or control the UPN and/or the WB television network.[^1] By
    this action, we recognize that the economics of the broadcast
    television network industry have changed to the point that retention
    of the rule in its current form is no longer in the public interest.

# background

2.  The dual network rule goes back some sixty years. The Commission
    first adopted a dual network rule in 1941, following its
    investigation of "chain" broadcasting.[^2] The rule adopted then
    mandated a flat prohibition on an entity maintaining more than a
    single radio network. As we noted in the [Notice of Proposed Rule
    Making]{.underline} in this proceeding,[^3] when the Commission
    extended the rule to television networks in 1946,[^4] it determined
    that permitting an entity to operate more than one network might
    preclude new networks from developing and affiliating with desirable
    stations. These stations might already be tied up by the more
    powerful network entity and might provide the commonly owned
    networks with too much market power.[^5]

3.  Section 73.658(g) sets forth the Commission\'s current version of
    the dual network rule. It reflects the provisions of Section 202(e)
    of the 1996 Act. That section directed the Commission to modify its
    dual network rule to prohibit a television station from affiliating
    with any entity that owns more than one of the four major networks
    (ABC, CBS, Fox, or NBC) or one of the four major networks and an
    emerging English-language network which, on the date of the 1996
    Act\'s enactment, "provides 4 or more hours of programming per week
    on a national basis pursuant to network affiliation arrangements
    with local television broadcast stations in markets reaching more
    than 75 percent of television homes...." The legislative history of
    this provision indicated that it was intended to apply to only the
    UPN and WB television networks.[^6] Moreover, these two networks
    were the only two entities other than the four major networks that
    met this definition of a network on the relevant date.[^7]

4.  The current dual network rule differs markedly from the dual network
    rule that existed from 1946 to 1996. The earlier rule prohibited a
    broadcast station from affiliating with a network organization that
    maintained more than one broadcast network. As such, the old rule
    effectively prevented network organizations from creating a new
    broadcast network or merging with an existing broadcast network. In
    contrast, the current dual network rule permits a broadcast station
    to affiliate with a network organization that maintains more than
    one broadcast network. Such affiliation is prohibited, however, if
    the multiple network combination is created by a merger among ABC,
    CBS, Fox, or NBC, or a merger between one of these four networks and
    UPN or WB.[^8] While the current rule gives all network
    organizations the opportunity to pursue any economic efficiencies
    that may arise from the maintenance of multiple broadcast networks,
    it restricts the manner in which specific network organizations
    become multiple broadcast networks. The current rule facilitates the
    maintenance of multiple broadcast networks created through internal
    growth and new entry.[^9] In addition, the current rule facilitates
    the creation of multiple broadcast networks by permitting (1)
    mergers between a broadcast network created before the 1996 Act
    ([i.e.]{.underline}, ABC, CBS, FOX, NBC, UPN, and WB) and broadcast
    networks created subsequent to the 1996 Act (e.g., PAXtv); (2)
    mergers between broadcast networks created subsequent to the 1996
    Act; and (3) a merger between UPN and WB.

5.  Section 202(h) of the 1996 Act also requires the Commission to
    review its broadcast ownership rules, including rules such as the
    instant rule that were amended pursuant to Section 202, every two
    years beginning in 1998 and to "repeal or modify any regulation it
    determines to be no longer in the public interest." In our first
    biennial review proceeding we examined, among other broadcast
    ownership rules, the dual network rule.[^10] Section 202(h) requires
    us to determine whether any of these rules remained "necessary in
    the public interest as the result of competition."[^11] As a result
    of our analysis according to that standard we tentatively determined
    that the component of the dual network rule that currently prevents
    the UPN or WB networks from being owned by one of the four major
    networks may no longer be necessary in the public interest as a
    result of competition

6.  In the [Biennial Review Report]{.underline}, we stated that both UPN
    and WB are "nascent subsidiaries" of "large, well-established
    program producers." Thus, the merger of one of the four major
    networks with UPN or WB would yield economic efficiencies resulting
    from vertical integration. Allowing a merger between one of the four
    major networks and UPN or WB, we stated, "may permit realization of
    substantial economic efficiencies without undue harm to our
    diversity and competition goals."[^12]

7.  As a result of the findings made in the [Biennial Review
    Report]{.underline}, we issued the [Notice of Proposed Rule
    Making]{.underline} initiating the instant proceeding.[^13] In the
    [Notice]{.underline}, we analyzed the dual network rule pursuant to
    a framework that involved concepts developed in the transaction cost
    economics ("TCE") literature. From a TCE perspective, the economic
    organization of firms and industries reflects specific attributes of
    the contracting process between buyer and seller. We stated that
    application of TCE concepts suggests that vertical integration
    between program suppliers and major networks may produce substantial
    economic efficiencies that might benefit both advertisers and
    viewers. We also stated that horizontal mergers between a major
    network and an emerging network may produce efficiencies that might
    benefit both advertisers and viewers. Moreover, we found that there
    should be little or no adverse effect on the price for network
    advertising as the result of such a merger. Therefore, we proposed
    to eliminate the major network/emerging network merger prohibition
    from our dual network rule.

# DISCUSSION

8.  In this [Report and Order]{.underline}, we consider our proposal to
    relax the dual network rule by eliminating the restriction on
    mergers between the top 4 broadcast networks and UPN or WB. Our
    focus, pursuant to section 202(h), is whether this aspect of the
    rule remains \"necessary in the public interest as the result of
    competition.\" Accordingly, we first identify several competitive
    changes and trends in the video services market that we consider
    relevant to the continued necessity for the rule. We then apply the
    framework, developed in the [Notice]{.underline}, for analyzing both
    the vertical and horizontal competitive impacts of the potential
    combinations that are currently prohibited by the rule. After
    addressing the impact of the rule on competition, we turn to the
    impacts of maintaining or changing the rule on diversity, the other
    primary public interest concern.[^14] Weighing these factors, we
    decide, as proposed in the [Notice]{.underline}, to eliminate that
    portion of the rule that effectively prohibits mergers between UPN
    or WB and one of the four major networks. We conclude that this
    change will not harm, and indeed is likely to promote, both
    competitive efficiency and diversity. Although some commenters also
    urged us to go beyond the tentative conclusions of the [Biennial
    Review Report]{.underline} and the [Notice]{.underline} and to
    eliminate the dual network rule in its entirety, we note that the
    questions presented in the [Notice]{.underline} related solely to
    the emerging networks portion of the rule. We therefore decline to
    eliminate the dual network rule in its entirety at this time,
    finding that more information and analysis would be necessary to
    address the more complex issues that action would involve.

## Marketplace Developments 

9.  Since the enactment of the 1996 Act, significant changes have
    occurred to the competitive environment in which networks, including
    emerging networks, operate. These changes, which have occurred both
    within the television broadcast industry and throughout the
    multichannel video programming distribution ("MVPD") industry, have
    substantial implications for both the competition and diversity
    concerns that underpin the dual network rule. We will first detail
    some of these developments and then turn to an analysis of the
    components of the rule in light of these changes.

10. Within the broadcast industry, the number of commercial and
    noncommercial television stations has increased from 1550 in August
    1996 to 1663 as of September 2000.[^15] This represents an increase
    of over 7% in 4 years. During roughly the same time, prime time
    viewership among the top six broadcast networks declined from 71% in
    1996 to 58% in 2000.[^16] Thus, within the last 4 years, there has
    been both a small but significant increase in the number of
    television broadcast outlets available to viewers (and potentially
    to new broadcast networks such as PAXtv) and a substantial decrease
    in the dominance of broadcast networks in terms of viewership.

11. Accompanying, and largely causing, the reduction in broadcast
    network viewership during the last 4 years has been the steady
    expansion of the cable industry. At the end of 1995, the cable
    industry had a penetration rate of 67.8% of homes passed.[^17] By
    2000, the penetration rate had grown slightly to 69.7%.[^18] While
    this represents only an incremental increase in penetration, the
    increase is significant when viewed in connection with the increase
    in channel capacity on cable networks. As of October 1995, 15.6% of
    cable systems offered 54 or more channels of video programming, and
    63.8% of cable systems offered between 30 and 53 channels,
    indicating that 79.4% of systems provided 30 or more channels of
    programming.[^19] In 2000, the number of high capacity cable systems
    was significantly higher. By 2000, 24.2% of cable systems offered 54
    or more channels of programming.[^20] With the percentage of cable
    systems offering 30-53 channels virtually unchanged since 1996, the
    increase in high capacity cable systems means that in 2000 86.6% of
    cable systems offered 30 or more channels of programming to
    subscribers. We anticipate that channel capacity on cable systems
    will continue to expand as more cable systems adopt digital
    technology.

12. Because each additional channel of capacity on a cable system
    represents a distinct avenue that may be used to deliver video
    programming, the increase in channel capacity provides video
    programming producers a greater opportunity to distribute their
    programming to consumers. Many cable networks have been formed to
    take advantage of this opportunity, and, as a whole, they appear to
    have been successful in capturing a significant portion of viewers
    over the last 4 years. In 1996, there were 162 cable programming
    services;[^21] by 2000, the number had increased to 214.[^22] In
    1996, cable networks had a 30% full-day audience share;[^23] in
    2000, cable networks' share was 45.5%.[^24] As channel capacity
    grows, we expect that new cable networks will be formed and the
    reach of existing cable networks will be extended.

