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 Federal  Communications  Commission  FCC  03-  127 
 1 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 2002  Biennial  Regulatory  Review    Review  of  the  Commissions  Broadcast  Ownership  Rules  and 
 Other  Rules  Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996 


 Cross-  Ownership  of  Broadcast  Stations  and  Newspapers 
 Rules  and  Policies  Concerning  Multiple  Ownership  of  Radio  Broadcast  Stations  in  Local 
 Markets 
 Definition  of  Radio  Markets 


 Definition  of  Radio  Markets  for  Areas  Not  Located  in  an  Arbitron  Survey  Area 


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 MB  Docket  02-  277 
 MM  Docket  01-  235 
 MM  Docket  01-  317 


 MM  Docket  00-  244 
 MB  Docket  03-  130 


 REPORT  AND  ORDER  AND  NOTICE  OF  PROPOSED  RULEMAKING 
 Adopted:  June  2,  2003  Released:  July  2,  2003 
 Comments  due:  30  days  after  publication  in  the  Federal  Register  Reply  Comments  due:  45  days  after  publication  in  the  Federal  Register 


 By  the  Commission:  Chairman  Powell,  Commissioners  Abernathy  and  Martin  issuing  separate  statements;  Commissioners  Copps  and  Adelstein  dissenting  and  issuing  separate  statements. 
 TABLE  OF  CONTENTS 
 Paragraph  I.  INTRODUCTION.............................................................................................................................................  1 
 II.  LEGAL  FRAMEWORK..................................................................................................................................  10  III.  POLICY  GOALS............................................................................................................................................  17 
 A.  Diversity......................................................................................................................................  18  B.  Competition.................................................................................................................................  53 
 C.  Localism......................................................................................................................................  73  D.  Regulatory  Certainty...................................................................................................................  80 
 IV.  MODERN  MEDIA  MARKETPLACE..........................................................................................................  86  A.  Introduction    The  Evolution  of  Media......................................................................................  86 
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 B.  History  of  the  Modern  Media  Marketplace................................................................................  90 
 V.  LOCAL  AND  NATIONAL  FRAMEWORK.................................................................................................  129  VI.  LOCAL  OWNERSHIP  RULES  ....................................................................................................................  132 
 A.  Local  TV  Multiple  Ownership  Rule...........................................................................................  132  B.  Local  Radio  Ownership  Rule  .....................................................................................................  235 
 C.  Cross  Ownership.........................................................................................................................  327  D.  Grandfathering  and  Transition  Procedures.................................................................................  482 
 VII.  NATIONAL  OWNERSHIP  RULES............................................................................................................  499  A.  National  TV  Ownership  Rule  .....................................................................................................  500 
 B.  Dual  Network  Rule  .....................................................................................................................  592  VIII.  MISCELLANEOUS  REQUESTS  ...............................................................................................................  622 
 IX.  NOTICE  OF  PROPOSED  RULEMAKING  .................................................................................................  657  X.  ADDITIONAL  ADMINISTRATIVE  MATTERS.........................................................................................  671 
 XI.  ORDERING  CLAUSES.................................................................................................................................  674 
 APPENDIX  A:  List  of  Commenters  APPENDIX  B:  National  News  Sources 
 APPENDIX  C:  Diversity  Indices  In  Ten  Sample  Markets  APPENDIX  D:  Diversity  Index  Scenarios 
 APPENDIX  E:  Discussion  of  Comments  on  MOWG  Study  No.  10  APPENDIX  F:  Contour-  Overlap  Methodology 
 APPENDIX  G:  Final  Regulatory  Flexibility  Analysis  APPENDIX  H:  Rule  Changes 
 APPENDIX  I:  Initial  Regulatory  Flexibility  Analysis 
 I.  INTRODUCTION 
 1.  With  this  Report  and  Order  (  Order),  we  bring  to  completion  our  third  biennial  ownership  review,  the  most  extensive  review  yet,  addressing  all  six  broadcast  ownership  rules.  We 


 address  these  rules  in  light  of  the  mandate  of  Section  202(  h)  of  the  Telecommunications  Act  of  1996  (  1996  Act),  which  requires  the  Commission  to  reassess  and  recalibrate  its  broadcast  ownership  rules 
 every  two  years.  1  In  the  Notice  of  Proposed  Rulemaking  in  this  proceeding  (  Notice),  2  we  initiated  review  of  four  ownership  rules:  the  national  television  multiple  ownership  rule;  3  the  local  television 
 multiple  ownership  rule;  4  the  radio-  television  cross-  ownership  rule;  5  and  the  dual  network  rule.  6  The  first 
 1  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996). 
 2  2002  Biennial  Regulatory  Review    Review  of  the  Commissions  Broadcast  Ownership  Rules  and  Other  Rules 
 adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  Cross-  Ownership  of  Broadcast  Stations  and  Newspapers,  Rules  and  Policies  Concerning  Multiple  Ownership  of  Radio  Broadcast  Stations  in  Local 


 Markets,  Definition  of  Radio  Markets,  17  FCC  Rcd  18503  (2002)  (  Notice). 
 3  47  C.  F.  R.    73.3555(  e)  (prohibiting  any  entity  from  controlling  television  stations  the  audience  reach  of  which 
 exceeds  35%  of  television  households  in  the  United  States).  For  a  definition  of  what  constitutes  an  attributable  interest  for  purposes  of  applying  our  multiple  ownership  rules,  see  notes  to  47  C.  F.  R.    73.3555. 


 4  47  C.  F.  R.    73.3555(  b)  (allowing  the  combination  of  two  television  stations  in  the  same  Designated  Market  Area 
 (  DMA),  as  determined  by  Nielsen  Media  Research  or  any  successor  entity,  provided:  (1)  the  Grade  B  contours  (continued.) 
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 two  rules  have  been  reviewed  and  the  proceedings  remanded  to  the  Commission  by  the  U.  S.  Court  of  Appeals  for  the  District  of  Columbia  Circuit.  7  In  addition,  the  Commission  previously  initiated 
 proceedings  on  the  local  radio  ownership  rule  8  and  the  newspaper/  broadcast  cross-  ownership  rule.  9  Comments  filed  in  those  proceedings  have  been  incorporated  into  this  docket  along  with  comments  on  the 
 rules  filed  in  response  to  the  Notice.  10  After  we  released  the  Notice,  we  issued  12  Media  Ownership  Working  Group  (  MOWG)  studies  for  public  comment.  11 


 2.  In  this  Order  we  review  the  legal  context  within  which  this  review  is  conducted,  identify  and  describe  the  public  interest  policy  goals  that  guide  our  decision,  assess  changes  in  the  media  marketplace 
 over  time,  repeal  some  rules,  modify  others,  and  adopt  some  new  rules.  In  consideration  of  the  record  and  our  statutory  charge,  we  conclude  that  neither  an  absolute  prohibition  on  common  ownership  of 
 daily  newspapers  and  broadcast  outlets  in  the  same  market  (the  newspaper/  broadcast  cross-  ownership  rule)  nor  a  cross-  service  restriction  on  common  ownership  of  radio  and  television  outlets  in  the  same 


 (Continued  from  previous  page)  of  the  stations  do  not  overlap;  or  (2)  (a)  at  least  one  of  the  stations  is  not  among  the  four  highest-  ranked  stations  in 
 the  market,  and  (b)  at  least  eight  independently  owned  and  operating  full  power  commercial  and  noncommercial  television  stations  would  remain  in  that  market  after  the  combination). 


 5  47  C.  F.  R.    73.3555(  c)  (allowing  common  ownership  of  one  or  two  TV  stations  and  up  to  six  radio  stations  in 
 any  market  in  which  at  least  twenty  independent  voices  would  remain  post-  combination;  two  TV  stations  and  up  to  four  radio  stations  in  a  market  in  which  at  least  ten  independent  voices  would  remain  post-  combination;  and 


 one  TV  and  one  radio  station  notwithstanding  the  number  of  independent  voices  in  the  market.  If  permitted  under  the  local  radio  ownership  rules,  where  an  entity  may  own  two  commercial  TV  stations  and  six  commercial 
 radio  stations,  it  may  own  one  commercial  TV  station  and  seven  commercial  radio  stations.  For  this  rule,  a  voice  includes  independently  owned  and  operating  same-  market,  commercial  and  noncommercial  broadcast  TV 
 stations,  radio  stations,  independently  owned  daily  newspapers,  and  cable  systems  (all  cable  systems  within  the  DMA  are  counted  as  a  single  voice)). 


