Remarks by FCC Commissioner Jonathan S. Adelstein

Before The Media Institute

May 20, 2003

*"Big Macs and Big Media: The Decision to Supersize"*

This is a great day to speak at The Media Institute. We're on the eve of
the most sweeping and potentially destructive overhaul of the FCC's
media rules in the history of American broadcasting. But I'm not sure we
really know what we're about to unleash.

I'm fresh off the trail of media ownership hearings Commissioner Copps
and I held across the country -- the so-called Magical Mystery Tour. One
of our participants, Ben Bagdikian, former dean of the School of
Journalism at UC Berkeley, spoke before a packed audience at San
Francisco's City Hall. In 1983, when the first edition of his book [The
Media Monopoly]{.underline} was released, he wrote that, "50
corporations dominated most of every mass medium." The number then
dropped with each new edition -- to 29 firms in 1987, 23 in 1990, 14 in
1992 down to 10 in 1997. The 2000 edition found that just six
conglomerates were supplying most of America's media.

This trend will only accelerate after June 2^nd^. In fact, we're likely
to witness a tsunami of mergers -- an unprecedented wave of
consolidation. When this wave recedes, we'll find far fewer media
companies left standing. Some of you in this room today may be swept
away by that wave. But its principal victim may be our democracy.

Lou Dobbs' Moneyline last week ran an online poll asking whether "too
few corporations own too many media outlets." Now this show's audience
has a high-end demographic. Yet ninety-eight percent said yes --
ninety-eight percent. I wonder who the other two percent were?

I would guess that one percent were investment bankers salivating at the
prospect of getting a piece of the action. After all, during the first
month after the 1996 Act, more than \$2 billion in radio transactions
took place, and I've heard a lot more than that are in the wings today.
In fact, Merrill Lynch says the "Gold Rush" has already begun. Deutsche
Bank predicts that hundreds of TV stations will be sold or swapped.

And the other one percent of Moneyline viewers? They probably already
work for the big media companies that hope to come out on top. That
leaves about 100 percent of the general audience -- the citizens whose
interests the Commission is sworn to protect -- opposed to today's
concentration levels, let alone the more powerful media empires to come.

That fits with what I witnessed at hearings across the country. Of the
hundreds of citizens I heard from, many extremely articulate, not one
person stood up to say, "I want to see even more concentration in our
media ownership." Not one. And that's what we see in the comments
pouring in to the FCC -- virtually none from the public say "please, let
big media companies get bigger -- I can't wait to see what they'll
produce with all those economies of scale." The Free Press and the
Future of Music recently surveyed about 10,000 citizen comments and
found that only 11 people supported relaxing the rules -- about 1/10 of
one percent. Aside from these 11 people, the only other proponents for
further media consolidation appear to be companies in deal-making mode
or their advocates.

We heard opposition from the NRA to Tom Petty, from Barry Diller to
Pearl Jam, from Norman Lear to Ted Turner. Why is this chorus so in
tune? Americans instinctively hold a deep hostility to big media. It
violates every tenet of a free democratic society to let a handful of
powerful companies control our media.

FCC proceedings typically generate comment from a handful of affected
companies and inside-the-Beltway types. But this one is radically
different. Now, we're getting tens of thousands of comments weekly,
which is unprecedented -- and nearly all in one direction. More than
137,000 citizens have weighed in so far.

I've heard the argument, "What does public outrage matter? The FCC's got
a job to do, spurred on by Congress and the courts, and we can't make
these decisions by popular vote."

Let me tell you why I believe it matters. The FCC is charged by law to
serve the [public]{.underline} interest. And the public has zero
interest in seeing media conglomerates grow bigger. The public knows
instinctively what the FCC is supposed to do -- protect them from large
entities gaining too much control over critical channels of
communication. A majority of five unelected bureaucrats shouldn't
substitute their own judgment -- or the judgment of self-interested
corporate CEOs -- for the protection of the American people.