13. Perhaps the most significant competitive change over the last 4
    years has been the rapid growth of the Direct Broadcast Satellite
    ("DBS") industry. When the 1996 Act was enacted, DBS service had
    been available to consumers for less than 2 years. Although the DBS
    industry had garnered 3.82 million subscribers by October 1996,[^25]
    this represented only 5% of MVPD subscribers,[^26] and many of these
    subscribers were located in rural areas not served by cable.[^27]
    DBS also suffered from certain competitive disadvantages, such as
    the inability to offer subscribers access to local broadcast signals
    via the satellite signal.[^28] Over the last 4 years, the industry
    has significantly matured. By 2000, the DBS industry had almost 13
    million subscribers, representing more than 15% of MVPD
    households.[^29] Moreover, bolstered in part by the new statutory
    right to provide "local-into-local" broadcast service,[^30] DBS has
    grown from a predominantly rural service to a viable alternative to
    cable in all parts of the country.[^31]

14. The growth of the DBS industry since 1996 significantly affects the
    opportunities available to network programming producers and
    consumers. Currently, the two operating DBS providers, DirecTV and
    EchoStar, each offer subscribers access to hundreds of channels of
    video programming. As with a cable channel, each DBS channel
    provides an independent avenue through which producers of video
    programming can distribute, and viewers may access, video
    programming. Although a certain number of DBS channels are used to
    provide the same network programming found on cable channels, a DBS
    operator could choose, except where must carry obligations are
    involved, to provide regional or local programming in response to
    market demand. [^32]

## Competition 

15. [Mergers Between A Major Network and UPN or WB]{.underline}. The
    developments in the broadcast, cable, and DBS industry have had a
    significant effect on the competitive landscape in which broadcast
    networks operate.[^33] Where almost 84 percent of households
    subscribe to an MVPD service,[^34] and as television broadcast
    stations and MVPDs, because of the increase in the number of
    available channels, seek a greater number of attractive programs to
    offer their viewers, new opportunities are created for producers to
    obtain distribution channels. Moreover, non-broadcast networks,
    whose niche programming can provide advertisers with more focused
    demographics, may continue to erode the audience share of broadcast
    networks and compete for advertising revenue, especially with the
    emerging networks. While we cannot definitively predict how these
    competitive forces will play out, we believe that competitive
    developments since the enactment of the 1996 Act have diminished the
    importance of obtaining broadcast affiliates to establish a
    successful video programming network.[^35] We believe that these
    developments require us to consider whether the dual network rule
    should be modified.

16. As discussed above, markets for video services have broadened and
    grown, reflecting shifts in market demand and supply in recent
    years. Competitive rivalry between and among suppliers of video
    services has intensified as consumers find increased choice of video
    programming and new vendors that supply video programming and video
    delivery services. Increased competitive rivalry intensifies the
    pressure on management to (1) improve internal operating efficiency
    by using inputs of production more effectively and organizing the
    firm to reduce redundancy in staffing or business functions;[^36]
    and (2) reorganize the firm through horizontal and vertical mergers
    to achieve economies of scale and scope. We focus here on the effect
    our rules may have on the networks' ability to achieve economic
    efficiencies through vertical and horizontal integration. As
    explained in the [Notice]{.underline}, TCE provides a conceptual
    framework for assessing possible gains and losses in organizational
    efficiency that may result from the intensified pressure on firm
    management to improve operating efficiency induced by the greater
    competitive rivalry confronting the firm.[^37]

17. In the [Notice]{.underline}, the Commission noted that the
    commercial television broadcast network industry today consists of a
    number of vertically-integrated firms.[^38] For example, ABC (a
    broadcast network) is vertically integrated with Disney (a program
    supplier), Fox (a broadcast network) is vertically integrated with
    20^th^ Century Fox (a program supplier), UPN (a broadcast network)
    is vertically integrated with Viacom (a program supplier), and WB (a
    broadcast network) is vertically integrated with AOL Time Warner (a
    program supplier). In addition to these well-know examples, NBC
    produces programs through NBC Studios and CBS produces programs
    through CBS Enterprises (formerly Eyemark Entertainment and King
    World Productions). Because mergers between broadcast networks may
    involve mergers between vertically-integrated firms, the Commission
    examined and sought comment on (1) the potential efficiencies of
    vertical integration between a program supplier and a broadcast
    network and (2) the effects of a horizontal merger between two
    broadcast networks.[^39]

18. Our analysis of the economic effects of the dual network rule
    decomposes a hypothetical merger between two vertically-integrated
    broadcast networks into two parts.[^40] First, the relationship
    between a program supplier and a broadcast network is examined to
    determine whether vertical integration is either more or less
    efficient than simply negotiating an arms-length contractual
    relationship between the program supplier and the broadcast network.
    The comparative assessment of the efficiency of contracting versus
    vertical integration relies on TCE concepts. Second, the effects of
    a horizontal merger between two broadcast networks is assessed by
    relying on measures of market concentration and an analysis of price
    competition in the national market for network television
    advertising. Finally, the economic gains or losses resulting from
    the analysis of vertical integration are combined with the expected
    economic gains or losses resulting from the horizontal merger to
    determine the overall benefits and costs of a merger between two
    vertically-integrated firms.

19. As explained in the [Notice]{.underline},[^41] our economic analysis
    focuses on the contemporary contracting environment between
    television networks and program producers. We have concluded that
    specific attributes of television network output and the
    complexities of contract negotiations between a television network
    and a program supplier tend to favor the replacement of market
    contracting with a vertical organizational relationship between the
    network and the program supplier. Applying TCE concepts, we further
    conclude that this substitution of vertical integration for a
    contractual relationship is most likely an economically-efficient
    response to the hazards of market contracting rather than the
    exercise of market power by the television network. Thus, the
    vertical integration of program suppliers and television
    networks (1) reflects competitive pressures induced by more intense
    competition for viewers that now enjoy greatly expanded video
    programming choices compared to a decade ago; and (2) minimizes
    transaction costs by eliminating the costly adverse effects of
    negotiating contractual relationships between the programmers and
    the networks. We conclude that the merger of a program supplier with
    a broadcast network would result in transaction efficiencies
    compared to a contractual relationship between the network and the
    program supplier.[^42] Given the growing competition for viewers of
    video programming, we anticipate that the efficiencies of vertical
    integration between the programming assets of an emerging network
    and a major network could accrue to the benefit of consumers.

20. We also explained in the [Notice]{.underline} how our analytical
    framework allows us to assess the horizontal effects of the merger
    of an emerging network with a major network[^43] on the national
    market for network advertising.[^44] We explained that within the
    national television advertising market, which includes national spot
    sales by affiliated and independent stations, a *strategic group*
    consisting of the major networks, i.e., ABC, NBC, CBS, and Fox, can
    be identified.[^45] At present, the network firms comprising this
    strategic group provide the greatest reach of any medium of mass
    communications.[^46] Since delivering a mass audience is becoming
    more difficult for all media with the proliferation of media
    outlets, media that can still produce mass audiences have become
    more valuable. As a result, notwithstanding some recent erosion in
    revenue growth, broadcast networks have achieved substantial gains
    in revenues in recent years despite their loss of audience relative
    to years past. The major mobility barrier impeding entry into the
    major network strategic group is the availability of affiliated
    stations.[^47] Notwithstanding some growth in the number of stations
    over the last decade, obtaining sufficient affiliated stations
    remains a major obstacle to developing a new broadcast network that
    can achieve sufficient national reach to be attractive to national
    advertisers seeking to reach a mass audience.

21. With respect to our analysis of the potential benefits of vertical
    integration of a program producer and a television network, Viacom
    was the only commenter to specifically address the potential
    efficiencies associated with vertical integration, and Viacom's
    pleadings support the Commission's findings.[^48] With respect to
    our analysis of the effects of horizontal integration of an emerging
    network with a major network, no commenter disagrees with our
    finding that a horizontal merger between a major network and an
    emerging network ([e.g.]{.underline}, UPN or WB) would generate net
    economic benefits.[^49] With respect to efficiencies associated with
    horizontal mergers between broadcast networks, Viacom states that
    "\[d\]eveloping expertise in program selection and in program and
    advertising brokerage is likely to require substantial fixed costs
    that could be exploited more economically across a larger number of
    program hours than are available to a single national network."[^50]
    Viacom explains that operating a single network requires a large
    number of people with knowledge of current entertainment trends,
    program procurement, execution of contracts, affiliate relations,
    advertising markets, and technology. According to Viacom, a
    substantial amount of overall network costs is invariant with
    respect to the number of programs procured and aired. Viacom
    concludes that spreading these fixed costs across multiple networks
    can be an important source of efficiency.[^51] For example, Viacom
    asserts that CBS could offer UPN substantial savings by combining
    accounting, traffic, business affairs, financial reporting, and
    engineering.[^52] Fox also mentions that mergers between broadcast
    networks could facilitate economically efficient arrangements.[^53]
    Minority Media Telecommunications Council ("MMTC") remarks that "UPN
    can only be preserved by an established network with O&Os \[owned
    and operated stations\] and efficiencies from duopoly
    \[[i.e.]{.underline}, the horizontal merger\] and vertical
    integration."[^54]

22. Viacom maintains that the potential effect of a merger between a
    major network and an emerging network on national television
    advertising is overstated when programs from a second network appeal
    to different demographic groups. According to Viacom, both WB and
    UPN appeal to a much younger audience than those attracted to ABC,
    CBS, and NBC. With respect to a CBS/UPN dual network, Viacom
    contends that there is relatively little direct competition in
    advertising sales between these two networks. Viacom explains that
    UPN's programming delivers viewers who are younger, more urban, and
    male, while CBS's programming delivers viewers who are older, more
    suburban, and female. Viacom maintains that UPN competes most
    directly with WB and to a lesser extent with Fox, networks that
    target younger urban viewers, while CBS competes more directly with
    the broader-based, traditional networks operated by NBC and ABC that
    target older viewers and a more general cross-section of the U.S.
    population. Viacom concludes that because of the differences in size
    and audience demographics, CBS and UPN are viewed by advertisers as
    distant substitutes for one another. [^55]

23. Even if the CBS and UPN networks targeted the same audience, Viacom
    argues that a CBS/UPN combination represents a relatively small
    change in concentration that will not result in any significant
    alteration in the competitive landscape as it relates to the sale of
    national network advertising time. According to Viacom, UPN is the
    smallest of the six television broadcast networks and accounted for
    approximately two percent of the 1999-2000 television season upfront
    primetime broadcast network advertising revenues. CBS is ranked
    first in ratings, third in advertising revenues and accounted for
    approximately 18 percent advertising revenue share.[^56]

24. We conclude that a merger between an emerging network, such as WB or
    UPN, and a major network is likely to produce net benefits to
    network advertisers and viewers of network television. With respect
    to vertical integration, such a merger may produce significant
    efficiencies by internalizing the contentious issue of program
    production risk-sharing within a vertical relationship. For example,
    an emerging network acquired by a major network provides the major
    network with an additional \"window\" for the distribution of
    network programming. In effect, this additional window allows the
    merged network to broadcast the same program in different time slots
    in the same market if both the major and emerging networks have
    affiliates in the same city. Alternatively, if the emerging and
    major network do not have affiliates in the same city, then the
    merged network entity will now reach more households than before the
    merger. In either case, the fixed costs of program production are
    spread over additional viewers in different time slots or additional
    cities. As a result, the effective program cost per viewer is
    reduced in either case. Similarly, a network program that fails, or
    is only marginally successful, on the major network\'s affiliated
    station might succeed when broadcast to the niche audience reached
    by the affiliates of the emerging network. The risks of network
    program development are clearly attenuated for the merged networks
    as a consequence of reaching additional viewers at different times
    or in additional cities or with audience attributes that may differ
    from the mass audience ordinarily targeted by a major network.