 6  47  C.  F.  R.    73.658(  g)  (permitting  a  television  broadcast  station  to  affiliate  with  a  network  that  maintains  more 
 than  one  broadcast  network,  unless  the  dual  or  multiple  networks  are  created  by  a  combination  between  ABC,  CBS,  Fox,  or  NBC). 


 7  Fox  Television  Stations,  Inc.  v.  FCC,  280  F.  3d  1027,  1044  (D.  C.  Cir.  2002)  (  Fox  Television),  rehearing 
 granted,  293  F.  3d  537  (D.  C.  Cir.  2002)  (  Fox  Television  Re-  Hearing)  (addressing  the  national  TV  ownership  rule).  Sinclair  Broadcast  Group,  Inc.  v.  FCC,  284  F.  3d  148  (D.  C.  Cir.  2002)  (  Sinclair)  (addressing  the  local 


 TV  ownership  rule). 
 8  Rules  and  Policies  Concerning  Multiple  Ownership  of  Radio  Broadcast  Stations  in  Local  Markets,  16  FCC  Rcd 
 19861  (2001)  (  Local  Radio  Ownership  NPRM);  Definition  of  Radio  Markets,  15  FCC  Rcd  25077  (2000)  (  Definition  of  Radio  Markets  NPRM).  The  local  radio  ownership  rule  limits  the  number  of  radio  stations  that  an 


 entity  may  own  in  a  single  market.  47  C.  F.  R.    73.3555(  a). 
 9  Cross-  Ownership  of  Broadcast  Stations  and  Newspapers,  16  FCC  Rcd  17283  (2001)  (  Newspaper/  Broadcast 
 Cross-  Ownership  NPRM).  The  newspaper/  broadcast  cross-  ownership  rule  prohibits  the  common  ownership  of  a  daily  newspaper  and  a  broadcast  station  in  the  same  market.  47  C.  F.  R.    73.3555(  d). 


 10  Short  references  to  commenters  names  are  contained  in  the  list  of  commenters  attached  as  Appendix  A. 
 11  FCC  Seeks  Comment  on  Ownership  Studies  Released  by  Media  Ownership  Working  Group  and  Establishes 
 Comment  Deadlines  for  2002  Biennial  Regulatory  Review  of  Commissions  Ownership  Rules,  17  FCC  Rcd  19140  (2002).  See  www.  fcc.  gov/  ownership  for  the  public  notice,  a  summary  of  the  studies,  and  the  studies  themselves. 
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 market  (the  radio-  television  cross-  ownership  rule)  remains  necessary  in  the  public  interest.  With  respect  to  both  of  these  rules,  we  find  that  the  ends  sought  can  be  achieved  with  more  precision  and  with 
 greater  deference  to  First  Amendment  interests  through  our  modified  Cross  Media  Limits  (  CML).  We  also  revise  the  market  definition  and  the  way  we  count  stations  for  purposes  of  the  local  radio  rule,  revise 
 the  local  television  multiple  ownership  rule,  modify  the  national  television  ownership  cap,  and  retain  the  dual  network  rule. 


 3.  The  changes  described  herein  provide  a  new,  comprehensive  framework  for  broadcast  ownership  regulation.  As  described  in  detail  below,  Americans  today  have  more  media  choices,  more 
 sources  of  news  and  information,  and  more  varied  entertainment  programming  available  to  them  than  ever  before.  A  generation  ago,  only  science  fiction  writers  dreamed  of  satellite-  delivered  television, 
 cable  was  little  more  than  a  means  of  delivering  broadcast  signals  to  remote  locations,  and  the  seeds  of  the  Internet  were  just  being  planted  in  a  Department  of  Defense  project.  Today,  hundreds  of  channels  of 
 video  programming  are  available  in  every  market  in  the  country  and,  via  the  Internet,  Americans  can  access  virtually  any  information,  anywhere,  on  any  topic. 


 4.  Nonetheless,  while  the  march  of  technology  has  brought  to  our  homes,  schools,  and  places  of  employment  unprecedented  access  to  information  and  programming,  our  broadcast  ownership  rules, 
 like  a  distant  echo  from  the  past,  continue  to  restrict  who  may  hold  radio  and  television  licenses  as  if  broadcasters  were  Americas  information  gatekeepers.  Our  current  rules  inadequately  account  for  the 
 competitive  presence  of  cable,  ignore  the  diversity-  enhancing  value  of  the  Internet,  and  lack  any  sound  basis  for  a  national  audience  reach  cap.  Neither  from  a  policy  perspective  nor  a  legal  perspective  can 
 rules  premised  on  such  a  flawed  foundation  be  defended  as  necessary  in  the  public  interest.  Not  surprisingly,  therefore,  several  of  the  existing  rules  have  been  questioned,  reversed,  and  in  some  cases 
 vacated  by  the  courts.  Our  current  rules  are,  in  short,  a  patchwork  of  unenforceable  and  indefensible  restrictions  that,  while  laudable  in  principle,  do  not  serve  the  interests  they  purport  to  serve. 


 5.  Inaction  on  our  part  and  the  market  uncertainty  that  would  result  from  a  perpetuation  of  the  open-  ended  policy  limbo  that  exists  today  would  ill  serve  our  nation.  The  adoption  of  this  Order  is 
 critical,  therefore,  to  the  realization  of  our  public  interest  goals  in  that  it  puts  an  end  to  any  uncertainty  regarding  the  scope  and  effect  of  our  structural  broadcast  ownership  rules.  Most  importantly,  the  rules 
 discussed  and  described  below  serve  our  competition,  diversity  and  localism  goals  in  highly  targeted  ways  and,  working  together,  form  a  comprehensive  framework  that  is  responsive  to  today's  media 
 environment. 
 6.  We  adopt  herein  limits  both  for  local  radio  and  local  television  station  ownership.  Both  of  these  rules  are  premised  on  well-  established  competition  theory  and  are  intended  to  preserve  a  healthy 


 and  robust  competition  among  broadcasters  in  each  service.  As  explained  below,  however,  because  markets  defined  for  competition  purposes  (i.  e.,  defined  in  terms  of  which  entities  compete  with  each  other 
 in  economic  terms)  are  generally  more  narrow  than  markets  defined  for  diversity  purposes  (i.  e.,  defined  in  terms  of  which  entities  compete  in  the  dissemination  of  ideas),  our  ownership  limits  on  radio  and 
 television  ownership  also  serve  our  diversity  goal.  By  ensuring  that  several  competitors  remain  within  each  of  the  radio  and  television  services,  we  also  ensure  that  a  number  of  independent  outlets  for 
 viewpoint  will  remain  in  every  local  market,  thereby  protecting  diversity.  Further,  though,  because  local  television  and  radio  ownership  limits  cannot  protect  against  losses  in  diversity  that  might  result  from 
 combinations  of  different  types  of  media  within  a  local  market,  we  adopt  below  a  set  of  specific  cross-media  limits. 


 7.  Similarly,  by  virtue  of  the  staffs  extensive  information  gathering  efforts  and  the  voluminous  record  assembled  in  this  rulemaking  docket,  we  have  for  the  first  time  substantial  evidence 
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 regarding  the  localism  effects  of  our  national  broadcast  ownership  rules.  We  can,  therefore,  with  more  confidence  than  ever,  establish  a  reasonable  limit  on  the  national  station  ownership  reach  of  broadcast 
 networks.  In  addition,  under  our  dual  network  rule,  we  continue  to  prohibit  a  combination  between  two  of  the  largest  four  networks  primarily  on  competition  grounds,  but  the  beneficial  effects  of  this  restriction 
 also  protect  localism.  In  combination,  our  new  national  broadcast  ownership  reach  cap  and  our  dual  network  prohibition  will  ensure  that  local  television  stations  remain  responsive  to  their  local 
 communities. 
 8.  In  sum,  the  modified  broadcast  ownership  structure  we  adopt  today  will  serve  our  traditional  goals  of  promoting  competition,  diversity,  and  localism  in  broadcast  services.  The  new  rules 


 are  not  blind  to  the  world  around  them,  but  reflective  of  it;  they  are,  to  borrow  from  our  governing  statute,  necessary  in  the  public  interest. 


