**Advisory Committee on Diversity for Communications in the Digital
Age**

**Subcommittee on Financial Issues**

## Summary of the Panel on Regulatory Initiatives, January 20, 2004, 9:30 AM -- Noon

Our goal was to ascertain which regulatory initiatives would be most
effective, practical, and desirable, determine how success should be
measured, and evaluate which kinds of initiatives will pass
constitutional muster. Our speakers and the main points they brought to
our attention were:

[Vincent Pepper, Partner, Womble Carlyle Sandridge & Rice
PLLC]{.underline}

In 1971, the U.S. Civil Rights Commission found that minorities owned
only eleven radio stations and no television stations. The FCC did not
begin addressing minority media ownership until the [TV-9]{.underline}
case in 1973, when the D.C. Circuit required the Commission to consider
minority ownership as a factor in comparative hearings. By 2001,
minority ownership had risen to 548 radio stations (4.2% of all
stations) and 23 television stations (1.3% of the total). All of these
radio and television stations represent 1.3% of the total asset value of
all stations. Minorities typically have inferior facilities that cannot
compete effectively with non-minority owned stations.

To rectify minority under-representation in broadcasting, the FCC has
adopted seven initiatives over the years, only one of which (the
Distress Sale Policy) remains. Further efforts may well need to include
race conscious measures that will satisfy the [Adarand]{.underline}
strict scrutiny standards. In 2000, the Commission performed several
[Adarand]{.underline} studies, and last year the Commission received
numerous proposals aimed at advancing minority ownership, but the
studies and the proposals were disregarded. Mr. Pepper concluded by
saying that "\[i\]t is hoped this failure will be rectified through this
committee."

# Lois Wright, Vice President and Corporate Counsel, Inner City Broadcasting Corporation and President, Inner City Cable

The number of African American broadcast owners declined by 14% between
1996 and 2001. As a result of consolidation, many owners have found
themselves unable to compete and have sold their stations to larger
companies. Consolidation has reached the point where most capital
providers will no longer finance new entrants. Ms. Wright declared that
the loss of minority owners "robs the American public of the diversity
of broadcast voices the commission, the Congress, and the courts have
historically recognized as essential to protect the First Amendment
rights of all Americans."

To address the problem, the National Association of Black Owned
Broadcasters has urged the Commission to require, in all applications, a
public interest impact statement that addresses the impact of the
proposed transaction on minority ownership. Further, NABOB has urged the
Commission to seek restoration of the tax certificate policy, to refuse
to allow further consolidation, and to require divestiture in the most
seriously over-consolidated markets.

Philip Napoli, Director, Donald McGannon Communication Research Center,
Fordham University

Dr. Napoli advocated the consideration of incentive programs as an
effective means of promoting diversity. He cited research findings that
demonstrate that minority owners exhibit a greater likelihood of
addressing minority interests and concerns. Dr. Napoli's research, which
has found that advertisers tend to value Hispanic and African American
audiences less than they do non-minority audiences, thereby making it
more difficult for broadcasters to monetize minority audiences. The
Advisory Committee might consider addressing these marketplace factors
directly, such as by exploring nondiscrimination policies in advertising
sale contracts. FCC programs aimed at promoting minority ownership might
counterbalance this marketplace disincentive to serve minority
audiences, although the Commission should be cautious in evaluating
proposals that would substitute one form of diversity for another. To
have the greatest potential impact, incentive programs should be focused
on traditional media with well-established audiences.

Dr. Napoli urged the Commission to secure "aggregate financial data,
ratings data, programming data as well as survey data from owners,
advertisers, and audience members in order to gain a well-rounded
picture of the challenges facing minority-owned media outlets, the
contributions of such outlets make to the media marketplace and the
factors that affect their ability to function." He urged the Commission
to "focus on how to sustain minority owned and targeted media outlets,
and focus on taking advantage of the increased channel capacity offered
by both new and established media technologies but don\'t rely on
emerging technologies to solve the problem."

[Allen Hammond, Professor of Law, Santa Clara University School of Law
and Director, Broadband Institute of California]{.underline}

Traditionally, whenever the Commission took steps favorable to minority
ownership, it also liberalized the ownership policies, "giving with one
hand and taking away with the other." As a result, we have not developed
a pool of entrepreneurs with enough stations to compete nationally, and
minority owners are still having difficulty competing locally for
advertising and securing competitive programming. The
[Adarand]{.underline} and [Lutheran Church/Missouri Synod]{.underline}
decisions make it more difficult, although not impossible, to develop
and justify pro-diversity policies. The [Adarand]{.underline} study
Professor Hammond performed for the Commission in 2000 established a
nexus between program diversity and minority ownership, although the
Commission has apparently not followed up on this and other
[Adarand]{.underline} studies completed at that time.