25. With respect to horizontal integration of a major and emerging
    television network, the merger should have little or no adverse
    effect on competition or pricing in the market for television
    network advertising, since major and emerging networks compete in
    different strategic groups. To the extent that the emerging network
    continues to offer programming following the merger that targets
    niche or special interest audiences, then the welfare of viewers of
    both mass audience and niche programming should not be adversely
    affected by the merger and may indeed be advanced by the resulting
    efficiencies.

26. [Mergers Among the Four Major Networks]{.underline}. After the rule
    change we are making herein, the only multiple network operations
    that will be prohibited by our dual network rule will be the common
    ownership of multiple broadcast networks created by mergers between
    ABC, CBS, Fox, or NBC. Although the questions presented in the
    [Notice]{.underline} related solely to the emerging networks portion
    of the dual network rule, Fox, Viacom, and WB argue for elimination
    of the rule in its entirety.[^57] They contend that the rule,
    established over fifty years ago, is no longer justified in light of
    prevailing conditions.[^58] They argue that new competitors \-- both
    broadcast and nonbroadcast -- have entered and attracted large
    portions of the market formerly controlled by the networks.[^59]
    They also argue that developments over the past 20 years have
    increased competition, reduced the networks' share of television
    viewership, and reduced the networks' share of television
    advertising revenue.[^60] These developments, they conclude, support
    elimination of the dual network rule.

27. We note that commenters were divided on whether a merger of two
    major networks would create or enhance market power. Fox states that
    the Commission's NPRM in this proceeding "errs by suggesting that
    the retention of some ownership restrictions on the top four
    broadcast networks may be warranted because they constitute a
    'strategic group' or 'oligopoly' that possess characteristics and
    pursue objectives that are somehow materially distinct from other
    television programming providers."[^61] Fox contends that broadcast
    networks face competition from a plethora of non-broadcast entities
    that are also capable of producing a mass audience.[^62] Fox states
    that "the Commission errs by suggesting that mobility barriers
    inhibit the development of new networks" and argues that "the number
    of national television broadcast networks has more than doubled in
    just a little over a decade."[^63] Viacom states "the contemporary
    video marketplace is extremely diverse and highly competitive and is
    expanding at an astounding rate as cable and satellite networks, and
    now the Internet, have emerged to challenge the over-the-air
    broadcast program services. Thus, a merger even of two of the
    established Big Four networks would not unduly affect the level of
    diversity and competition at the national level."[^64] WB states
    that "\[g\]iven the presence of at least eight mainstream broadcast
    television networks and scores of cable networks, there can not be
    any valid concern about domination of programming by only one or two
    national networks."[^65] WB concludes that "broadcast networks no
    longer can or do dominate programming distribution."[^66]

28. Other commenters suggest that major networks may already have market
    power. Paxson Communications Corporation ("Paxson") disagrees with
    the idea that encouraging the entry of new, over-the-air broadcast
    networks may have diminished in importance relative to twenty years
    ago due to the growth of video program substitutes
    ([e.g.]{.underline}, cable television networks and direct broadcast
    satellite services).[^67] Paxson contends that fostering the
    creation of emerging broadcast networks "allows critical marketplace
    pressures to constrain the adverse impact major networks may have on
    market advertising and programming costs."[^68] The Network
    Affiliated Stations Alliance ("NASA") supports retaining "the
    portion of the rule that prohibits common ownership of two or more
    of the big four networks."[^69] NASA states that "\[a\]udience
    fragmentation has not diminished the market power of the broadcast
    networks, nor has it diminished the leverage the networks have over
    their affiliates. Despite the emergence of new media, the big four
    broadcast networks still have, by far, the largest concentration of
    viewers and television economic power."[^70] NASA maintains that
    "\[t\]he market power of the television networks is demonstrated by
    their continued ability to charge high advertising rates."[^71] NASA
    argues that the Commission's analysis in the [Notice]{.underline}
    "demonstrates that the networks continue to have market power
    unmatched by any other segment of the television industry."[^72]
    NASA argues that "\[r\]elaxation of the dual network rule will,
    indeed, increase the networks' economic leverage over
    affiliates."[^73]

29. The questions presented in the [Notice]{.underline} related solely
    to the emerging networks portion of the dual network rule; the
    question of eliminating the rule in its entirety was not squarely
    presented to this Commission for review. Therefore, we will not
    address that issue in this proceeding. [^74]

## Diversity

30. In addition to the competitive concerns discussed above, the
    modification of the dual network rule involves diversity issues. In
    fact, the only commenter urging retention of the entire current dual
    network rule did so on the basis that the proposed modification
    would undermine traditional Commission diversity concerns. In this
    regard, UCC argues that the [Notice]{.underline} in this proceeding
    ignored the "vital first amendment issues that animate the dual
    network rule."[^75] Both UCC and the Network Affiliated Stations
    Alliance ("NASA") argue that a diminution in the number of
    independent networks would reduce the number of independent voices
    available in the broadcast television medium.[^76] Moreover, UCC
    argues that the NPRM asserts without support that alternate
    multi-channel video programming providers have diminished the
    importance of diversity in broadcast networks. To the contrary, UCC
    states, broadcast television remains the one true mass media, with
    the lowest rated broadcast network programs having ratings
    comparable to the highest rated cable network programs.[^77] Nor, it
    contends, is the Internet a comparable substitute for broadcast
    programming. The Commission, it states, has come to this very
    conclusion in the [Biennial Report]{.underline}.[^78] Finally, UCC
    alleges that diversity has been adversely affected by the relaxation
    or elimination of other Commission rules over the past ten years
    (citing Commission actions regarding the financial interest and
    syndication and local television ownership rules) and it finds it
    difficult to imagine how relaxing the dual network rule will cause
    this situation to reverse itself.[^79]

31. Allowing one of the top four networks to buy UPN and/or WB will, by
    definition, result in the elimination of one or more independently
    owned broadcast outlet at the national level. The record
    demonstrates that emerging networks make a significant contribution
    to diversity of programming at the national level and the stability
    of their affiliates, thus promoting outlet diversity at the local
    level. The record also demonstrates, however, that maintaining the
    dual network rule in its current form would actually jeopardize
    those contributions to diversity, rather than promote them.

32. In particular, the record shows that some form of relief from the
    dual network rule will promote the viability of the UPN network and
    thus promote diversity at the national level. Viacom now owns and
    operates both the CBS and UPN broadcast networks. Absent today's
    action, Viacom/CBS would have until May 4, 2001, to come into
    compliance with the rule, which, as a practical matter, would
    involve divestiture of UPN. The record reflects that UPN is a
    financially struggling network that has suffered losses in every
    year of its existence.[^80] Viacom notes that UPN has accumulated
    losses of approximately \$800 million and Chris-Craft (a 50 percent
    owner of UPN) turned down the opportunity to acquire Viacom's 50
    percent share of UPN for \$5 million.[^81] MMTC also noted the
    difficulty of finding a buyer for UPN, stating that it approached
    several minority-owned companies regarding the purchase of UPN.[^82]
    According to MMTC, some of the companies were interested but none
    were in a position to "shoulder about \$150,000,000 a year in red
    ink for several years."[^83] The reasons for UPN's financial
    struggles include competition from both broadcast and non-broadcast
    video sources, decreasing broadcast network viewership, and
    diversion of investment capital to other competitors partly as a
    result of the current dual network rule. These factors affect both
    UPN and the WB networks. Given these factors, there is substantial
    likelihood that the present level of independent network ownership
    would not be maintained absent the action we take herein.[^84] In
    addition, as noted above, our analysis suggests that the UPN
    broadcast television network benefits from the efficiencies of
    vertical integration with Viacom's program production facilities.
    Divestiture would deprive UPN of these efficiencies. It may be
    possible for these efficiencies to be realized by combining UPN with
    another major program producer, but nothing in the record suggests
    that another program producer is looking to merge with or acquire
    UPN. Indeed, the record suggests that divestiture would deprive UPN
    of vertical efficiencies, and thus put at risk its survival as a
    broadcast television network.

33. Stating that it has never before endorsed an exception to the dual
    network rule, MMTC explains that "we are faced with the unusual
    situation in which the dual network rule may have an unintended
    consequence. If it were applied strictly the rule would leave the
    public one fewer over-the-air network."[^85] MMTC explains, "\[f\]or
    all its faults, duopoly ownership would save a failing network whose
    survival is critical to minorities,"[^86] and concludes, "the
    Commission should allow UPN to be owned by a major network."[^87]
    The Board of Governors of the UPN Affiliates Association ("UPN
    Affiliates") states that "were the Commission's rule left unmodified
    so that it would continue to preclude the common ownership of CBS
    and UPN ... continuation of the UPN network would be in great
    jeopardy, and, indeed UPN would be unlikely to survive."[^88] LIN
    Television Corporation ("LIN"), a UPN affiliate, does not
    specifically argue that relief from the dual network rule is
    essential to the survival of UPN but maintains that the combination
    of Viacom, CBS and UPN "holds forth the promise that UPN will
    develop into a truly meaningful and enduring programming presence,
    significantly enhancing both competition and diversity in the
    national programming marketplace.\"[^89] Caroline K. Powley, owner
    of a UPN affiliate, believes that Viacom's continued ownership of
    UPN will ensure UPN's financial viability.[^90] Lockwood Broadcast
    Group ("Lockwood") also suggests that Viacom's continued ownership
    of UPN is necessary to UPN's viability.[^91] Holston Valley
    Broadcasting Corporation ("Holston") notes that UPN has struggled
    financially from its inception and although the network is still
    unprofitable "there is light at the end of the tunnel assuming its
    merger with the owners of the large CBS Television Network is
    allowed by the Commission."[^92] Holston asserts that allowing UPN
    to be co-owned with a strong network partner like CBS assures UPN's
    survival.[^93] Thus, the record demonstrates that our failure to
    relax the dual network rule would likely result in the elimination
    of a broadcast voice at the national level.