Americans take this matter -- the media that they watch, listen to and
read every day -- very personally. That became clear to me as I listened
to hundreds of them express profound insights in passionate one- or
two-minute statements. In a nutshell, people think further media
consolidation will only accelerate trends they already find alarming.
They think it will only increase sensationalism, crassness, violence,
homogenization and lack of serious news coverage across the public
airwaves.

Dismissing the public's views is a recipe for disaster, and it will have
consequences we're already beginning to see. We have in our hands a lit
match, and we're moving closer to a powder keg of public anger that may
be about to explode.

Could that explain why the Commission shied away from floating specific
proposals for public comment? We can predict the outcome: the public
outcry would be deafening. To borrow an image from a recent speech by
the Chairman, in this case the penguins aren't just swimming, they're
screeching loudly. And it's tough to sneak a smelly dead fish past a
bunch of angry penguins.

People always notice what happens to their media, even if they don't
always know why. Many will notice the results from relaxing the rules
whether or not they complained in advance. So what kind of backlash
might result if the FCC pushes this too far?

One of my neighbors stopped me this weekend and asked if I had any part
in this media debate. He wanted to know if the "fix is in" for even
greater consolidation. He concluded, "well, if you can't do anything to
stop it, you'd better regulate the hell out of the few left standing."

One very possible backlash is that the public may someday soon demand
more intrusive content regulation or a return to the prescriptive
solutions of the past. Most people agree with my view that
content-neutral structural regulation is highly preferable to content
regulation. But if the FCC whittles away the last vestiges of structural
regulation, pressure for more intrusive regulation may boil over,
threatening the First Amendment values The Media Institute holds so
dear.

We're already hearing a growing refrain for media reform from people
upset by the content of today's programming -- by the rampant bad taste,
sensationalism, sex, violence and lack of positive family programming on
TV; by the explicit language and homogenization on the radio dial; by
the stories not being covered in the news media, particularly when the
media's corporate self-interests are at stake -- which we have seen in
this very proceeding. People all over, not just in Minot, North Dakota,
have drawn a direct link between consolidation, with its absentee
ownership, and the failure to meet the needs of local communities.

So I caution those seeking further consolidation, including many of you
in this room: use any increased efficiencies you may gain wisely. For if
not, people might very well demand to see in license renewal proceedings
or in quarterly reports more specific evidence of how owners are meeting
the needs of local communities. They might try to return to a world
where license renewals bring an opportunity for others to show how they
would serve the public interest better. They might demand ascertainment
studies or more rigid standards for broadcast decency. They might also
seek to force a more balanced perspective of viewpoints on the airwaves
or the labeling of corporate cross-promotions. I'm not saying I support
these measures, but the public may call for more oversight if they
become frustrated by consolidation.

Now, I try to remain the eternal optimist, and hold out hope, even as
time fades, that extremist proposals can still be moderated. There are
yet some ways of moving the match away from the powder keg. Reasoned
compromise can diffuse this issue. Rather than allowing massive
consolidation, we should take a conservative approach that gradually
permits additional mergers we can evaluate before completely unleashing
the industry.

But hopes fade with time and with setbacks in the opposite direction.
Commissioner Copps and I were refused the traditional courtesy we
requested of a few more weeks time to seek common ground -- and to study
more thoroughly the impact of the proposals before we vote on them. And
we were denied the opportunity to air the specific proposals publicly,
which would have assisted us in avoiding unintended consequences and
sustaining the order in court.

Despite these setbacks, the Chairman has challenged us to join in a
commitment to finding solutions. So today I would like to offer some
thoughts on at least some aspects of the issues raised in the
proceeding.

At the outset, let me say that I cannot support any part of an order
that fails to reaffirm the most basic tenet of our 70 years of American
broadcast regulation: that in return for the free and exclusive use of
valuable and scarce public spectrum, broadcasters have a special
obligation to serve the public interest. Nor could I support an order
that finds that broadcasters are just another voice in a crowd of
ever-expanding and fungible media channels. And I wouldn't think that
broadcasters would cozy up to this "just another voice" characterization
either. For if broadcasters are no different from cable channels or web
sites in the grand media scheme, what's the basis for the must carry
rules and the "free" digital television channels broadcasters were
awarded?