Professor Hammond proposed that the Commission "establish data
collection methodologies that are not based on the political outcome you
wish to achieve but which fairly seek to ascertain the impact of the
commission\'s policies on the broadcast industry as a whole and minority
owners in particular." This data collection requirement should be
imposed on all broadcasters, and it should allow the Commission to know
whether broadcasters are generally meeting the needs and interests of
their communities.

Thomas Henderson, Deputy Director and Director of Litigation for the
Lawyers Committee for Civil Rights Under Law

Mr. Henderson explained that the Supreme Court has made clear the
standards applicable to affirmative action programs by governmental
agencies, and it has indicated that appropriately premised and designed
plans can satisfy those standards. Since [Adarand]{.underline}, the
10^th^ Circuit has upheld remedial programs in the [Adarand]{.underline}
litigation itself and in the [Concrete Works]{.underline} case. These
cases hold that Congress, or a local government, can establish a
compelling interest of remedying discrimination in business and
commercial opportunities, that this interest can be established by
documenting historical and continuing discrimination in both the public
and private sectors, and that these programs can be narrowly tailored.
Mr. Henderson concluded that these decisions "suggest strongly that \[a
remedial\] justification provides the basis for race-conscious efforts
with regard to ownership as well as aspects of broadcasting and avenues
to participation in broadcasting...discrimination in industry and in
opportunities to qualify and participate in broadcasting are \[\] a
proper basis for remedial activity."

A second justification for a race-conscious program is diversity, as
first established in [Bakke]{.underline} 26 years ago. In [Grutter v.
Bollinger]{.underline}, decided in 2003, a majority of the Court held
that diversity in the context of higher education was a compelling
governmental interest that can justify narrowly tailored race-conscious
efforts. [Metro Broadcasting]{.underline} addressed ownership diversity
in the broadcasting context, but it applied intermediate scrutiny.
Justice O'Connor, dissenting in [Metro Broadcasting]{.underline},
disparaged broadcast diversity and also appeared to take the position
that only remedying discrimination could rise to a compelling
governmental interest that would justify race-conscious action. In
[Grutter]{.underline}, however, Justice O'Connor stated clearly that
diversity was another potentially compelling governmental interest.
Thus, Mr. Henderson concluded, "to the extent that connections are
established between ownership \[and\] employment...in broadcast
diversity, a basis might be established on which diversity could serve
as a compelling justification and be accepted by this court" because
"the point of [Grutter]{.underline} is that diversity is now seen as a
compelling interest in the realm of the First Amendment....the message
to take away from [Grutter]{.underline} is that well thought-out,
carefully articulated, well researched determinations of the role that
diversity plays" in broadcasting can serve as a basis for justifying
racial diversity in broadcasting as a compelling governmental interest.
With regard to narrow tailoring, Mr. Henderson concluded that "it is
also clear from [Grutter]{.underline} that race can be considered as one
aspect of a variety of aspects in pursuit of diversity so long as every
applicant is given individualized consideration."

# Leonard Baynes, Professor of Law, St. John's University Law School

Professor Baynes discussed the KPMG study, which was one of the
Commission's [Adarand]{.underline} studies issued in 2000. The KPMG
study analyzed the effectiveness of the comparative hearing process in
producing minority ownership. Analyzing KPMG's data, Professor Baynes
concluded that most non-minorities won their initial construction
permits without undergoing comparative evaluation against minority
applicants. Further, minority applicants were more likely to have to
defend their applications in comparative hearings against often
better-financed non-minority applicants. Another of the FCC's 2000
[Adarand]{.underline} studies, the Bradford/University of Washington
study, examined loan applicants of minorities who competed in broadcast
licensing. This study found that minorities were more likely to pay
higher interest rates and their loans were less likely to be accepted
than those of non-minority firms. Thus, even in the licensing process,
access to opportunity is premised on access to capital. Although the FCC
has operated incentive programs, discrimination by the capital markets
may outweigh the effect of FCC pro-minority policies. Thus,
notwithstanding the modest enhancement credit for minority participation
in the ownership control group of an applicant, the FCC's administration
of comparative hearings was "akin to aiding and abetting"
discrimination, in that the FCC knew of discrimination by regulatees and
others but still participated in that discrimination through its
licensing process. This history shows that a remedial program might be
justified under strict scrutiny. Professor Baynes urged the Commission
to move quickly to open a docket in which members of the public could
comment on the [Adarand]{.underline} studies.

With respect to diversity, Justice O'Connor's opinion in
[Grutter]{.underline} emphasized that the importance of diversity in
education is that minorities don't all think alike. In [Metro
Broadcasting]{.underline}, Justice O'Connor felt that the FCC's programs
did not recognize this fact. Thus, any new FCC policies should emphasize
the importance of ensuring that the public has access to the wide
spectrum of views held by minorities.

Submitted by Henry Rivera

Moderator, Panel on Regulatory Issues

January 26, 2004