34. Retaining the current version of the dual network rule could also
    have cascading adverse consequences on diversity at the local level.
    Affiliates of a failed network, without network affiliation and the
    programming it brings, may not be able to sustain the increases in
    the cost of programming that they would have to bear should they
    have to purchase programming in the syndication market.[^94]
    Additionally, such affiliates would be deprived of a recognized
    brand that is promoted locally by each affiliate and nationally by
    the network and of first run programming that affiliates would have
    to replace by purchasing programming in the syndication market.[^95]
    Thus, the failure of a network could imperil the position of many of
    that network's affiliates and have a negative impact on diversity of
    outlets at the local level.

35. Again, the record evidence surrounding UPN provides a concrete
    illustration of the potential harm to local diversity that could
    result from retaining the dual network rule in its current form. UPN
    Affiliates states that "it is equally important to focus on the
    economic harm that would befall many of the UPN Affiliates were the
    Commission's rule left unmodified so that it would continue to
    preclude the common ownership of CBS and UPN."[^96] Were UPN to
    terminate, explains UPN Affiliates, the large investment in branding
    would be lost and each affiliate would be required to invest in
    establishing a new identity.[^97] UPN Affiliates maintains that
    these new investments "would greatly impair the economic viability
    of many UPN Affiliates particularly those in medium and small
    markets, and would divert funds that could otherwise be expended on
    programming."[^98] UPN Affiliates explains that an analysis of the
    130 UPN primary network affiliates shows that more than half of the
    affiliates are owned by single station owners or small group
    owners.[^99] With reference to its television station in Grand
    Rapids, LIN explains that "\[t\]o replace UPN, the station would
    have to purchase ten more hours of primetime programming a week, as
    well as a block of children's educational /informational programming
    to replace the Disney programming made available by UPN, and engage
    in extensive additional promotion which UPN branding and marketing
    now makes unnecessary."[^100] LIN states that, "UPN literally makes
    it possible for LIN to provide an additional programming voice in
    the Grand Rapids market."[^101] Caroline K. Powley maintains that
    the UPN affiliation has improved the quality of programming her
    television station in Buffalo offers viewers and allowed the station
    to become financially viable.[^102] Powley also contends the
    television station would not be able to survive without the UPN
    affiliation, and Viacom's continued ownership of UPN will ensure
    UPN's and the station's financial viability.[^103] Lockwood states
    that Viacom's continued ownership of UPN "will ensure that small
    broadcasters like us will survive in an increasingly difficult
    climate."[^104] Holston states that allowing UPN to be co-owned with
    a strong network partner like CBS assures UPN's survival and thus
    the survival and proliferation of UPN affiliates."[^105] Holston
    contends that "\[d\]ozens of markets have an additional local free
    over-the-air television station thanks to the presence of
    UPN."[^106] Thus, we conclude that eliminating the emerging network
    portion of the dual network rule will promote, rather than diminish,
    the diversity of voices at the local level.

36. As a more general matter, we agree with those that argue that the
    proliferation of video programming networks warrants relaxing the
    rule. At present, some 83.8 percent of television households obtain
    their service from an MVPD such as cable, direct broadcast satellite
    or Multichannel Multipoint Distribution Service.[^107] Most of the
    subscribers to such systems have available to them a cornucopia of
    video services. As discussed above, nearly 87 percent of cable
    television systems have 30 or more channels.[^108] These systems
    serve 99 percent of cable subscribers.[^109] Although many of the
    video programming networks presented on cable systems are vertically
    integrated with cable multiple system operators,[^110] they
    nevertheless contribute to diversity by providing programming to
    most viewers that is from a source other than the six broadcast
    television networks covered by the instant rule. Such developments
    have diminished the importance of maintaining UPN and WB as
    independently owned network "voices."[^111]

37. We also agree with commenters that a major network and an emerging
    network under common ownership would have a strong economic
    incentive to diversify their program offerings, particularly by
    increasing service to minority or "niche" tastes and
    interests.[^112] A single broadcast network has the incentive to
    attract the largest possible audience with mass appeal programming
    (which is similar to the programming offered by its rivals).
    However, if two networks are owned by a single entity, the entity
    has an incentive to attract an array of viewers with differing
    interests to produce the largest combined audience for the overall
    enterprise.[^113] This allows for the major network to pursue mass
    tastes, with the smaller network programming to minority and niche
    tastes. For example, MMTC argues that "\[t\]he viewing patterns of
    African-Americans are sharply different from those of White
    Americans"[^114] and that the only two emerging networks subject to
    the second prong of the dual network rule are currently the only
    broadcast outlets for minority-themed programming.[^115] A
    "duopolized" network, under these circumstances, would be preferable
    to no network, and allowing common ownership would protect, rather
    than hinder, existing program diversity.[^116] Additionally, MMTC
    contends that allowing common ownership of a major network and an
    emerging network that programs to a minority audience can have
    beneficial diversity effects. It argues that the interaction between
    the staffs of a mass market network and a niche or minority oriented
    network could enable the former to better appreciate the importance
    of, and learn the means of, addressing issues of concern to minority
    communities.[^117]

38. The record also supports the proposition that eliminating the
    emerging network portion of the dual network rule will not adversely
    affect the provision of news and public affairs programming. Viacom
    states that the emerging networks thus far have not been in a
    position to absorb the full costs of developing news departments
    offering regularly scheduled news programs. Accordingly, it
    continues, a combination of a major network with UPN or WB would not
    affect the independence of an existing news organization or cause a
    reduction of diversity in news or public affairs programming.[^118]
    Indeed, Viacom argues, common ownership may offer the only realistic
    potential for the carriage of a substantial amount of news and
    public affairs programming by affiliates of the emerging network by
    allowing the resources of the larger network to be re-deployed in
    ways that serve the viewers of the emerging networks by providing
    them with news and public affairs.[^119]

## Additional Matters

39. The WB Network argues that if we relax the dual network rule we are
    obligated to also eliminate the cable/television cross-ownership
    rule. Otherwise, it contends, we will actually be allowing only the
    UPN Network to be merged with a major network because the
    cable/television cross-ownership rule precludes The WB from such a
    merger. It argues that the Commission cannot, as a matter of law,
    grant regulatory relief to certain competitors but not equivalent
    relief to others. Since the cable/television cross-ownership rule
    "stands in the way of similar creative business arrangements with an
    established network, The WB cannot be part of a corporate family
    with any attributable interests in licensed broadcast stations in
    numerous major DMAs. This, it asserts, violates fundamental fairness
    and administrative law that requires the Commission to accord
    comparable treatment to similarly situated parties.[^120]

40. Modification or elimination of the cable/television cross-ownership
    rule is not within the scope of the [Notice of Proposed Rule
    Making]{.underline} issued in this proceeding. We will consider it
    again in a future proceeding or our next biennial review of our
    broadcast ownership rules. WB network is receiving equal treatment
    by reason of the modification of the dual network rule we are making
    herein.

41. Additionally, the UPN and WB Networks have each raised arguments
    that the provision of the 1996 Act that defines an emerging network
    does not include it.[^121] Given our decision herein, this issue is
    moot.

42. Finally, we have previously granted Viacom, Inc., a period of twelve
    months, commencing May 3, 2000, within which to come into compliance
    with the dual network rule.[^122] Given our action herein, we will
    extend that temporary waiver of the rule until the effective date of
    the instant rule amendment.

# cONCLUSION

43. Based upon the record and our own analysis, we find that the
    benefits of vertical integration between a program producer and
    television networks will not be lost and may well be augmented by a
    merger of one or more emerging networks with a major network.
    Additionally, the horizontal integration of an emerging and major
    network should not adversely affect competition or pricing in the
    relevant television advertising markets and may produce
    merger-specific efficiencies that provide new benefits to viewers
    and advertisers not otherwise available prior to the merger. The
    aggregation of the possible efficiencies of both vertical and
    horizontal integration that provide the resources for viewer and
    advertiser benefits support our decision to abolish today that part
    of the dual network rule that prohibits the merger of one or more
    emerging network with a major television network.

44. With regard to diversity, we do not believe that the loss of up to
    two independently owned networks that potentially could result from
    our modification of the dual network rule would seriously compromise
    our diversity concerns. On the contrary, diversity of programming
    will be fostered at the national level as a result of our permitting
    struggling emerging networks to combine with major networks, thereby
    allowing them to continue serving their current niche and minority
    audiences. At the local level, our action will contribute to outlet
    diversity by strengthening the emerging networks and thus promoting
    the stability of their affiliated stations. Therefore, on balance,
    we believe that the modification of the dual network rule is
    warranted on diversity grounds, as well.

45. We do not believe that a waiver is the better approach to this issue
    and so do not reach those arguments of commenters favoring such
    relief.[^123] The subject portion of the dual network rule is
    unusual because, while in form it is a rule of general
    applicability, in effect it only applies to one entity other than
    UPN ([i.e.]{.underline}, the WB Network). Thus, the rule is so
    narrow that the specific facts concerning one of the only two
    parties to which the rule applies are quite relevant. Also, the two
    networks are similarly situated from the standpoint of economic
    analysis. Both UPN and WB are nascent broadcast networks that target
    younger audiences compared with the major networks. In addition,
    both networks use UHF stations and LPTV facilities that result in a
    substantial coverage disadvantage compared with the major networks.
    Our foregoing analysis pertains equally to UPN and WB and
    demonstrates that distinct benefits for either or both of them can
    be derived generally from elimination of that section of the rule
    that prohibits these two entities to merge with a major network.
    Accordingly, elimination of that provision of the rule itself,
    rather than grant of waiver relief to only one of the two parties
    affected by that portion of the rule, is appropriate.

46. In view of the foregoing, we conclude that the dual network rule
    should be amended by eliminating the provision prohibiting the
    common ownership of one of the four major networks and the emerging
    networks. We will reexamine that part of the dual network rule that
    prohibits mergers between the major networks in a future proceeding,
    possibly our next Biennial Review. At that time we will explore in
    greater detail how repeal or modification of that part of the rule
    may affect diversity and consider whether the rule remains necessary
    in the public interest as the result of competition.

# ADMINISTRATIVE MATTERS

47. [Paperwork Reduction Act of 1995 Analysis]{.underline}. This [Report
    and Order]{.underline} has been analyzed with respect to the
    Paperwork Reduction Act of 1995 and found to impose no new reporting
    requirements on the public.

48. [Regulatory Flexibility Analysis]{.underline}. Pursuant to the
    Regulative Flexibility Act of 1980, as amended, 5 U.S.C. § 601
    [et]{.underline} [seq]{.underline}*.*, the Commission\'s Final
    Regulatory Flexibility Analysis in this [Report and
    Order]{.underline} is attached as Appendix A.