 9.  We  received  more  than  500,000  brief  comments  and  form  letters  from  individual  citizens.  These  individual  commenters  expressed  general  concerns  about  the  potential  consequences  of  media 
 consolidation,  including  concerns  that  such  consolidation  would  result  in  a  significant  loss  of  viewpoint  diversity  and  affect  competition.  We  share  the  concerns  of  these  commenters  that  our  ownership  rules 
 protect  our  critical  diversity  and  competition  goals,  as  they  are  designed  to  do,  and  we  believe  that  the  rules  adopted  herein  serve  our  public  interest  goals,  take  account  of  and  protect  the  vibrant  media 
 marketplace,  and  comply  with  our  statutory  responsibilities  and  limits.  As  we  make  plain  in  the  Order  below,  we  have  assessed  and  recalibrated  our  rules  to  form  a  local  and  national  rules  framework  that 
 promotes  diversity,  competition  and  localism,  the  core  concerns  of  these  commenters,  and  we  will  address  these  core  concerns  in  each  section  of  this  Order  as  we  address  each  of  our  ownership  rules. 


 II.  LEGAL  FRAMEWORK 
 10.  We  conduct  this  biennial  ownership  review  within  the  framework  established  by  Section  202(  h)  of  the  1996  Act,  which  provides: 


 The  Commission  shall  review  its  rules  adopted  pursuant  to  this  section  and  all  of  its  ownership  rules  biennially  as  part  of  its  regulatory  reform  review  under  section  11  of  the 
 Communications  Act  of  1934  and  shall  determine  whether  any  of  such  rules  are  necessary  in  the  public  interest  as  the  result  of  competition.  The  Commission  shall  repeal 
 or  modify  any  regulation  it  determines  to  be  no  longer  in  the  public  interest.  12 
 11.  Two  aspects  of  this  statutory  language  are  particularly  noteworthy.  First,  as  the  court  recognized  in  both  Fox  Television  and  Sinclair,  Section  202(  h)  carries  with  it  a  presumption  in  favor  of 


 repealing  or  modifying  the  ownership  rules.  13  That  is,  Section  202(  h)  appears  to  upend  the  traditional  administrative  law  principle  requiring  an  affirmative  justification  for  the  modification  or  elimination  of  a 
 rule.  14  Second,  Section  202(  h)  requires  the  Commission  to  determine  whether  its  rules  remain  necessary 
 12  1996  Act,    202(  h). 


 13  Fox  Television,  280  F.  3d  at  1048;  Sinclair,  284  F.  3d  at  159.  Several  parties,  citing  Fox  Television  and  Sinclair, 
 support  the  notion  that  Section  202(  h)  presumptively  favors  repeal  or  modification  of  the  ownership  rules.  See,  e.  g.,  Bonneville  Comments  at  3;  Fox  Comments  at  Exhibit  I;  Morris  Comments  at  4;  Tribune  Comments  at  12-  13; 


 Fox  Reply  Comments  at  4;  NAB  Reply  Comments  at  2-  3. 
 14  5  U.  S.  C.    706(  2)(  A);  Motor  Vehicle  Mfgs.  of  the  United  States  v.  State  Farm  Mutual  Auto.  Ins.  Co.,  463  U.  S. 
 29  (1983). 
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 in  the  public  interest.  15 
 12.  As  described  below,  we  conclude  that  in  its  current  form  only  the  dual  network  rule  remains  necessary  in  the  public  interest  as  a  result  of  competition.  We  also  conclude  that  the  other  ownership 


 rules  should  be  modified  as  described  in  this  Order. 
 13.  The  First  Amendment.  The  ownership  rules  we  adopt  in  this  proceeding  must  be  consistent  not  only  with  the  legal  standard  in  Section  202(  h),  but  also  with  the  First  Amendment  rights  of  affected 


 media  companies  and  consumers.  We  conclude,  based  on  the  decisions  in  the  Fox  Television  and  Sinclair  cases,  that  the  rational  basis  standard  is  the  correct  First  Amendment  standard  to  apply  to  the  broadcast 
 ownership  rules.  16  In  so  doing,  we  reject,  as  did  the  court,  the  application  of  the  intermediate  scrutiny  (  OBrien)  standard  17  applicable  to  cable  operators  18  or  the  strict  scrutiny  standard  applicable  to  the  print 
 media  and  to  content-  based  regulations.  19  Under  the  rational  basis  standard,  the  Commissions  broadcast  regulations  satisfy  the  First  Amendment  if  they  are  a  reasonable  means  of  promoting  the  public  interest 
 in  diversified  mass  communications.  20  As  the  court  noted  in  Sinclair,  there  is  no  unabridgeable  First 
 15  See  2002  Biennial  Regulatory  Review,  18  FCC  Rcd  4726,  4730    13  (2003). 


 16  Fox  Television,  280  F.  3d  at  1027;  Sinclair,  284  F.  3d  at  148.  In  the  1998  Biennial  Review  Report,  the 
 Commission  applied  the  OBrien,  or  intermediate  scrutiny,  test  to  the  newspaper/  broadcast  cross-  ownership  rule.  1998  Biennial  Regulatory  Review  of  the  Commissions  Broadcast  Ownership  Rules  and  Other  Rules  Adopted 


 Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  15  FCC  Rcd  11058,  11121-  22    116-  18  (2000)  (  1998  Biennial  Review  Report)  (applying  United  States  v.  OBrien,  391  U.  S.  367  (1968)  (  OBrien)).  Also,  in 
 considering  the  application  of  the  First  Amendment  to  the  newspaper/  broadcast  cross-  ownership  rule,  in  the  Newspaper/  Broadcast  NPRM,  which  was  released  before  the  Fox  Television  and  Sinclair  cases,  we  asked  about 
 the  significance  of  Time  Warner  Entertainment  Co.  v.  FCC,  240  F.  3d  1126  (D.  C.  Cir.  2001),  cert.  denied,  122  S.  Ct.  644  (2001)  (  Time  Warner  II),  in  which  intermediate  scrutiny  was  applied  to  cable  regulations. 
 Newspaper/  Radio  Cross-  Ownership  NPRM,  16  FCC  Rcd  at  17296-  97    31-  33.  The  decisions  in  the  Fox  Television  and  Sinclair  cases  have  settled  these  issues. 


 17  Under  OBrien,  government  regulation  of  speech  will  be  upheld  only  if:  (1)  it  furthers  an  important  or 
 substantial  governmental  interest;  (2)  the  interest  is  unrelated  to  the  suppression  of  free  expression;  and  (3)  the  incidental  restriction  on  alleged  First  Amendment  freedom  is  no  greater  than  is  essential  to  the  furtherance  of  that 


 interest.  OBrien,  391  U.  S.  at  377-  78;  Turner  Broadcasting  System  v.  FCC,  520  U.  S.  180,  185-  86  (1997)  (  Turner  II). 


 18  In  general,  ownership  limits  on  cable  operators  have  been  subject  to  the  OBrien  test.  Time  Warner 
 Entertainment  Co.  v.  United  States,  211  F.  3d  1313,  1316-  22  (D.  C.  Cir.  2000)  (  Time  Warner  I),  cert.  denied,  121  S.  Ct.  1167  (2001);  Satellite  Broadcasting  &  Commun.  Assn  v.  FCC,  275  F.  3d  337,  346,  355  (4th  Cir.  2001),  cert. 


 denied  122  S.  Ct.  2588  (2002).  The  Supreme  Court  has  determined  that  promoting  the  widespread  dissemination  of  information  from  a  multiplicity  of  sources  is  a  government  interest  that  is  not  only  important,  but  is  of  the 
 highest  order  and  is  unrelated  to  the  suppression  of  free  speech.  Turner  Broadcasting  System,  Inc.  v.  FCC,  512  U.  S.  622,  662-  63  (1984)  (  Turner  I);  Turner  II,  520  U.  S.  at  190.  On  the  other  hand,  the  Commission  may  not 
 burden  cable  operators  speech  with  illimitable  restrictions  in  the  name  of  diversity.  Time  Warner  II,  240  F.  3d  at  1136. 


 19  Strict  scrutiny  First  Amendment  analysis  would  require  the  Commission  to  demonstrate  that  its  rules  are  the 
 least  restrictive  means  available  of  achieving  a  compelling  state  interest.  Sable  Communications  of  California,  Inc.  v.  FCC,  492  U.  S.  115,  126  (1989). 