Despite the oft-repeated exhortation that technology has changed
everything, a simple fact remains. No technological advances have made
it possible for every person who wants to broadcast in a local community
to do so. We therefore must reaffirm that the public interest is served
by promoting all three of the basic principles that form the foundation
of American broadcasting system: localism, diversity, and competition --
not just competition alone.

First, we must consider how to hold broadcasters accountable to the
public for the benefits they claim will result from consolidation.
Proponents of relaxing the rules tout efficiencies as justifying
newspaper-TV combinations, or TV duopolies and triopolies.

So let the buyer disclose upfront what he or she commits to do with
those efficiencies.

What better programming, particularly locally-originated and oriented
programming, will the buyer produce? Will they hire additional reporters
to investigate local news stories? What better coverage will result of
local events and local artists? Will each entity retain separate
editorial discretion, and will the overall editorial budget be
increased? How will the owner treat complaints of stories not being
covered? Will the broadcaster improve its emergency broadcasting
capabilities, or invest in better technology to alert the community to
dangerous conditions? Before allowing media companies to expand into
traditionally-protected areas, the public should know how it will
benefit them.

The FCC should then require an annual showing from the consolidated
broadcaster that it met its commitments. Were efficiencies channeled
into meeting the localism and diversity needs of the community, or did
they go straight to the bottom line? The Commission has consistently
required broadcasters seeking waivers of ownership rules to make
specific, tangible representations of the benefits of consolidation. So
given all the benefits claimed in this proceeding, this should be an
easy showing for merging parties. And it will allow the FCC and the
Congress to make more informed decisions on future levels of
concentration.

Second, diversity concerns stemming from cross-ownership of a broadcast
station with other media outlets like newspapers or cable should be
addressed based upon a specific showing of the diverse voices available
in individual local markets and the power of the proposed combination to
undermine diverse viewpoints. The Supreme Court has said that "promoting
the widespread dissemination of information from a multiplicity of
sources" is of the highest order. So safeguarding diversity should not
be subject to abstract diversity scenarios that hypothetical markets of
certain sizes may engender. Given diversity's paramount position in our
democracy, it shouldn't be given short shrift by rules that neither
reflect the realities of available viewpoints nor the power of
particular combinations.

Third, with respect to the national cap, while I clearly prefer to keep
the cap at the 35% level that Congress established, in my opinion, the
only other number that makes legal and policy sense is 40%, the number
the market is at today. Before we increase the national cap, however, we
must examine whether UHF stations should continue to retain a 50%
discount and whether the increased power of the broadcast networks
should be offset by safeguards for the retention of
independently-produced content. Both of these issues are inextricably
linked to an increase in the cap, and should be considered in further
detail before any increase in the national cap takes effect.

The UHF discount was put in place to reflect technical limits of the UHF
signal in reaching the full audience of a VHF station. Today, however,
85% of the population is receiving broadcast television stations through
cable or DBS. If restraints on the ability to reach a full audience have
eroded due to cable carriage, so too should the UHF discount. If the
whole purpose of this exercise is to update our rules in light of
technological developments, we cannot ignore some just because we don't
like the outcome of more stringent limits.

Likewise, with the change in the network cap from 25% to 35% and the
repeal of the Financial Interest and Syndication Rules and the Prime
Time Access Rule, we have seen the near extinction of independent
production companies and independent creative entrepreneurs. Whereas 10
years ago, 85% of the programs on television were created and produced
by entities independent of the networks, today only 15% to 20% are
independently produced. Does network ownership restrain competition and
diversity of content production? How have the trends over the past
decade affected the diversity of viewpoints from different sources and
encouraged competition from small businesses?

