**Remarks of W. Kenneth Ferree**

**Chief, Media Bureau**

**2002 Annual Convention of the**

**National Association of Minority Media Executives**

**Chicago, IL**

**July 19, 2002**

Thank you, ­­Mike. It is a pleasure to be with you today.

I offered to talk about a wide variety of topics related to the work of
the FCC's Media Bureau, but your organizers thought that you would be
most interested in hearing about the FCC's approach to media ownership
rules and policies.

So I'm going to begin with the starkest assessment possible and then
discuss the extent to which I think it is a fair one.

The assessment is, in short, that the FCC's ownership rules belong in a
museum \-- an interesting government exercise rendered irrelevant by the
passage of time.

My short answer is: that assessment is overly pessimistic, and certainly
premature.

Rather than a museum piece, the FCC's media rules probably are more like
an old athlete past his prime, but still coming to the plate and taking
his swings.

Sometimes it can be hard to watch if they hang on too long.

That said, the old star offered a lot in his heyday, and we cannot just
cut him from the team until we have found some new younger star to fill
his shoes.

I think they call this a youth movement in sports lingo. The idea is to
ease your old stars into retirement while bringing in new players who
still have their best years of production ahead of them.

So how do we ease the rules that are our "old stars" in the media
ownership world into retirement?

First, we need to have an intervention to put an end to the denial that
sometimes accompanies changed circumstances. We've all seen it happen.

Willie Mays could barely eke out a 200 average his last year, Joe Namath
wasn't satisfied doing panty hose commercials and rode the Rams' bench
with bad knees, and Mohammed Ali barely being able to defend himself in
his last fights.

The time comes when we have to face the fact that our days in the sun
are over.

This is probably the case for most of our media ownership rules and
policies; at least in their current form.

But many are in denial.

I keep reading news reports and editorials that would have the FCC
simply continue down its current path, doing its best to ignore the
changes that have taken place in the world around us.

In effect, to bandage up our old rules after every hit they take in the
courts, and send them back out onto the field.

The problem is, they just aren't getting the job done anymore.

The media world has changed and we need rules that are tailored to the
needs of today's markets.

Despite all of the sound and fury about consolidation, the fact is the
media markets today are more vibrant and robustly competitive than ever
before.

Today each of us has far more media options than we did even a few years
ago;­ options both in terms of format and program diversity, and options
in terms of access to alternative viewpoints.

A majority of Americans now have eleven over-the-air TV stations
available to them and twice that many radio stations.

We have multiple 24 hour news and information channels on cable and DBS.
I suspect that your cable or satellite company offers CNN, Fox News
Channel, CNBC, MSNBC, Bloomberg, C-Span, and others that report on
national and international stories.

This diversity of news sources is expanding, not contracting.

A number of cable companies now are starting local news operations to
compete with local broadcast news. The ones I've seen are quite good.

The Internet, too, is providing additional sources of news and
information. An Internet media company called RealNetworks has signed up
half a million customers who pay 10 dollars a month to access video news
from their desktops.

Of course, while all of this is developing in the electronic media, the
number of weekly local newspapers is mushrooming.

In the midst of this media revolution, FCC media policies continue to
focus on limiting the way the broadcasting industry organizes itself.

Meanwhile, the broadcast TV business is under assault from new
competitors and new technology.

Cable and DBS are continuing to take market share from broadcasters.
Between 1983 and 2000, broadcasters' collective viewing share dropped
from 89 to 54 percent, while cable networks' viewing share rose from 11
to 46 percent.

Cable service is becoming a stronger competitor every day. One analyst
predicts that the number of cable channels available in the average home
will increase by 45 percent in the next three years.

As more channels come on line, they create more competition for
traditional broadcasters.

And the TV market as a whole is now facing real competition from the
Internet.

According to a recent study by the UCLA Center for Communications
Policy, Internet users are spending 25 percent less time watching
television than people who don't use the Internet.

At the same time that competition is eroding broadcasters' viewership
and revenues, the cost of broadcast programming is rising fast.

As major event programming -- particularly sports-- becomes more
expensive, broadcasters are straining to compete against cable channels.

The NBA recently signed a deal with AOL Time Warner and Disney that will
result in 90 percent of the games being aired on cable channels \-- not
broadcast outlets.

The trend is becoming clear. Media companies are deciding that the cable
networks are the place where the cost of sports programming can be
recovered.

Although the media market is increasingly competitive, Americans are not
watching more TV. So as the size of the total video pie remains
constant, the slice for broadcasters is being cut thinner and thinner.

These are not new trends. But they have never before cut as deeply as
they are now beginning to cut.

For several years broadcast networks were able to grow their advertising
revenues. They did this by increasing their ad prices and boosting the
number of commercials per hour.

On ABC, for example, total commercial time per hour rose from 6.5
minutes to almost 10 minutes between 1986 and 1999.

But as broadcasting loses eyeballs, raising ad prices becomes harder.
And at some point, continuing to increase the number of ads on TV will
end up being counterproductive for broadcasters. So neither approach is
a long-term solution.

The second step in our FCC youth movement, if you will, is to realize
that the nature of the game that the old star used to play has changed.

Playing fullback in a modern pro-set offense requires different skills
then those required to play fullback in a wishbone or I-formation
offense. And still other abilities are needed to play fullback in a
single wing set, if any of you even remember the single wing.

Long-term team success, however, comes from the ability to adapt your
personnel over time to changes in the game.

We now need to adapt our media ownership rules and policies to the new
game. Indeed, some of our media ownership rules date back almost to the
days of the single wing offense.

For decades, the FCC was free to enact, repeal, or ignore media
ownership rules. It could open a proceeding, let it ripen a while, maybe
refresh the record at some point, and then tinker at the margins.