 20  FCC  v.  National  Citizens  Committee  for  Broadcasting  ,  436  U.  S.  775,  802  (1978)  (  NCCB). 
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 Amendment  right  to  hold  a  broadcast  license;  would-  be  broadcasters  must  satisfy  the  public  interest  by  meeting  the  Commission  criteria  for  licensing,  including  demonstrating  compliance  with  any  applicable 
 ownership  limitations.  21 
 14.  In  applying  the  rational  basis  test,  the  Fox  and  Sinclair  courts  relied  on  longstanding  Supreme  Court  precedent  which  also  supports  our  decision.  22  In  NCCB,  the  Supreme  Court  applied  the 


 rational  basis  test  to  the  Commissions  newspaper/  broadcast  cross-  ownership  rules,  finding  that  they  are  a  reasonable  means  of  promoting  the  public  interest  in  diversified  mass  communications;  thus  they  do  not 
 violate  the  First  Amendment  rights  of  those  who  will  be  denied  broadcast  licenses  pursuant  to  them.  23  The  NCCB  Court  explained  that  the  rational  basis  test  is  the  appropriate  standard  to  govern  our  broadcast 
 ownership  regulations  because  spectrum  scarcity  requires  Government  allocation  and  regulation  of  broadcast  frequencies,  and  because  these  regulations  are  not  content  related.  24  The  rational  basis 
 standard  therefore  governs  our  broadcast  ownership  regulations,  whether  they  govern  those  that  own  only  broadcast  outlets  or  those  that  might  seek  to  combine  ownership  of  a  broadcast  outlet  with  a  cable  system 
 or  a  newspaper.  25 
 15.  We  disagree  with  Media  General  and  Tribune,  who  argue  that  our  ownership  rules  affecting  newspapers  should  be  judged  under  strict  scrutiny  First  Amendment  analysis.  Media  General  and 


 Tribune  claim  that  spectrum  scarcity  is  no  longer  a  valid  rationale  for  media  ownership  limits  and  that  our  diversity  and  competition  goals  are  inherently  content-  based.  26  The  goals  of  promoting  diversity  and 
 localism  do  not  render  our  ownership  rules  content-  based.  As  the  Supreme  Court  noted  in  NCCB,  the  cross-  ownership  rules  at  issue  were  not  content  related;  moreover,  their  purpose  and  effect  is  to  promote 
 free  speech,  not  to  restrict  it.  27  Furthermore,  the  courts  have  considered  and  consistently  rejected  the  arguments  for  a  stricter  standard  of  First  Amendment  scrutiny  of  broadcast  regulation  made  by 
 commenters  here.  28  Accordingly,  the  rational  basis  test  continues  to  apply  to  our  ownership  rules. 
 16.  First  Amendment  interests  are  implicated  by  any  regulation  of  media  outlets,  including  broadcast  media.  We  endeavor  to  be  sensitive  to  those  interests  and  to  minimize  the  impact  of  our  rules 


 21  Sinclair,  284  F.  3d  at  168  (citing  NCCB,  436  U.  S.  at  795-  97). 
 22  NCCB,  436  U.  S.  at  802. 
 23  Id. 
 24  Id.  at  799,  801. 
 25  See  id.  at  798-  02  (rational  basis  test  applied  to  newspaper/  broadcast  rule);  Fox  Television,  280  F.  3d  at  1045-  46 
 (rational  basis  test  applied  to  broadcast-  cable  cross-  ownership  ban).  Several  commenters  argue  that  the  Commission  is  bound  by  court  decisions  to  apply  the  rational  basis  test  to  First  Amendment  review  of  the  broadcast 


 ownership  rules.  UCC  Comments  at  63-  64;  UCC  Reply  Comments  at  25-  32;  Cox  Reply  Comments  at  4. 
 26  See  Media  General  Comments  at  36-  37;  Media  General  Reply  Comments  at  21-  24;  Tribune  Comments  at  18- 
 20. 
 27  NCCB,  436  U.  S.  at  801;  see  also  Fox  Television,  280  F.  3d  at  1046. 


 28  Fox  Television,  280  F.  3d  at  1046  (quoting  Turner  I,  512  U.  S.  at  638). 
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 on  the  right  of  speakers  to  disseminate  a  message.  29  As  discussed  below,  our  decision  today  to  eliminate  the  newspaper/  broadcast  cross-  ownership  rule  and  the  radio-  television  cross-  ownership  rule,  and  to 
 modify  our  other  local  ownership  rules  and  our  national  audience  reach  cap,  turns  in  part  on  our  determination  that  these  rules  in  their  current  form  are  not  a  reasonable  means  to  accomplish  the  public 
 interest  purposes  to  which  they  are  directed.  We  turn  next  to  identifying  the  policy  goals  that  will  inform  this  determination. 


 III.  POLICY  GOALS 
 17.  In  the  Notice,  we  sought  comment  on  the  policy  objectives  that  should  guide  our  actions  in  regulating  media  ownership.  We  identified  diversity,  competition,  and  localism  as  longstanding  goals 


 that  would  continue  to  be  core  agency  objectives  in  this  area.  30  We  requested  comment  on  how  these  goals  should  be  defined  and  measured,  and  on  whether  other  goals  should  be  added  to  these  three 
 overarching  objectives.  To  fulfill  our  biennial  review  obligation,  we  will  first  define  our  goals  and  the  ways  we  will  measure  them.  We  can  then  assess  whether  our  current  broadcast  ownership  rules  are 
 necessary  to  achieve  these  goals. 
 A.  Diversity 
 18.  There  are  five  types  of  diversity  pertinent  to  media  ownership  policy:  viewpoint,  outlet,  program,  source,  and  minority  and  female  ownership  diversity.  We  discuss  them  in  turn. 


 1.  Viewpoint  Diversity 
 19.  Background.  Viewpoint  diversity  refers  to  the  availability  of  media  content  reflecting  a  variety  of  perspectives.  A  diverse  and  robust  marketplace  of  ideas  is  the  foundation  of  our  democracy.  31 


 Consequently,  it  has  long  been  a  basic  tenet  of  national  communications  policy  that  the  widest  possible  dissemination  of  information  from  diverse  and  antagonistic  sources  is  essential  to  the  welfare  of  the 
 public.  32  This  policy  is  given  effect,  in  part,  through  regulation  of  broadcast  ownership. 
 20.  Because  outlet  owners  select  the  content  to  be  disseminated,  the  Commission  has 
 29  Several  parties  comment  on  the  First  Amendment  principles  that  should  guide  our  broadcast  ownership  review. 
 See,  e.  g.,  CFA  Comments  at  30-  32  (arguing  that  diversity  of  media  types  promotes  vibrant  civic  discourse  and  comports  with  the  First  Amendment);  Noam  Schechner  Comments  at  8-  13  (stating  that  the  First  Amendment 


 requires  the  Commission  to  engage  in  detailed  examination  of  viewpoint  diversity);  Sandra  M.  Ortiz  Comments  at  12  (arguing  that  safeguarding  the  First  Amendment  rights  of  the  public  permits  restriction  of  media  ownership); 
 Prairie  Reply  Comments  at  2-  3  (arguing  that  the  availability  of  diverse  and  local  information  is  crucial  to  the  spirit  of  the  First  Amendment). 