Without the answers to questions like these in this or a further
rulemaking proceeding, it's difficult to move forward with confidence
that we know the full impact of our decisions. I'm not saying I know the
final answers. At a minimum, though, we should have well thought out and
intellectually-coherent answers to these questions before we raise the
network ownership cap.

From the outset of broadcasting, policymakers have always understood
that localism and diversity are inefficient. If efficiencies were all
that mattered, Congress would have told the FCC to give out national or
regional broadcast licenses. After all, the most efficient possible
structure is for one large company, let's call it Pravda, to gather the
news for everyone. American broadcasting has never been about maximizing
bottom-line efficiencies over all else. Going back to 1927, the Federal
Radio Commission reported to Congress that it would assign station
frequencies to serve as many communities as possible. It specifically
sought to prevent New York and Chicago stations from dominating the
airwaves. Today our inquiry should not veer off this course.

Localism continues to be the core organizational principle of the
Commission's dispersal of valuable spectrum rights. Nothing in the 1996
Act jettisoned this core principle. In fact, the 1996 Act's legislative
history strongly reaffirms localism over efficiencies, saying "Localism
is an expensive value. We believe it is a vitally important value,
however, \[and\] should be preserved and enhanced."

So to avoid backlash from the public and its representatives, it will be
up to many of you in the room today to prove that efficiencies gained by
any relaxation of broadcast ownership rules are channeled in the
direction of serving local communities and local residents.

I often hear from industry sources, "we're just giving people what they
want. After all, that's our business. And as we get bigger, we just have
more resources and ability to deliver a better quality product."

This is certainly true to some extent. But let me extend a warning about
this. You might call it the "McDonaldization" of the American media.
McDonald's spends a lot trying to give people what they want. They only
put products out after expensive field testing. Every product is
analyzed to satisfy the greatest number of people, even if the local
community may have its own unique tastes. Don't get me wrong, I like
McDonald's, and eat there sometimes. But I don't eat there every day.
And even if I did, I know it wouldn't be very healthy.

The same goes for the media. People also need a balanced media diet -- a
diverse menu, if you will. But it's a lot harder to set up a broadcast
station than a new restaurant. Any of us with a few resources can open
an alternative, say a health food store, right next to a fast food
restaurant. But not just anybody can open a TV or radio station. In
fact, those are nearly impossible businesses for upstarts to break into,
and the barriers to entry may rise even higher after June 2nd. The
spectrum can't support everyone deciding to start their own TV and radio
station. Neither cable nor the Internet has changed the huge market
power granted by federal license to use scarce broadcast spectrum,
particularly when that license comes with the requirement to be carried
on cable. If these scarce licenses weren't valuable, their price
wouldn't continue to skyrocket as they have in recent years.

The scarcity of the public's airwaves is the very reason it's up to the
FCC to ensure a diversity of owners and viewpoints. Fast food chains are
welcome to spread as fast as the market will bear. People will always
find another place to eat. But they won't always find a diversity of
viewpoints in their media unless we do our jobs. And we won't be
fulfilling our duties if we treat the media like we treat fast food.

Unlike typical consumer products, the media produces significant
positive and negative externalities. The media is where people receive
information and guidance for their democracy and their way of life. A
broadcaster is still in some senses a gatekeeper -- deciding which
issues are important to a community, whether any particular speaker
gains access to the airwaves, and how various sides of an issue are
presented. So while mass-produced media may be more efficient, it may
have disastrous results for our democracy.

Put simply, Big Macs and big media don't have the same repercussions for
our communities. And while a person may decide Supersizing their Big Mac
meal sounds good in the short term, they may find it leads to damaging
results in the long term.

I'm afraid that the FCC isn't only about to further McDonaldize the
media -- it's about to Supersize it. Once we place our order on June
2^nd^, we'll all have to digest what comes our way. And the public may
be about to experience a giant "Maalox moment." I, for one, hope that we
take it slowly and avoid indigestion.

Thank you, and I would be happy to take a few questions or comments.