49. [Ordering Clauses]{.underline}. Accordingly, IT IS ORDERED that,
    pursuant to the authority contained in Sections 4(i) & (j), 303(r),
    308, 310 and 403 of the Communications Act of 1934, 47 U.S.C. §§
    154(i) & (j), 303(r), 308, 310 and 403, as amended, Part 73 of the
    Commission\'s Rules, 47 C.F.R. Part 73 IS AMENDED as set forth in
    Appendix B below.

50. IT IS FURTHER ORDERED, that Viacom, Inc.'s, temporary waiver of
    Section 73.658(g) of the Commission's Rules, IS EXTENDED until the
    effective date of this rule amendment.

51. IT IS FURTHER ORDERED that, pursuant to the Contract with America
    Advancement Act of 1996, the amendment set forth in Appendix B SHALL
    BE EFFECTIVE 60 days after publication in the Federal Register.

52. IT IS FURTHER ORDERED that the Commission\'s Consumer Information
    Bureau, Reference Information Center, SHALL SEND a copy of this
    [Report and Order]{.underline}, including the Final Regulatory
    Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
    Business Administration.

53. IT IS FURTHER ORDERED that this proceeding is terminated.

54. [Additional Information]{.underline}. For addition information
    concerning this proceeding, please contact Roger Holberg, Mass Media
    Bureau, (202) 418-2134 or Dan Bring, Mass Media Bureau
    (202),418-2164.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

**APPENDIX A**

**FINAL REGULATORY FLEXIBILITY ACT ANALYSIS**

As required by the Regulatory Flexibility Act (RFA),[^124] an Initial
Regulatory Flexibility Analysis (IRFA) was incorporated in the [Notice
of Proposed Rule Making]{.underline} in this proceeding.[^125] The
Commission sought written public comment on the proposals in this
Notice, including comment on the IRFA. The comments received are
discussed below. This present Final Regulatory Flexibility Analysis
(FRFA) conforms to the RFA.[^126]

**I. Need For, and Objectives of, Report and Order**

In February 1996, the Telecommunications Act of 1996 (\"1996 Act\") was
signed into law. Section 202 of the 1996 Act directed the Commission to
make a number of significant revisions to its broadcast media ownership
rules. Section 202(h) also requires us to review our broadcast ownership
rules every two years commencing in 1998. One of the rules reviewed in
our first such biennial reviews was Section 73.658(g), the dual network
rule. In our [Biennial Review Report]{.underline}[^127] we tentatively
concluded that a portion of this rule was no longer necessary in the
public interest. Accordingly, we issued a [Notice of Proposed Rule
Making]{.underline} proposing the elimination of this rule consistent
with the goals of the 1996 Act.

**II. Significant Issues Raised by the Public in Response to the Initial
Analysis**

No comments were received concerning the Initial Regulatory Flexibility
Analysis.

III\. Description and Estimate of the Number of Small Entities To Which
the Proposed Rules Will Apply

The RFA directs agencies to provide a description of, and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted.[^128] The Regulatory
Flexibility Act defines the term "small entity as having the same
meaning as the terms "small business," "small organization," and "small
business concern" under section 3 of the Small Business Act.[^129] 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.[^130]

Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small
business applies \"unless an agency after consultation with the Office
of Advocacy of the SBA and after opportunity for public comment,
establishes one or more definitions of such term which are appropriate
to the activities of the agency and publishes such definition(s) in the
Federal Register. A "small organization" is generally "any
not-for-profit enterprise which is independently owned and operated and
is not dominant in its field."[^131] Nationwide, as of 1992, there were
approximately 275,801 small organizations.[^132] "Small governmental
jurisdiction" generally means "governments of cities, counties, towns,
townships, villages, school districts, or special districts with a
population of less than 50,000."[^133] As of 1992, there were
approximately 85,006 such jurisdictions in the United States.[^134] This
number includes 38,978 counties, cities, and towns; of these, 37,566, or
96 percent, have populations of fewer than 50,000.[^135] Thus, of the
85,006 governmental entities, we estimate that 81,600 (91 percent) are
small entities.

[Small TV Broadcast Stations]{.underline}. The SBA defines small
television broadcasting stations as television broadcasting stations
with \$10.5 million or less in annual receipts.[^136] According to
Commission staff review of the BIA Publications, Inc., Master Access
Television Analyzer Database, fewer than 800 commercial TV broadcast
stations (65%) have revenues of less than \$10.5 million dollars.
Approximately 90 of these small TV broadcast television stations are
affiliates of the WB or UPN networks and may be affected by our rule
change. We note, however, that under SBA's definition, revenues of
affiliates that are not television stations should be aggregated with
the television station revenues in determining whether a concern is
small. Therefore, our estimate may overstate the number of small
entities since the revenue figure on which it is based does not include
or aggregate revenues from non-television affiliated companies. It would
appear that there would be no more than 800 entities affected.

**IV. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements**

The [Report and Order]{.underline} imposes no reporting, recordkeeping,
or compliance requirements.

**V. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Significant Alternatives Considered**

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: (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.

As indicated above, the [Report and Order]{.underline} allows licensees
to affiliate with a network entity that maintains two or more networks
unless such multiple networks consist of more than one of the "big four"
networks (NBC, ABC, CBS and Fox). This eliminates the bar on affiliation
with an entity that maintains one of the "big four" networks and the UPN
and/or WB networks. All significant alternatives, *i.e.*, retention of
the existing rule, modification of the existing rule, and elimination of
the dual network rule altogether, were considered in the Commission's
1998 biennial review of its broadcast ownership rules (MM Docket No.
98-35) and herein. In the Biennial Review proceeding the Commission
tentatively determined that elimination of the subject provision would
be in the public interest. The Commission considered the results of this
top-to-bottom review of the subject rule in its consideration of
alternatives to the course proposed herein in the instant proceeding.
The instant action provides television licensees, including those
considered to be "small businesses," with increased flexibility with
regard to the broadcast networks with which they may affiliate. It also
may help small stations that are affiliated with the UPN or WB networks
survive and prosper in an increasingly competitive media marketplace.
Finally, it gives the four major and two emerging broadcast television
networks, none of which are small businesses, more merger flexibility.

**VI. Report to Congress**

The Commission will send a copy of this [Report and Order]{.underline},
including this FRFA, in a report to be sent to Congress pursuant to the
Small Business Regulatory Enforcement Fairness Act of 1996, see 5 U.S.C.
§ 801(a)(1)(A). In addition, the Commission will send a copy of this
[Report and Order]{.underline}, including FRFA, to the Chief Counsel for
Advocacy of the Small Business Administration. A copy of this Report and
Order and FRFA (or summaries thereof) will also be published in the
Federal Register. [See]{.underline} 5 U.S.C. § 604(b).

**APPENDIX B**

**RULE CHANGE**

Part 73 of Title 47 of the U.S. Code of Federal Regulations is amended
to read as follows:

PART 73 -- RADIO BROADCAST SERVICES

### The Authority citation for Part 73 continues to read as follows:

AUTHORITY: 47 U.S.C. 154, 303, 307, and 554.

### Section 73.658(g) is amended as follows:

**[§ 73.658 Affiliation agreements and network program practices;
territorial exclusivity in non-network program
arrangements.]{.underline}**

\*\*\*\*\*

\(g\) Dual network operation. 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 section 73.3613(a)(1) of the
Commission's regulations (that is, ABC, CBS, Fox, and NBC).

\*\*\*\*\*

**APPENDIX C**

**LIST OF COMMENTERS**

#  {#section .unnumbered}

Fox Television Stations, Inc.

Holston Valley Broadcasting Corporation

LIN Television Corporation

Lockwood Broadcast Group

Minority Media and Telecommunications Council

Paxson Communications Corporation

UPN Affiliates Association

Viacom Inc.\*

WB Television Network\*

WNGS-TV

**LIST OF REPLY COMMENTERS**

Network Affiliated Stations Alliance

United Church of Christ, Office of Communication, Inc., Consumer
Federation of America and The Center for Media Education

Viacom, Inc.

WB Television Network

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\* Includes late filed comments submitted in MM Docket No. 98-35.

**SEPARATE STATEMENT**

**MICHAEL K. POWELL, CHAIRMAN**

*Re: In the Matter of Amendment of Section 73. 658 (g) of the
Commission's Rules---The Dual Network Rule (MM Docket No. 00-108).*

Today, we take an important step in examining the Dual Network Rule in
the context of the competitive landscape as it exists today. The
*Order*: (1) examines the competitive changes in the video marketplace;
(2) applies an economic framework for analyzing the competitive impacts
of such a merger and; (3) examines the impact on diversity by
maintaining or changing the rule. The *Order* concludes that diversity
and localism are prospering as a result of the dramatic changes in the
video marketplace and that any efficiencies gained through such mergers
would likely make the emerging networks more effective competitors.
Retention of the Rule in its current form is found to be no longer in
the public interest. The *Order* further concludes that the change we
make today will not harm, and indeed is likely to promote competitive
efficiency and diversity.

The original dual network rule is over 50 years old.[^137] It was
adopted in the early years of television when three networks dominated
the entire television market. Today, half a century later, we not only
have alternative platforms for distribution -- namely cable and DBS --
we also have a plethora of new programming channels available to
consumers. In 1946 there were only six television stations nationwide;
today, there are over 1,600 television stations. Today, approximately 84
percent of all Americans subscribe to cable, DBS, or another
multi-channel service provider. And with over 200 cable networks,[^138]
there are more sources of programming than at any time in history.

These dramatic changes in the video competition market serve as the
backdrop for the Commission's review of that portion of the Dual Network
Rule that prohibits the four largest networks\--ABC, CBS, Fox and NBC
\-- from merging with UPN or WB. The Commission has a responsibility to
examine *all* of its rules in the modern context, and either validate or
eliminate them. In fact, in the broadcast ownership area, Congress has
*directed* the Commission to review its broadcast ownership rules and
"determine whether any of such rules are necessary in the public
interest as a result of competition."[^139] The *Order* we adopt today
affirms the tentative conclusion made by the Commission the [Biennial
Report]{.underline};[^140] that the Rule as it applies to UPN and WB no
longer serves the public interest, and therefore should be repealed.