 30  Notice,  17  FCC  Rcd  at  18516-  27    33-  71. 
 31  See  Richard  Brown,  Early  American  Origins  of  the  Information  Age,  A  NATION  TRANSFORMED  BY  INFO.:  HOW 
 INFORMATION  HAS  SHAPED  U.  S.  FROM  COLONIAL  TIMES  TO  THE  PRESENT  (Oxford  Univ.  Press,  New  York,  NY,  2000)  at  44-  49  passim  (  Because  people  widely  believed  that  their  republican  government  required  an  informed 


 citizenry,  they  scrambled  to  make  sure  that  they,  and  often  their  neighbors,  were  properly  informed.). 
 32  Turner  I,  512  U.  S.  at  663-  64  (internal  quotation  marks  omitted)  (quoting  United  States  v.  Midwest  Video  Corp., 
 406  U.  S.  649,  668  n.  27  (1972)  (plurality  opinion)  (quoting  Associated  Press  v.  United  States,  326  U.  S.  1,  20  (1945)). 
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 traditionally  assumed  that  there  is  a  positive  correlation  between  viewpoints  expressed  and  ownership  of  an  outlet.  The  Commission  has  sought,  therefore,  to  diffuse  ownership  of  media  outlets  among  multiple 
 firms  in  order  to  diversify  the  viewpoints  available  to  the  public.  Prior  Commission  decisions  limiting  broadcast  ownership  concluded  that  a  larger  total  number  of  outlet  owners  increased  the  probability  that 
 their  independent  content  selection  decisions  would  collectively  promote  a  diverse  array  of  media  content.  33 


 21.  The  Notice  sought  comment  on  whether  this  longstanding  presumed  link  between  ownership  and  viewpoint  could  be  established  empirically.  34  The  record  evidence  on  this  point  includes  a 
 study  by  Professor  David  Pritchard,  which  examined  whether  ownership  affects  the  viewpoint  expressed  on  commonly-  owned  television  stations  and  daily  newspapers.  35  The  study  evaluated  how  ten  television-newspaper 
 combinations  covered  the  final  weeks  of  the  2000  presidential  election  to  see  whether  commonly-  owned  outlets  exhibited  common  viewpoints  through  their  coverage  of  the  election.  The 
 two  theoretical  extremes  for  the  news  stories  in  question  were  100  percent  pro-  Gore  and  100  percent  pro-Bush.  When  news  coverage  on  two  commonly-  owned  outlets  was  sufficiently  similar  on  the  continuum 
 between  these  two  points,  the  study  deemed  those  two  outlets  to  exhibit  a  common  editorial  viewpoint.  36  The  study  concluded  that  five  of  the  ten  television-  newspaper  combinations  exhibited  common  editorial 
 slants,  and  that  the  other  five  combinations  did  not.  The  basis  for  this  conclusion  was  the  distance  on  a  continuum  between  the  coverage  of  the  campaign  by  the  television  station  and  the  newspaper.  Professor 
 Pritchard  concluded  that  common  ownership  of  a  newspaper  and  a  television  station  in  a  community  does  not  result  in  a  predictable  pattern  of  news  coverage  and  commentary.  37 


 22.  Some  commenters  agree.  Belo  and  Media  General  contend  that  separating  ownership  of  media  outlets  to  achieve  diverse  viewpoints  is  unnecessary  for  two  reasons.  First,  Belo  and  Media 
 General  assert  that  their  news  outlets  do  not  express  viewpoints,  but  provide  balanced  news  coverage  in  response  to  consumer  preferences.  38  They  contend  that  viewers  would  reject  local  newscasts  having  a 
 perceived  bias  and  would  turn  to  other  news  sources.  Second,  both  companies  explain  that  each  outlet  under  common  control  has  editorial  independence  and  is  not  subject  to  top-  down  news  policies  from  their 
 corporate  parents.  39  Declarations  submitted  by  the  Chief  Executive  Officers  of  Belo  and  Media  General  assert  that  their  companies  ability  to  succeed  in  the  marketplace  is  directly  tied  to  their  objectivity  in 


 33  See,  e.  g.,  Rules  and  Regulations  Relating  to  Multiple  Ownership,  18  FC.  C.  288  (1953)  ([  T]  he  fundamental 
 purpose  of  this  facet  of  the  multiple  ownership  rules  is  to  promote  diversification  of  ownership  in  order  to  maximize  diversification  of  program  and  service  viewpoints);  Amendment  of  Sections  73.74,  73.240  &  73.636 


 of  the  Commissions  Rules  Relating  to  Multiple  Ownership  of  Standard,  FM  &  Television  Broadcast  Stations,  50  F.  C.  C.  2d  1046,  1079-  80  (1975)  (  1975  Multiple  Ownership  Second  Report  and  Order). 


 34  Notice,  17  FCC  Rcd  at  18519-  20    44. 
 35  MOWG  Study  No.  2,  Viewpoint  Diversity  in  Cross-  Owned  Newspapers  and  Television  Stations:  A  Study  of 
 News  Coverage  of  the  2000  Presidential  Campaign  by  David  Pritchard  (Sept.  2002)  (  MOWG  Study  No.  2). 
 36  Id.  at  n.  15. 


 37  Id.  at  12-  13. 
 38  Belo  Comments,  Statement  of  Robert  Dechard  at  3;  Media  General  Reply  Comments,  Statement  of  J.  Stewart 
 Bryan  III,  at  2. 
 39  Belo  Comments,  Dechard  Statement  at  3-  4;  Belo  Comments,  Bryan  Statement  at  2-  3. 
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 selecting  and  reporting  news. 
 23.  Others  challenge  Dr.  Pritchards  conclusion.  CFA  and  UCC  assert  that  the  Pritchard  study  is  flawed  by  the  absence  of  a  control  group  of  independently-  owned  newspapers  and  television  stations 


 with  which  to  compare  the  tested  stations.  40  In  addition,  they  reject  the  study  because,  they  say,  the  sample  size  was  too  small  from  which  to  draw  inferences.  UCC  also  claims  that  the  studys 
 categorization  of  a  particular  news  item  as  pro-  Gore  or  pro-  Bush  was  subjective  and  ill-  defined.  41 
 24.  CFA  cites  two  studies  in  support  of  its  view  that  ownership  affects  viewpoint.  The  first  examined  newspaper  coverage  of  60  senatorial  campaigns  across  three  election  cycles  and  found  that 


 information  on  news  pages  was  slanted  in  favor  of  the  candidates  endorsed  on  the  newspapers  editorial  pages.  42  The  second  examined  newspaper  coverage  of  Congresss  decision  to  allocate  spectrum  for 
 digital  television  by  newspaper  firms  that  also  owned  television  stations.  According  to  CFA,  newspaper-television  firms  earning  20  percent  or  less  of  their  revenue  from  television  uniformly  editorialized  against 
 the  spectrum  allocation,  while  those  earning  more  than  20  percent  of  their  revenues  from  television  uniformly  editorialized  in  favor  of  the  allocation.  43 


 25.  A  second  way  in  which  ownership  may  affect  viewpoint  is  self-  censorship  by  journalists  and  editors.  UCC  submitted  a  survey  by  the  Pew  Research  Center  which  found  that  41  percent  of 
 reporters  and  executives  employed  by  the  four  broadcast  networks  said  they  purposely  avoided  newsworthy  stories  and/  or  softened  the  tone  of  stories  to  benefit  the  interests  of  their  news 
 organizations.  44  UCC  also  refers  us  to  anecdotal  evidence  that  the  editorial  decisions  of  the  broadcast  networks  have  been  affected  by  their  financial  interests.  45  Similarly,  the  Writers  Guild  suggests  that 
 newspaper  writers  and  editors  select  and  write  stories,  with  a  bias  in  favor  of  satisfying  the  views  of  their  owner.  46  CFA  and  UCC  also  cite  studies  showing  that  media  companies  news  decisions  are  affected  by 


 40  CFA  Comments  at  47  n.  68;  Center  for  Economic  and  Policy  Research  Comments  at  5-  6. 
 41  UCC  Comments  at  11-  12. 
 42  CFA  Comments  at  41  (quoting  Kim  Fridkin  Kahn  and  Patrick  J.  Kenny,  The  Slant  of  the  News:  How  Editorial 
 Endorsements  Influence  Campaign  Coverage  and  Citizens  Views  of  Candidates,  American  Political  Science  Review,  96  (2002)  at  381). 


 43  Id.  at  43  (citing  James  H.  Snider  and  Benjamin  I.  Page,  Does  Media  Ownership  Affect  Media  Stands?  The  Case 
 of  the  Telecommunications  Act  of  1996,  paper  delivered  at  the  Annual  Meeting  of  the  Midwest  Political  Science  Assn.  (Apr.  1997). 


 44  UCC  Comments  at  4  (citing  Pew  Research  Center  for  the  People  &  the  Press,  Self  Censorship:  How  Often  and 
 Why,  Survey  Reports  (rel.  Apr.  30,  2000))  available  at  www.  people-  press.  org/  reports/  display.  php3?  ReportID=  39. 