When we step back and look at the past fifty years, this periodic
massaging of media ownership rules occurred at an almost leisurely pace.

Even as the media market began to change in the early 1980s, the
Commission made no attempt to study comprehensively how market changes
affected the validity of its ownership limits.

In recent years, two legal developments have fundamentally changed the
way the FCC handles media ownership policy.

The first is the 1996 Act, in which Congress told us to review our
ownership rules and eliminate them unless we affirmatively find that
they remain necessary.

This fundamentally changes the way the FCC looks at media ownership
policies. It turns the presumption of continuing validity on its head.
Every media ownership limit now is legally presumed to be
[un]{.underline}necessary.

Moreover, Congress put us on a shot clock ­- to continue my sports
metaphor - when we conduct these reviews. We have to do a complete
evaluation of each media ownership limit every two years.

The second legal development that greatly affects FCC media policy is
the courts' new skepticism of media ownership limits.

In 2001, the DC Circuit struck down FCC cable horizontal and vertical
ownership caps. The court there said a mere theoretical possibility of
collusion could not be the basis for an ownership limit.

This year, that same court handed us defeats on our national television
ownership cap, our television duopoly voice count, and our TV-cable
cross-ownership restriction.

In those decisions, the court dissected every theoretical justification
we had offered, and found them either illogical or lacking support in
the record.

These decisions send a clear message \-- courts will no longer accept
mere theories for why certain ownership limits are needed.

Courts are becoming aware of counter-theories on media ownership policy,
and they are refusing to accept the FCC's abstractions without evidence
that our theory actually works.

The third, and most important, step in our youth movement is to identify
new younger players that are capable of carrying on in our old star's
footsteps.

When Joe Montana departed, Steve Young was ready to step in and lead the
49ers to another Super Bowl. Similarly, when Babe Ruth retired, there
was a young Joe Dimaggio ready to step in to keep the Yankee dynasty
alive.

We're looking for rules that can be our "Joltin Joe" to help us continue
to promote competition, diversity, and localism in American media.

The FCC promotes these policy goals principally through ownership
limits.

Our rules ban newspapers from joining with broadcasters in the same
market. They limit the number of television stations you can own in one
market and nationwide. And they prevent certain TV networks from
combining - to name just a few.

Historically, the Commission has not applied rigorous analytical models
in adopting media rules. This is partly because it is difficult to apply
hard analysis to "soft" policy areas.

In setting [telecommunications]{.underline} policies, we use the tools
Congress gave us to maximize consumer welfare in telecom markets. That
is largely a matter of economics and technology.

In [media]{.underline} regulation, on the other hand, the meaning of
consumer welfare is more elusive.

One goal of media policy is to maximize consumer welfare through
competition.

The media -- broadcasters, cable, the Internet and others -- compete to
entertain us, and to inform us. The FCC will seek market structures that
promote competition for our dollars and our attention.

The media also affect public discourse, and therein lays perhaps the
most challenging aspect of media ownership regulation. How does media
ownership structure affect the diversity of media viewpoints?

That question is difficult to answer, but that is not excuse for
avoiding it, or for answering it based on anecdote or intuition.

Viewpoint diversity is an important goal of media ownership policy. But
I am not prepared to concede that, but for the FCC's current ownership
limits, we would have a paucity of viewpoints available through the
media.

Fifty years of Commission ownership decisions assume some linkage
between ownership and viewpoint, but the FCC never has actually studied
this and I've not seen any credible evidence that such a linkage exists
in most local media markets.

Is it possible that media companies use their radio, TV, and cable
outlets primarily to make money rather than influence public opinion?

One recent study looked at whether TV stations and newspapers owned by
the same company expressed the same "slant" or viewpoint in covering the
final days of the 2000 presidential election.

In each of the three markets examined, the author found that
commonly-owned media did not produce common viewpoints. Whatever the
analytical limits of the study, it gives me hope that we can start to
quantify some of the "soft" policy issues we wrestle with in the media
space.

Nor has FCC media policy adequately reflected the dramatic increase in
news sources since most of the rules first were adopted.

At some point we need to consider whether changes in the media
environment -- just in terms of sheer volume of sources -- should play a
more central role in our thinking on media ownership limits.

We also need to know more about how consumers use the media. Our rules
assume certain behaviors on the part of American consumers, but in my
view we need far better data before we predict the effect of ownership
limits on consumer behavior.

For instance, it would be useful to know how consumers substitute across
media.

Where do they go for news and information?

How is the Internet affecting the dissemination of local and national
news?

Questions like these need close examination as we move forward with
reviewing media ownership limits.

Fortunately, these questions need not be answered in a vacuum.

Over the years, the FCC has granted a number of waivers of various
ownership limits. In markets in which we have done so, we can study
market performance and attempt to draw inferences that will help us
craft industry-wide and nationwide policies.

If we understand how those companies that have been given waivers
perform free of a particular FCC ownership restriction, perhaps we can
better understand how changes to our current limits would impact
competition or diversity on a broader scale.

Now I've just glossed over several areas of inquiry that entail an
enormous amount of work.

I know because the Media Ownership Working Group is engaged right now in
trying to bring this level of rigor and analysis to our media ownership
rules and policies.

It's not easy. In fact, it's time consuming and expensive.

But it has to be done if we are to develop new rules -- a new star
player -- that can carry this team for years to come.

Media ownership policy is a fascinating area. Congress and the courts
have cast a spotlight on the FCC's media ownership work.

It is now time for us to rebuild the factual foundation for media
ownership regulation and establish policies that will meet the new legal
requirements.

This work will be challenging, and in the end, everyone may not agree on
the outcomes. But we can all agree it is a worthy effort.