The record in this proceeding also demonstrates that maintaining the
Rule in its current form would actually jeopardize diversity, rather
than promote it. Uncontested in the record is the fact that continued
ownership of UPN by CBS is essential to the continued viability of UPN
and its local affiliated stations.[^141] The failure of this network
would result in a loss of a diversity of programming at the national
level; programming that makes an important contribution to minority and
urban audiences. Furthermore, outlet diversity at the local level would
also be jeopardized if the stability of the affiliates was put at risk.

SEPARATE STATEMENT

COMMISSIONER SUSAN NESS

In re: In the Matter of Amendment of Section 73.658(g) of the
Commission's Rules -- The Dual Network Rule, MM Doc. No. 00-108

It is important to point out what this Order does not do.

The Commission does not relax the existing prohibition on mergers among
the top four broadcast networks. While the item points out that the
issue of mergers between the top four networks was not raised in the
*Notice*, I believe that a combination of any of the top four broadcast
networks would dangerously diminish source and viewpoint diversity in
the United States. As the item points out, the four major broadcast
networks are unique among the media in their ability to reach a wide
audience. Even though network ratings have declined over the last twenty
years, those ratings still far outpace any other video platform.
Moreover, the competition between network news operations serves an
important First Amendment function by encouraging journalistic rigor and
a relative variety of editorial priorities and viewpoints. Even in an
era of 24-hour cable news networks, the ratings dominance of the
broadcast networks should lead future Commissions to hesitate before
diminishing competition and diversity among the top four broadcast
networks.

This item also does not implicate other media ownership restrictions. As
the competition analysis makes clear, the provision of the dual network
rule at issue here identifies a very small universe of affected parties:
UPN and the WB. By allowing mergers involving these two "weblets," the
Commission willingly diminishes source diversity, something I ordinarily
resist, in order to maintain outlet and viewpoint diversity, something I
strongly support. The net benefit to diversity through the preservation
of small, niche-oriented broadcast networks leads me to support this
action.

Finally, the economic analysis in this item carefully avoids sweeping
assumptions about possible public interest benefits accruing from
post-merger economic efficiencies. While vertical integration tends to
reduce transaction costs, and horizontal mergers tend to reduce
redundancies, it is not at all clear to me that the resulting savings to
the merged entity are, *ipso* *facto*, passed on to the consumer in the
form of an improved product. That certainly is a theoretical
possibility. But in the real world of media mergers, I believe it is a
dangerous assumption that larger entities will, by virtue of their
increased efficiency, produce better programming, more news, or wider
arrays of editorial positions. Rather, the Commission should remain
vigilant in preserving the vibrant and competitive media marketplace
that will encourage media companies to channel their resources toward a
better product.

**DISSENTING STATEMENT**

**COMMISSIONER GLORIA TRISTANI**

In The Matter of Amendment of Section 73.658(g)\--The Commission's Dual
Network Rule for Emerging Networks, MM Docket No. 00-108[^142] ^1^

In this *Report and Order* the Commission amends 47 C.F.R. §73.658(g)
(dual network rule) to permit one of the four major television networks
-- ABC, CBS, Fox and NBC - to own, operate, maintain or control the UPN
and/or the WB television network[^143]^2^ Because I believe elimination
of the Commission's rule barring a major network from owning an emerging
network is not supported by the record and does not protect the public's
interest in maintaining a wide diversity of viewpoints on our airwaves,
I dissent. Despite the lengths to which the majority goes to show
viewers benefit from further consolidation in the broadcast industry,
the decision will only further erode the already tenuous level of
viewpoint diversity available to the public.

Following the *Biennial Review Report* the Commission issued *a Notice
of Proposed Rule Making* utilizing transaction cost economics ("TCE")
literature to suggest that horizontal consolidation between a major and
an emerging network and vertical integration between program suppliers
and major networks would produce economic efficiencies that benefit
advertisers and viewers. No effort was made to describe how the
Commission could measure whether these purported benefits reach viewers
or advertisers.

Read closely, the Order states a result that is in search of a
rationale. Commenters supporting the modification of this rule said: "A
duopolized UPN is better than a dead UPN.[^144] ^3^ This, by itself, may
be true. But the majority dresses up the same point with extensive, and
pointless, reference to economic literature and ample parroting of
Viacom's filings to conclude complete elimination of this portion of the
rule, "suggests" economic efficiencies "may" arise that "might benefit"
consumers[^145]^4^ I hope rather than believe the majority is correct.

As much as I might be concerned about the rule's impact on UPN, the
question I have to answer is not whether the financial difficulties of a
party subject to a rule justify eliminating the rule. I can only vote to
change the rule if the public interest is served and when the grounds
advanced support the change[^146] ^5^ Here the most favorable
construction of the record stated a case for a waiver of the rule rather
than its elimination. With a waiver request the Commission would have
been in a position to:

> 1\. Obtain the necessary detailed financial data to ensure the
> financial woes of the network are in fact caused by the rule's
> application;

2\. Determine on a complete record whether the financial woes are solved
by removal of the rule's constraints;

3\. Develop explicit conditions that ensure compliance with the terms of
the waiver, and,

> 4\. Protect the public interest by insisting that the alleged
> efficiencies achieved through the consolidation authorized by the
> waiver, *actually flow through* to the public in the form of better
> programming and greater viewpoint diversity.

Wholesale abandonment of well-settled rules is not the way to save a
struggling network or promote the public interest. Decreasing the number
of owners of broadcast networks is simply not a means to achieve greater
viewpoint diversity[^147]6 Sadly, the train of consolidation continues
to run on time.

[^1]: The rule already permits any of the four major television networks
    to own any television network created subsequent to the date that
    the Telecommunications Act of 1996 (Pub. L. No. 104-104, 110 Stat.
    56 (1996))("1996 Act") was enacted. It was signed into law on
    February 8, 1996.

[^2]: 6 FR at 2282 (Tuesday, May 6, 1941).

[^3]: [Notice of Proposed Rule Making]{.underline} in MM Docket No.
    00-108, 15 FCC Rcd 11253(2000)("[Notice]{.underline}").

[^4]: [Amendment of Part 3 of the Commission's Rules]{.underline}, 11 FR
    33 (Jan. 1, 1946).

[^5]: [Notice]{.underline}, [supra]{.underline} at 11254. We further
    noted that the dual network rule did not apply if the networks were
    not operated simultaneously or if there was no substantial overlap
    in the territories served by each network. The rule was directed at
    NBC, the only company then with two radio networks. The Commission
    found that operation of the \"Red\" and \"Blue\" networks gave NBC
    excessive control over its affiliates because their contracts did
    not specify whether a station was part of the \"Red\" or \"Blue\"
    Network. Further, the Commission concluded that operation of two
    networks gave NBC an unfair competitive advantage over other
    networks and protected it against future competition. Commission
    Order No. 37, [Report on Chain Broadcasting]{.underline} at 70-73.
    The Commission indefinitely suspended the rule in 1941 noting that
    voluntary separation of the Red and Blue networks would soon occur.
    FCC, Supplemental Report on Chain Broadcasting 14 (1941). After NBC
    sold its Blue network in 1943, the prohibition was readopted. 8 Fed.
    Reg. 16,005 (1943).

[^6]: S. Rep. No. 230, 104^th^ Cong., 2d Sess. At 163.

[^7]: Both UPN and WB argue that they did not meet the legislative
    definition of a network for these purposes. We rejected UPN's
    argument in this regard in considering the Viacom/CBS merger.
    [See]{.underline} [Memorandum Opinion and Order]{.underline},
    Applications of Shareholders of CBS Corporation and Viacom, Inc., 15
    FCC Rcd 8230, 8233 (2000). We need not reach the merits of The WB
    Network's argument in this regard given our resolution herein, which
    renders its argument moot.

[^8]: Under the current rule, all existing network organizations, and
    all new network organizations, may create and maintain multiple
    broadcast networks. There are no limits on the number of broadcast
    networks that may be maintained by a network organization, or the
    number of television stations that may affiliate with a network
    organization. As such, it is theoretically possible for a network
    organization with sufficient programming to enter into affiliation
    agreements with every broadcast television station, in every market,
    and supply all of their programming. The opportunity to create and
    maintain multiple broadcast networks places broadcast networks on
    more equal footing with cable, satellite and other multichannel
    video programming distributors.

[^9]: A broadcast network may develop multiple broadcast networks by
    creating new broadcast networks from scratch, or acquiring video
    networks from nonbroadcast media ([e.g.]{.underline}, cable or
    satellite) and moving them to broadcast.

[^10]: [Notice of Inquiry]{.underline} in MM Docket No. 98-35, 13 FCC
    Rcd 11276 (1998); [Biennial Review Report]{.underline} in MM Docket
    No. 98-35, 15 FCC Rcd 11058 (2000)("[Biennial Review
    Report]{.underline}").

[^11]: The Section 202(h) analysis of broadcast ownership rules is a
    part of the Commission review required pursuant to Section 11 of the
    Communications Act of 1934, as amended. That section requires
    biennial reviews to "determine whether any such regulation is no
    longer necessary in the public interest as a result of meaningful
    economic competition. 47 U.S.C. § 161.

[^12]: [Id]{.underline}. (footnote omitted).

[^13]: [Notice]{.underline}, [supra]{.underline}.

[^14]: [Notice of Proposed Rule Making]{.underline}, In the Matter of
    Review of the Commission's Regulations Governing Programming
    Practices of Broadcast Television Networks and Affiliates, 10 FCC
    Rcd 11951, 11967 (1995). (Diversity was one of the goals of the dual
    network rule.)

[^15]: [See]{.underline} [Third Annual Report on Competition in Video
    Markets]{.underline}, 12 FCC Rcd 4358, 4407 (1997) ("[Third Cable
    Report]{.underline}"); [Seventh Annual Report on Competition in
    Video Markets]{.underline}, CS Docket No. 00-132, FCC 01-1, at ¶ 98
    (adopted Jan. 2, 2001) ("[Seventh Cable Report]{.underline}").

[^16]: [See]{.underline} [Third Cable Report]{.underline}, 12 FCC Rcd at
    4407; [Seventh Cable Report]{.underline} at ¶ 99.

[^17]: [Seventh Cable Report]{.underline}, at Table B-1.

[^18]: [Id]{.underline}. at ¶ 19.

[^19]: [Third Cable Report]{.underline}, 12 FCC Rcd at 4467.

[^20]: [Seventh Cable Report]{.underline} at ¶ 20, Table B-3.

[^21]: [Fourth Annual Report on Competition in Video
    Markets]{.underline}, 13 FCC Rcd 1034, 1178 (1998)

[^22]: [Seventh Cable Report]{.underline} at Table B-5.