 45  Dmitri  Williams,  Synergy  Bias:  Conglomerates  and  Promotion  in  the  News,  46  J.  OF  BCASTING  &  ELEC.  MEDIA 
 453  (Sept.  1,  2002). 
 46  Writers  Guild  Comments  at  8-  9. 
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 pressure  from  advertisers.  47 
 26.  Discussion.  We  adhere  to  our  longstanding  determination  that  the  policy  of  limiting  common  ownership  of  multiple  media  outlets  is  the  most  reliable  means  of  promoting  viewpoint 


 diversity.  Nothing  in  the  record  causes  us  to  reconsider  this  conclusion.  The  principal  record  evidence  purporting  to  demonstrate  a  lack  of  connection  between  ownership  and  viewpoint    the  Pritchard  study  -- 
 contains  a  significant  methodological  flaw.  The  study  did  not  employ  a  control  group  to  compare  with  the  test  set  of  commonly-  owned  outlets.  The  absence  of  a  baseline  control  group  in  this  study  precludes 
 us  from  placing  significant  probative  value  on  this  studys  assessment  of  ownership  and  viewpoint. 
 27.  Indeed,  the  balance  of  the  evidence,  although  not  conclusive,  appears  to  support  our  conclusion  that  outlet  ownership  can  be  presumed  to  affect  the  viewpoints  expressed  on  that  outlet.  We 


 therefore  continue  to  believe  that  broadcast  ownership  limits  are  necessary  to  preserve  and  promote  viewpoint  diversity.  A  larger  number  of  independent  owners  will  tend  to  generate  a  wider  array  of 
 viewpoints  in  the  media  than  would  a  comparatively  smaller  number  of  owners.  We  believe  this  proposition,  even  without  the  benefit  of  conclusive  empirical  evidence,  remains  sound.  48 


 28.  Further,  owners  of  media  outlets  clearly  have  the  ability  to  affect  public  discourse,  including  political  and  governmental  affairs,  through  their  coverage  of  news  and  public  affairs.  Even  if 
 our  inquiry  were  to  find  that  media  outlets  exhibited  no  apparent  slant  or  viewpoint  in  their  news  coverage,  media  outlets  possess  significant  potential  power  in  our  system  of  government.  We  believe 
 sound  public  policy  requires  us  to  assume  that  power  is  being,  or  could  be,  exercised. 
 29.  We  also  disagree  with  Belo  and  Media  General  that  local  ownership  restrictions  are  unnecessary  to  promote  diversity  because  financial  incentives  will  keep  local  newscasts  unbiased.  First, 


 media  companies  may  have  multiple  financial  incentives  that  drive  news  decisions,  and  avoiding  an  appearance  of  bias  is  only  one  such  financial  incentive.  Record  evidence  suggests  that  media  companies 
 handling  of  the  digital  spectrum  issue  was  affected  by  the  extent  of  the  companys  financial  interest  in  that  issue.  49  Second,  there  may  be  factors  in  news  coverage  decisions  that  are  unaccounted  for  in  the 
 Belo/  Media  General  argument  regarding  financial  incentives.  The  record  contains  evidence  that  reporters  and  other  employees  of  broadcasting  companies  alter  their  news  coverage  to  suit  their  companies 
 interests.  50  This  suggests  that  whatever  financial  interest  that  media  companies  may  have  in  presenting  unbiased  news  coverage,  those  incentives  are  not  the  only  factors  that  explain  news  coverage  decisions. 
 Consequently,  we  cannot  agree  with  Belo  and  Media  General  that  diverse  ownership  is  wholly  unnecessary  to  ensure  diverse  perspectives  on  the  news. 


 47  CFA  Comments  at  44-  45  (citing  Marion  Just,  Rosalind  Levine  and  Kathleen  Regan,  News  for  Sale:  Half  of 
 Stations  Report  Sponsor  Pressure  on  News  Decisions,  COLUM..  J.  REV.  (Project  for  Excellence  in  Journalism  Nov./  Dec.  2001)  at  2). 


 48  NCCB,  436  U.  S.  at  797  ([  T]  he  Commission  was  entitled  to  rely  on  its  judgment,  based  on  experience,  that  it  is 
 unrealistic  to  expect  true  diversity  from  a  commonly-  owned  station-  newspaper  combination.  The  divergency  of  their  viewpoints  cannot  be  expected  to  be  the  same  as  if  they  were  antagonistically  run.  );  Metro  Broadcasting, 


 Inc.  v.  FCC,  497  U.  S.  547,  571  n.  16  (1990);  Sinclair,  284  F.  3d  at  162. 
 49  Williams,  supra  note  45. 


 50  See  supra,  note  44. 
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 30.  Lest  this  finding  be  misconstrued,  we  do  not  pass  judgment  on  the  desirability  of  owners  using  their  outlets  for  the  expression  of  particular  viewpoints.  Indeed,  we  have  always  proceeded  from 
 the  assumption  that  they  do  so  and  that  our  rules  should  encourage  diverse  ownership  precisely  because  it  is  likely  to  result  in  the  expression  of  a  wide  range  of  diverse  and  antagonistic  viewpoints.  We  merely 
 observe  here  that  evidence  from  a  variety  of  researchers  and  organizations  appears  to  disclose  a  meaningful  connection  between  the  identity  of  the  outlet  owner  and  the  content  delivered  via  its  outlet(  s). 
 This  evidence  provides  an  additional  basis  to  reaffirm  our  longstanding  conclusion  that  regulating  ownership  is  an  appropriate  means  to  promote  viewpoint  diversity. 


 31.  Our  conclusion  also  should  not  be  read  to  suggest  that  each  and  every  incremental  increase  in  the  number  of  different  outlet  owners  can  be  justified  as  necessary  in  the  public  interest.  To  the 
 contrary,  there  certainly  are  points  of  diminishing  returns  in  incremental  increases  in  diversity.  51  Moreover,  such  increases  may,  in  some  instances,  harm  the  public  interest  in  localism  and  competition.  52 
 The  balancing  of  these  interests  we  address  in  the  sections  below  dealing  with  individual  rules. 
 32.  Measuring  Viewpoint  Diversity.  Viewpoint  diversity  is  a  paramount  objective  of  this  Commission  because  the  free  flow  of  ideas  under-  girds  and  sustains  our  system  of  government.  Although 


 all  content  in  visual  and  aural  media  have  the  potential  to  express  viewpoints,  we  find  that  viewpoint  diversity  is  most  easily  measured  through  news  and  public  affairs  programming.  Not  only  is  news 
 programming  more  easily  measured  than  other  types  of  content  containing  viewpoints,  but  it  relates  most  directly  to  the  Commissions  core  policy  objective  of  facilitating  robust  democratic  discourse  in  the 
 media.  Accordingly,  we  have  sought  in  this  proceeding  to  measure  how  certain  ownership  structures  affect  news  output. 


 33.  Nonetheless,  we  agree  with  Fox  and  CFA  that  content  other  than  traditional  newscasts  also  contributes  to  a  diversity  of  viewpoints.  53  Television  shows  such  as  60  Minutes,  Dateline  NBC,  and  other 
 newsmagazine  programs  routinely  address  matters  of  public  concern.  In  addition,  as  Fox  points  out,  entertainment  programming  such  as  Will  &  Grace,  Ellen,  The  Cosby  Show,  and  All  in  the  Family  all 
 involved  characters  and  storylines  that  addressed  racial  and  sexual  stereotypes.  In  so  doing,  they  contributed  to  a  national  dialogue  on  important  social  issues. 


 34.  Although  we  agree  that  entertainment  programs  can  contribute  to  our  goal  of  viewpoint  diversity,  we  will  focus  on  the  news  component  of  viewpoint  diversity  where  the  record  permits  us  to  do 
 so.  Our  objective  of  promoting  program  diversity  in  this  proceeding  subsumes  the  viewpoint  diversity  contained  within  entertainment  programming.  We  address  our  policy  goal  of  program  diversity  in  the 
 following  subsection. 
 35.  Finally,  we  conclude  that  the  diversity  of  viewpoints  by  national  media  on  national  issues  is  greater  than  that  regarding  local  issues.  This  is  principally  due  to  the  vast  array  of  national  news 


 51  Time  Warner  II,  240  F.  3d  at  1135  (questioning  the  point  at  which  a  marginal  increase  in  diversity  no  longer 
 qualifies  as  an  important  governmental  interest). 
 52  See,  e.  g.,  Cross-  Ownership  Section  VI(  C)(  1)(  b),  infra,  regarding  the  localism  benefits  of  relaxing  the 
 newspaper-  broadcast  cross-  ownership  ban. 
 53  CFA  Comments  at  27-  28;  Fox  Comments  at  8-  9. 
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 sources  available  on  the  Internet,  cable  television  and  DBS.  54 
 2.  Program  Diversity 
 36.  We  conclude  that  program  diversity  is  a  policy  goal  of  broadcast  ownership  regulation.  Program  diversity  refers  to  a  variety  of  programming  formats  and  content.  With  respect  to  television,  this 


 includes  dramas,  situation  comedies,  reality  shows,  and  newsmagazines,  as  well  as  targeted  programming  channels  such  as  food,  health,  music,  travel,  and  sports.  With  respect  to  radio,  program  diversity  would 
 be  reflected  in  a  variety  of  music  formats  such  as  jazz,  rock,  and  classical  as  well  as  all-  sports  and  all-news  formats.  Programming  aimed  at  various  minority  and  ethnic  groups  is  an  important  component  of 
 program  diversity  for  both  television  and  radio. 
 37.  In  general,  we  find  that  program  diversity  is  best  achieved  by  reliance  on  competition  among  delivery  systems  rather  than  by  government  regulation.  The  rules  adopted  in  this  proceeding  will 


 ensure  competition  in  the  delivered  video  and  radio  programming  markets.  Programming  is  an  input  to  the  retail  product  offered  by  competing  delivery  systems.  As  long  as  the  broadcast  markets  remain 
 competitive,  we  expect  program  diversity  to  be  best  achieved  by  relying  on  media  companies  responding  to  consumer  preferences.  Delivery  systems  compete  fiercely  for  consumer  attention  and  have  powerful 
 financial  incentives  to  tailor  their  program  offerings  to  serve  consumers  diverse  demands  for  programming. 


 3.  Outlet  Diversity 
 38.  In  the  Notice,  we  requested  comment  on  the  definition  of  outlet  diversity  and  whether  it  should  be  a  goal  of  media  ownership  policy.  Outlet  diversity  simply  means  that,  in  a  given  market,  there 


 are  multiple  independently-  owned  firms.  The  question  is  whether  diversification  of  outlet  ownership  by  itself  is  a  policy  goal.  We  have  previously  found  that  outlet  diversity  has  not  been  viewed  as  an  end  in 
 itself,  but  a  means  through  which  we  seek  to  achieve  our  goal  of  viewpoint  diversity.  55  As  we  have  explained,  the  greater  the  diversity  of  ownership  in  a  particular  area,  the  less  chance  there  is  that  a  single 
 person  or  group  can  have  an  inordinate  effect,  in  a  political,  editorial,  or  similar  programming  sense,  on  public  opinion  at  the  regional  level.  56 


 39.  We  find  that  independent  ownership  of  outlets  by  multiple  entities  in  a  market  contributes  to  our  goal  of  promoting  viewpoint.  Regulating  the  ownership  of  outlets  to  achieve  those  goals  is  far 
 preferable  to  attempting  to  engineer  outcomes  directly,  because  ownership  regulation  reduces  the  need  for  the  Commission  to  make  subjective  judgments  about  program  content. 


 40.  However,  our  review  of  the  record  persuades  us  that  outlet  diversity  within  radio  broadcasting  continues  to  be  an  important  aspect  of  the  public  interest  that  we  should  seek  to  promote. 
 We  are  committed  to  establishing  a  regulatory  framework  that  promotes  innovation  in  the  field  of 


 54  See  Appendix  B,  National  News  Sources. 
 55  Notice,  17  FCC  Rcd  at  18517    36;  Amendment  of  Section  73.3555  of  the  Commission's  Rules,  the  Broadcast 
 Multiple  Ownership  Rules,  4  FCC  Rcd  1723,  1724    7  (1989)  (  1989  Multiple  Ownership  Report  and  Order). 
 56  Amendment  of  Sections  73.35,  73.240,  and  73.636  of  the  Commissions  Rules  Relating  to  Multiple  Ownership 
 of  Standard,  FM  and  Television  Broadcast  Stations,  45  F.  C.  C.  1476,  1477    3  (1964)  (  1964  Media  Ownership  Report  and  Order). 
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 broadcasting.  Innovation  is  not  just  a  matter  of  preserving  a  magic  number  of  independent  owners  in  a  market.  Such  a  scheme  would  ignore  the  fact  that  the  most  potent  sources  of  innovation  often  arise  not 
 from  incumbents  but  from  new  entrants.  57  We  seek  therefore  to  establish  a  regulatory  regime  that  preserves  opportunities  for  new  entry  into  the  broadcast  industry.  Although  our  interest  in  promoting  new 
 entry  extends  to  all  broadcasting,  that  interest  is  greatest  in  radio  broadcasting.  Radio  remains  one  of  the  most  affordable  means  by  which  a  potential  new  entrant  can  enter  the  media  business.  58  Radio  thus  is  a 
 likely  foothold  through  which  a  new  entrant  can  gain  the  experience  necessary  to  operate  and  grow  a  successful  media  enterprise. 


 41.  Finally,  we  believe  that  one  benefit  of  outlet  diversity  is  the  promotion  of  public  safety.  The  rules  we  adopt  to  promote  competition,  diversity,  and  localism  also  will  serve  the  public  interest  by 
 ensuring  that  multiple  owners  control  the  broadcasting  outlets  in  any  market.  In  an  emergency,  the  separation  of  broadcast  facilities  and  personnel  among  multiple  independent  broadcast  companies  in  a 
 given  market  will  avoid  any  possibility  that  the  failure  of  one  broadcast  company  to  transmit  critical  public  safety  information  will  not  leave  that  area  without  other  broadcast  owners  to  perform  that  service. 


 4.  Source  Diversity 
 42.  Source  diversity  refers  to  the  availability  of  media  content  from  a  variety  of  content  producers.  The  Notice  explained  that  source  diversity  can  contribute  to  our  retail  goals  of  viewpoint 


 diversity  and  program  diversity.  59  Past  Commission  efforts  to  regulate  source  diversity  centered  on  broadcast  television.  The  Prime  Time  Access  Rule  (PTAR)  and  the  Financial  Interest  and  Syndication 
 (Fin-  Syn)  rules  limited  vertical  integration  between  program  producers  and  broadcast  television  networks.  60  The  Commission  eliminated  those  regulations  when  it  could  not  justify  them  in  light  of 
 media  marketplace  changes.  61 
 43.  The  record  before  us  does  not  support  a  conclusion  that  source  diversity  should  be  an  objective  of  our  broadcast  ownership  policies.  The  Center  for  Creative  Community  (CCC),  the  Coalition 


 for  Program  Diversity  (CPD),  and  the  Writers  Guild  of  America  (WGA)  contend  that  source  diversity  is  lacking  on  prime  time  broadcast  television  today,  and  therefore  that  the  Commission  should  require  the 


 57  See,  e.  g.,  1998  Biennial  Regulatory  Review    Testing  New  Technology,  14  FCC  Rcd  6065,  6077    28  (1999). 
 58  A  review  of  radio  station  sales  in  the  past  16  years  shows  that  the  average  sale  price  of  a  radio  station  is  $5.74 
 million  dollars  versus  $43.14  million  dollars  for  a  television  station.  See:  BIA  State  of  the  Industry  Television  Reports,  various  years. 


 59  Notice,  17  FCC  Rcd  at  18517-  18    37. 
 60  PTAR  forbade  local  stations  carrying  the  programming  of  ABC,  CBS,  and  NBC  in  the  top  50  markets  from 
 offering  more  than  three  hours  of  prime  time  network  programming  Monday  through  Saturday.  The  Commission  hoped  that  the  hour  vacated  by  the  networks  would  encourage  non-  network  production  of  quality  prime  time 


 programming.  The  Fin-  Syn  rules  prohibited  the  then-  dominant  television  networks  from  obtaining  a  financial  interest  in  independently-  produced  programming  and  from  syndicating  any  program  domestically.  Amendment  of 
 Part  73  of  the  Commissions  Rules  and  Regulations  with  Respect  to  Competition  and  Responsibility  in  Network  Television  Broadcasting,  23  F.  C.  C.  2d  382  (1970). 