[^23]: [Third Cable Report]{.underline}, 12 FCC Rcd at 4369.

[^24]: [Seventh Cable Report]{.underline} at ¶ 22.

[^25]: [Third Cable Report]{.underline}, 12 FCC Rcd at 4377.

[^26]: [Id.]{.underline} at 4495.

[^27]: [Sixth Annual Report on Competition in Video
    Markets]{.underline}, 15 FCC Rcd 978, 1016 (2000).

[^28]: [See]{.underline}, [e.g.]{.underline}, [Third Cable
    Report]{.underline}, 12 FCC Rcd at 4384.

[^29]: [Seventh Cable Report]{.underline} at ¶ 61.

[^30]: Satellite Home Viewer Improvement Act of 1999, Pub. L. No.
    106-113, 113 Stat. 1501, 1501A-526 to 1501A-545.

[^31]: [Id.]{.underline} at ¶¶ 66, 68.

[^32]: We expect that the ability and incentive of DBS providers to
    carry regional or local programming will be enhanced as these
    providers develop spot beam technology, which permits DBS satellites
    to deliver programming to a discrete geographical location and has
    the potential to increase satellite system channel capacity through
    the re-use of transponders. Implementation of the Satellite Home
    Viewer Act of 1999: Broadcast Signal Carriage Issues, CS Docket No.
    99-363, FCC 00-417, at para. 42 (rel. Nov. 30, 2000). When fully
    implemented, spot beam technology has the potential to provide
    regional and local program producers greater access to DBS as an
    alternative distribution medium.

[^33]: Viacom urges us to consider the development of Internet video in
    our analysis of the competitive landscape affecting broadcast
    networks. Viacom Comments at 15. Given the nascent stage of the
    Internet video industry, we believe it is premature to give
    decisional significance to Internet video at this juncture.
    Similarly, while the transition to digital television ("DTV")
    promises to unleash new competitive video channels in the market, it
    is too early to predict how the DTV industry will develop.

[^34]: [Seventh Cable Report]{.underline} at Table C-1.

[^35]: We recognize that, even with the increase in the number of video
    programming distribution channels, other factors may cause
    programming production, programming distribution, and television
    advertising markets to become or remain concentrated. For the
    reasons provided in this order, we do not believe that the relief we
    grant to emerging networks today implicates those other factors. We
    decline to prejudge the competitive implications of any future
    review that we may undertake of the dual network rule or any other
    media ownership restriction.

[^36]: The formal economic analysis of the pressures brought on by
    intensified competitive rivalry to increase a company's internal
    efficiency is addressed in the theoretical and empirical literature
    on "X-efficiency." The seminal idea is provided by Harvey
    Leibenstein, "Allocative Efficiency vs. 'X-efficiency'," [American
    Economic Review]{.underline} 56 (1966): 392-415. A useful survey of
    much of the literature is provided by Roger S. Frantz,
    [X-Efficiency: Theory, Evidence and Applications]{.underline},
    (Dordrecht: Kluwer, 1988).

[^37]: The elements of TCE are developed in Oliver E. Williamson, *The
    Economic Institutions of Capitalism* (New York: The Free Press,
    1985) and Oliver E. Williamson, *The Mechanisms of Governance* (New
    York: Oxford University Press, 1996). A survey of recent
    neo-institutional economics, inclusive of TCE, is provided by Eirik
    G. Furubotn and Rudolf Richter, *Institutions and Economic Theory:
    The Contribution of the New Institutional Economics* (Ann Arbor,
    Michigan: University of Michigan Press, 1997).

[^38]: [Notice]{.underline}, [supra]{.underline} at 11255-56.

[^39]: [Id]{.underline}. at 11255-11265.

[^40]: The merger of two vertically-integrated enterprises may have both
    horizontal and vertical economic effects. Horizontal effects refer
    to the economies or diseconomies resulting from enlarging the *size*
    of the firm post-merger and include effects on consumers, such as
    higher or lower prices and changes in the quantity and quality of
    output produced. These effects can be assessed at each stage of
    production of the vertically-integrated firm. For a television
    network vertically-integrated into the production of network
    programming, the assessment of horizontal effects would include
    assessing the economies or diseconomies of increasing the size of
    the network and the economies or diseconomies of increasing the size
    and scale of program production, assuming that the network that is
    being acquired is also vertically-integrated into program
    production. The effects of the merger of two program production
    enterprises on competition in the network television program
    production market would also be included in the analysis of
    horizontal effects. Growth in the size of the vertically-integrated
    firm post-merger may either accentuate the economies of vertical
    integration post-merger or diminish the efficiencies of vertical
    integration as organizational complexity increases and coordination
    of decisionmaking within the larger firm becomes more difficult and
    costly. In the current context, vertical effects refer to the
    economies or diseconomies of integrated production as the size of
    the vertically-integrated firm increases. The analytical framework
    suggests a way to assess the relative significance of some of these
    horizontal and vertical effects that may result from the merger of
    two television networks that are both vertically integrated into the
    production of network television programming.

[^41]: [Notice]{.underline}, [supra]{.underline} at 11255-63.

[^42]: Viacom was the only commenter to address specifically the
    potential efficiencies associated with vertical integration, and
    Viacom's pleadings support the Commission's findings. Comments of
    Viacom at 10 -- 11 and Declaration of Robert W. Crandall at 14 --
    15. The Declaration was submitted by Viacom and is attached to
    Comments of Viacom.

[^43]: [Notice]{.underline}, [supra]{.underline} at 11261-62.

[^44]: The Commission has historically viewed the economic performance
    of national and local markets for radio and television advertising
    as pertinent to fulfilling its statutory mandate ". . . to make
    available, so far as possible, to all the people of the United
    States. . . a rapid, efficient, Nation-wide, and world-wide wire and
    radio communications service with adequate facilities at reasonable
    charges. . . ." Unlike telephone or cable television services,
    over-the-air commercial television service is made available to
    consumers at no charge; the full cost of supplying over-the-air
    commercial television service to consumers is borne by advertisers
    that gain access to, and attention from, television viewers in order
    to promote the sale of consumer products and services. In effect,
    advertisers become the "agent" of consumers in deciding what
    programs that television broadcasters actually supply to consumers.
    In general, advertisers wish to sponsor programming that maximizes
    the advertiser's target audience. Other things remaining the same,
    vigorous competition among broadcast networks to attract advertisers
    is likely to benefit consumers by making available television
    programming that meets the programming preferences of consumers. As
    a result, the Commission has historically viewed vigorous
    competition in broadcast advertising markets as furthering the
    welfare of viewers and the goal of efficient and ubiquitous
    communications services. For examples of the Commission's interest
    in the performance of broadcast advertising markets, *see*
    generally, Gen. Docket No. 83-1009, 100 FCC 2d 17; [Memorandum
    Opinion and Order]{.underline} in Docket No. 91-140, 7 FCC Rcd 6387;
    [Report and Order]{.underline} in MM Docket No. 91-221, 14 FCC Rcd
    12903; and [Notice of Proposed Rulemaking]{.underline} in MM Docket
    No. 95-90, 10 FCC Rcd 11853. Whether, in a market where the
    significant majority of Americans subscribe to a video service
    provider, the linkages between advertising and broadcast television
    will remain a vital concern is a question the Commission may review
    in future proceedings.

[^45]: A strategic group refers to a cluster of independent firms within
    an industry that pursue similar business strategies. For example,
    the major networks supply programming to their affiliated local
    stations that is 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. The conceptual basis for a
    strategic group is developed in R. E. Caves and M. E. Porter, "From
    Entry Barriers to Mobility Barriers: Conjectural Decisions and
    Contrived Deterrence to New Competition," *Quarterly Journal of
    Economics* 91 (May 1977): 241-261. Also see Michael E. Porter,
    *Competitive Strategy: Techniques for Analyzing Industries and
    Competition* (New York: The Free Press, 1980), Chapter 7. For
    additional references on the application of the strategic group
    concept, see F. M. Scherer and David Ross, *Industrial Market
    Structure and Economic Performance,* 3^rd^ ed. (Boston: Houghton
    Mifflin, 1990), pp. 284-85. 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 in nature, although the number of firms
    actually populating the industry aggregated over all strategic
    groups may be quite numerous.

[^46]: Major broadcast networks ([i.e]{.underline}., ABC, CBS, NBC, and
    FOX) attract much larger audiences than emerging broadcast networks
    ([i.e]{.underline}., PAXtv, UPN, and WB). The differences are
    apparent in the season-to-date average prime time ratings for
    broadcast networks. While the average prime time rating for ABC,
    CBS, NBC, and FOX is 8.7, 8.6, 8.1, and 6.3 percent of TV
    households, respectively, the average prime time rating for PAXtv,
    UPN, and WB is 0.9, 2.5, and 2.6 percent of TV households,
    respectively. Source: Nielsen Media Research, reported in
    Broadcasting & Cable, April 2, 2001. Relative to emerging networks
    and cable networks, the ability of major broadcast networks to
    attract large audiences is also apparent in the number of prime time
    programs viewed by more than ten million TV households. During the
    week of January 29 -- February 4, 2001, the major networks aired 25
    programs that attracted more than 10 million TV households. In
    contrast, PAXtv's most watched program attracted 1.6 million TV
    households, UPN's most watched program attracted 4.0 million TV
    households, WB's most watched program attracted 5.5 million TV
    households, and the most watched program on a cable network
    attracted 4.9 million TV households. Source: Nielsen Media Research,
    reported in Broadcasting & Cable, February 12, 2001.

[^47]: Mobility barriers are barriers to entry that deter the movement
    of a firm *within* a given industry from shifting from one strategic
    group to another. Different strategic groups will be defended by
    different mobility barriers that vary in their effectiveness in
    restricting entry into a given strategic group. In general, firms
    protected by high mobility barriers will have greater profit
    potential than firms in other strategic groups protected by low
    mobility barriers.

[^48]: Comments of Viacom at 10 -- 11 and Declaration of Robert W.
    Crandall at 14 -- 15. The Declaration was submitted by Viacom and is
    attached to Comments of Viacom.

[^49]: United Church of Christ, [et]{.underline} [al]{.underline}.,
    opposes modification of the dual network rule on diversity grounds,
    not on the modification's potential impact on competition.

[^50]: Declaration of Robert W. Crandall at 4 --5.

[^51]: [Id]{.underline}. at 5, n. 3.

[^52]: Comments of Viacom at 36.

[^53]: Comments of Fox at 8.

[^54]: Comments of MMTC at 6.

[^55]: Comments of Viacom at 47 -- 49 and Declaration of Robert W.
    Crandall at 15 -- 16.

[^56]: [Id]{.underline}.

[^57]: Comments of Fox, Comments of Viacom at 49-50, and Comments of WB
    at 7-11.

[^58]: Comments of Fox at 2, Comments of Viacom at 13, Comments of WB at
    7.

[^59]: Comments of Fox at 2., Comments of Viacom at 13, Comments of WB
    at 10.

[^60]: Comments of Fox at 2 - 5, Comments of Viacom at 13 - 17, Comments
    of WB at 7 -- 11.

[^61]: Comments of Fox at 6.

[^62]: [Id]{.underline}.

[^63]: [Id]{.underline}. at 6 -- 7.

[^64]: Comments of Viacom at 49.

[^65]: Comments of WB at 10.

[^66]: [Id]{.underline}.

[^67]: [Notice]{.underline}, [supra]{.underline} at 11254-65.

[^68]: Comments of Paxson at 4.

[^69]: Comments of NASA at 2.

[^70]: [Id]{.underline}. at 4.

[^71]: [Id]{.underline}. at 5.

[^72]: [Id]{.underline}.

[^73]: [Id]{.underline}. at 6.

[^74]: This issue was considered in the 1998 Biennial Review, which was
    completed in 2000. [See]{.underline} [Biennial Review
    Report]{.underline}, [supra]{.underline}. At 11094-99.

[^75]: Comments of United Church of Christ, et al. ("UCC") at 10.

[^76]: Comments of UCC at 2-3; Comments of NASA at 7. NASA takes no
    position on the NPRM's proposal. Instead, it urges the Commission to
    avoid modifying the dual network in a way that would allow networks
    to exercise market power over independent program providers,
    emerging networks, or network affiliates. It also asks the
    Commission to avoid expressing any rationale that could later be
    argued to support the relaxation of the remaining part of the dual
    network rule or any other provision of the Commission's network
    rules. Comments of NASA at 4.

[^77]: Comments of UCC at 4.

[^78]: [Id]{.underline}. at 4 ([citing]{.underline} [Biennial Review
    Report]{.underline} in MM Docket No. 98-35, [supra]{.underline}.

[^79]: [Id]{.underline}. at 5.

[^80]: Comments of Viacom at 23.

[^81]: Comments of Viacom at 4. Viacom then paid \$5 million to acquire
    Chris-Craft's shares of UPN.

[^82]: Comments of MMTC at 5.

[^83]: [Id]{.underline}.

[^84]: [See, e.g.]{.underline}, Comments of UPN Affiliates at 3-4;
    Comments of Lockwood at 2.

[^85]: Comments of MMTC at 2.

[^86]: [Id]{.underline}. at 1.

[^87]: [Id]{.underline}. at 10.

[^88]: Comments of UPN Affiliates at 1 -- 2.

[^89]: Comments of LIN at 2.

[^90]: Comments of Caroline K. Powley at 2.

[^91]: Comments of Lockwood.

[^92]: Comments of Holston at 1.

[^93]: [Id]{.underline}. at 2.

[^94]: Comments of LIN 1.

[^95]: Comments of UPN Affiliates at 1-2.

[^96]: Comments of UPN Affiliates at 1 -- 2.

[^97]: [Id]{.underline}. at 2.

[^98]: [Id]{.underline}.

[^99]: [Id]{.underline}. at 3.

[^100]: Comments of LIN at 1.

[^101]: [Id]{.underline}.

[^102]: Comments of Caroline K. Powley at 1.

[^103]: [Id]{.underline}. at 2.

[^104]: Comments of Lockwood at 2.

[^105]: Comments of Holston at 2.

[^106]: [Id]{.underline}.

[^107]: [Seventh Cable Report]{.underline}, [supra]{.underline} at ¶6
    United Church of Christ, Office of Communication, Inc. Consumer
    Federation of America and the Center for Media Education.

[^108]: [Id]{.underline}. at ¶20.

[^109]: [Id]{.underline}. at ¶21. Over two-thirds (68.5%) of cable
    subscribers were served by systems with 54 or more channels as of
    October 2000. [Id]{.underline}.

[^110]: [Id]{.underline}. at ¶174.

[^111]: [See, e.g.]{.underline}, Comments of Viacom at 5. In this
    regard, WB notes that the level of diversity today in the television
    industry exceeds the diversity present in radio in 1977 when the
    Commission determined that, as to radio, the dual network rule "had
    little positive impact and may in the future hinder competition and
    restrict diversity." ([Quoting]{.underline} [Commission Rules and
    Regulatory Policies Concerning Network Broadcasting by Standard (AM)
    and FM Broadcast stations, Report, Statement of Policy and
    Order]{.underline}, 63 FCC 2d 674 (1977) at ¶34.) Comments of WB at
    8-10. UCC's argument that network television still attracts more
    viewers than individual cable networks does not persuade us to
    discount the fact that a plethora of media options is widely
    available to viewers.

[^112]: Comments of Viacom at 28-29; Comments of WB at 12-15. Holston
    asserts that allowing the partnering of an emerging network with a
    strong network partner assures programming diversity by ensuring
    their very survival. Comments of Holston at 2.

[^113]: Comments of Viacom at 29 and 32.

[^114]: Comments of MMTC at 3, n.8. (Citation omitted.)

[^115]: Comments of MMTC at 3.

[^116]: [Id]{.underline}.; [see also]{.underline} Comments of Viacom at
    30, n. 90.

[^117]: Comments of MMTC at 7-9.

[^118]: [Id]{.underline}. at 41-42.

[^119]: [Id]{.underline}. at 34-35.

[^120]: Comments of WB at 7, 11-32 ([citing]{.underline} [Melody Music
    Inc. v. FCC]{.underline}, 345 F.2d 730, 732 (D.C. Cir. 1965)).

[^121]: Comments of Viacom Inc. (in MM Docket No. 98-35) at 39; Comments
    of WB at 6. We stated that the Viacom comments that were late filed
    in the 1998 Biennial Review, together with the late filed comments
    of The WB Television Network, would be considered in this
    proceeding. [Biennial Regulatory Review 2000]{.underline}, Updated
    Staff Report, Appendix IV, Part 73, notes 419 and 428 (January 17,
    2000).

[^122]: [Memorandum Opinion and Order]{.underline}, Applications of
    Shareholders of CBS Corporation and Viacom, Inc.,
    [supra]{.underline} at 8235 and 8246-47.

[^123]: Reply Comments of UCC [et]{.underline} [al]{.underline}. at 6 -
    7. We address - and accept or agree with - many of these arguments
    elsewhere in this [Report and Order]{.underline} insofar as they are
    illustrative of the benefits of modifying the rule as opposed to
    granting a waiver to only one of the two parties subject to the
    rule.

[^124]: [See]{.underline} 5 U.S.C. § 603. The RFA, ( [see]{.underline} 5
    U.S.C. § 601 [et]{.underline}*.* [seq]{.underline}.), has been
    amended by the Contract With America Advancement Act of 1996, Pub.
    L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA
    is the Small Business Regulatory Enforcement Fairness Act of 1996
    (SBREFA).

[^125]: [Notice of Proposed Rulemaking]{.underline} in MM Docket No.
    00-105, 15 FCC Rcd. 11196 (2000).

[^126]: [See]{.underline} 5 U.S.C. § 604.

[^127]: [Biennial Review Report]{.underline} in MM Docket No. 98-35, 15
    FCC Rcd 11058 (2000).

[^128]: 5 U.S.C. § 603(b)(3).

[^129]: [Id]{.underline}*.* § 601(3).

[^130]: [Id]{.underline}. § 632.

[^131]: 5 U.S.C. § 601(4).

[^132]: 1992 Economic Census, U.S. Bureau of the Census, Table 6
    (special tabulation of data under contract to Office of Advocacy of
    the U.S. Small Business Administration).

[^133]: 5 U.S.C. § 601(5).

[^134]: U.S. Dept. of Commerce, Bureau of the Census, "1992 Census of
    Governments."

[^135]: [Id]{.underline}.

[^136]: 13 C.F.R. § 121.201 (SIC Code 4833)

[^137]: ^1^ [Amendment of Part 3 of the Commission's Rules]{.underline},
    11 FR 33 (Jan. 1, 1946).

[^138]: ^2^ [Seventh Annual Report on Competition in Video
    Markets]{.underline}, CS Docket No. 00-132, FCC 01-1 (adopted Jan.
    2, 2001).

[^139]: ^3^ Section 202(h), Telecommunications Act of 1996, Pub. L. No.
    104-104, 110 Stat. 56 (1996).

[^140]: ^4^ [Biennial Review Report]{.underline}, in MM Docket No.
    98-35, 15 FCC Rcd 11058 (2000).

[^141]: ^5^ *Order* at ¶¶ 32, 33.

[^142]: 1 *Notice of Proposed Rule Making* in MM Docket No. 00-108, 15
    FCC Rcd 11253(2000)("*Notice*").

[^143]: ^.^2 *See* Telecommunications Act of 1996 (Pub. L. No. 104-104,
    110 Stat. 56 (1996)).

[^144]: ^"^3 *See* Comments of Minority Media and Telecommunications
    Council at 1 (hereinafter "MMTC"); *see also* Report and Order at
    para. 33 (citing MMTC comments); *Id.* at para. 37 (same ).

[^145]: ^.^4 *See e.g. Report and Order* at para. 7.

[^146]: ^.^5 *See* Telecommunications Act of 1996 (Pub. L. No. 104-104,
    110 Stat. 56 (1996) at §202(h); 47 U.S.C. §310(d).

[^147]: ^.^6 The U.S. Supreme Court has recognized diverse broadcasting
    viewpoints as a legitimate basis for the FCC, acting pursuant to its
    \"public interest\" statutory mandate, to adopt measures to increase
    the number of competing licensees and to encourage licensees to
    present varied views on issues of public concern. *See, e.g., FCC v.
    National Citizens Committee for Broadcasting*, 436 U.S. 775 (1978*);
    Red Lion Broadcasting Co. v. FCC*, 395 U.S. 367 (1969); *United
    States v. Storer Broadcasting Co*., 351 U.S. 192 (1956); *Associated
    Press v. United States*, 326 U.S. 1 (1945); *National Broadcasting
    Co. v. United States*, 319 U.S. 190 (1943).