 61  Schurz  Communications,  Inc.  v.  FCC,  982  F.  2d  1043(  7  th  Cir.  1992)  (remanding  the  Commissions  decision  to 
 retain  modified  financial  interest  and  syndication  rules);  In  re  Review  of  the  Syndication  and  Financial  Interest  Rules,  10  FCC  Rcd  12165  (1995)  (eliminating  the  fin-  syn  rules). 
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 largest  networks  to  purchase  a  portion  of  their  prime  time  programming  from  unaffiliated  program  producers.  62  In  support  of  its  recommendation,  CPD  contends  that  in  1993,  68%  of  prime  time 
 programming  on  the  three  largest  broadcast  networks  was  independently  produced  versus  24%  today.  63  This  decrease  in  independently-  produced  prime  time  programming,  CPD  argues,  establishes  that  source 
 diversity  is  rapidly  declining  and  its  revitalization  should  be  the  principal  goal  of  this  rulemaking.  64 
 44.  When  prime  time  television  viewing  was  dominated  by  three  broadcast  networks,  the  Commission  elected  to  require  broadcast  networks  to  purchase  prime  time  programming  from  unaffiliated 


 producers  in  order  to  encourage  diversity  on  television.  In  light  of  dramatic  changes  in  the  television  market,  including  the  significant  increase  in  the  number  of  channels  available  to  most  households  today, 
 we  find  no  basis  in  the  record  to  conclude  that  government  regulation  is  necessary  to  promote  source  diversity. 


 45.  In  1979,  the  vast  majority  of  households  had  six  or  fewer  local  television  stations  to  choose  from,  three  of  which  were  typically  affiliated  with  a  broadcast  network.  65  Today  the  average  U.  S. 
 household  receives  seven  broadcast  television  networks  and  an  average  of  102  channels  per  home.  66  Commenters  recommending  that  the  Commission  adopt  source  diversity  as  a  goal  offer  no  evidence  of  the 
 quantity  of  programming  sources  across  the  delivered  video  programming  market  (i.  e.  both  broadcast  and  non-  broadcast  channels)  and  why  that  quantity  is  deficient.  Given  the  explosion  of  programming 
 channels  now  available  in  the  vast  majority  of  homes  today,  and  in  the  absence  of  evidence  to  the  contrary,  we  cannot  conclude  that  source  diversity  should  be  a  policy  goal  of  our  broadcast  ownership 
 rules. 
 5.  Minority  and  Female  Ownership  Diversity 
 46.  Encouraging  minority  and  female  ownership  historically  has  been  an  important  Commission  objective,  67  and  we  reaffirm  that  goal  here.  In  1995,  the  Commission  issued  a  Notice  of 


 Proposed  Rulemaking  to  explore  ways  to  provide  minorities  and  women  with  greater  opportunities  to 
 62  CPD  Comments  at  3;  CCC  Comments  at  7;  WGA  comments  at  3. 
 63  CPD  Comments  at  4-  5. 
 64  CPD  Comments  at  i. 
 65  Michael  L.  Katz,  Old  Rules  and  New  Rivals:  An  Examination  of  Broadcast  Television  Regulation  and 
 Competition  at  38  (Sept.  1999). 
 66  2002  Video  Competition  Report:  Opening  Statement  of  David  F.  Poltrack,  Executive  Vice  President,  CBS 
 Television,  Before  the  Forum  on  Media  Ownership  Rules,  Col.  U.  Law  School,  New  York,  NY  (Jan.  16,  2003). 
 67  See,  e.  g.,  Statement  of  Policy  on  Minority  Ownership  of  Broadcast  Facilities,  68  F.  C.  C.  2d  979  (1978) 
 (articulating  policies  to  increase  the  level  of  broadcast  facility  ownership  by  minorities,  including  the  comparative  hearing  minority  preference,  distress  sale,  and  tax  certificate  policies);  see  also  Amendment  of  Section  73.3555 


 (formerly  sections  73.35,  73.240  and  73.636)  of  the  Commissions  Rules  Relating  to  Multiple  Ownership  of  AM,  FM  and  Television  Broadcast  Stations,  100  F.  C.  C.  2d  74,  97  (1985)  (  1985  Multiple  Ownership  MO&  O) 
 (enabling:  (1)  persons  acquiring  cognizable  interests  in  minority  owned  and  controlled  broadcast  stations  to  own  14  of  each  AM,  FM,  and  television  stations  (instead  of  the  standard  numerical  cap  of  12  each);  and  (2)  a  television 
 station  owner  to  reach  a  maximum  of  30%  of  the  national  audience  (instead  of  the  standard  25%  cap)  provided  that  at  least  5%  of  the  aggregate  reach  of  its  stations  is  contributed  by  minority  controlled  stations). 
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 enter  the  mass  media  industry.  68  Thereafter,  in  1996,  the  Commission  issued  a  Notice  of  Inquiry  seeking  comments  on  the  nature  of  market  entry  barriers  for  small  businesses.  69  In  addition,  the 
 Commission  held  public  forums  to  identify  barriers  to  competition  and  to  formulate  strategies  to  overcome  them.  70 


 47.  We  have  received  comments  advocating  various  policies  to  enhance  minority  and  female 


 68  See  Policies  and  Rules  Regarding  Minority  and  Female  Ownership  of  Mass  Media  Facilities,  10  FCC  Rcd  2788 
 (1995).  In  its  subsequent  1998  Report  and  Order,  the  Commission  amended  FCC  Form  323,  Annual  Ownership  Report,  to  include  race  and  gender  data  of  parties  with  attributable  interests  in  commercial  broadcast  licenses, 


 thereby  enabling  the  Commission  to  determine  accurately  the  current  state  of  minority  and  female  ownership  of  broadcast  facilities,  to  determine  the  need  for  measures  designed  to  promote  ownership  by  minorities  and  women, 
 to  chart  the  success  of  any  such  measures  that  we  may  adopt,  and  to  fulfill  our  statutory  mandate  under  Section  257  of  the  1996  Act  and  Section  309(  j)  of  the  Communications  Act  of  1934  to  promote  opportunities  for  small 
 businesses  and  businesses  owned  by  women  and  minorities  in  the  broadcasting  industry.  1998  Biennial  Regulatory  Review    Streamlining  of  Mass  Media  Applications,  Rules,  and  Processes;  Policies  and  Rules 
 Regarding  Minority  and  Female  Ownership  of  Mass  Media  Facilities,  13  FCC  Rcd  23056,  23095  (1998).  See  47  U.  S.  C.    309(  j)(  3)(  B)  (requiring  the  Commission,  in  designing  systems  of  competitive  bidding  for  broadcast 
 licenses,  to  promot[  e]  economic  opportunity  and  competition  and  ensur[  e]  that  new  and  innovative  technologies  are  readily  accessible  to  the  American  people  by  avoiding  excessive  concentration  of  licenses  and  by 
 disseminating  licenses  among  a  wide  variety  of  applicants,  including  .  .  .  businesses  owned  by  members  of  minority  groups  and  women). 


 69  See  Section  257  Proceeding  to  Identify  and  Eliminate  Market  Entry  Barriers  for  Small  Businesses,  11  FCC  Rcd 
 6280  (1996);  see  also  Section  257  Proceeding  to  Identify  and  Eliminate  Market  Entry  Barriers  for  Small  Businesses,  Report,  12  FCC  Rcd  16802  (1997).  The  Commission,  in  a  separate  proceeding,  tentatively  concluded 


 that  it  should  take  steps  to  further  its  longstanding  goal  of  increasing  minority  ownership  of  broadcast  stations  and  sought  comment  on  what  competitive  bidding  tools  could  be  used  to  achieve  this  goal,  and  the  goal  of 
 increased  female  ownership.  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding  for  Commercial  Broadcast  and  Instructional  Television  Fixed  Service  Licenses;  Reexamination  of  the  Policy 
 Statement  on  Comparative  Broadcast  Hearings;  Proposals  to  Reform  the  Commissions  Comparative  Hearing  Process  to  Expedite  the  Resolution  of  Cases,  12  FCC  Rcd  22363,  22399-  401  (1997).  In  its  First  Report  and  Order 
 following  this  NPRM,  the  Commission  noted  that  it  had  commenced  a  series  of  studies  to  examine  the  market  entry  barriers  encountered  by  minorities  and  women,  and  would  wait  for  review  of,  and  public  comment  on,  these 
 studies  prior  to  determining  competitive  bidding  rules  affecting  minorities  and  women.  As  an  interim  measure,  the  Commission  adopted  a  new  entrant  bidding  credit.  Implementation  of  Section  309(  j)  of  the  Communications 
 Act    Competitive  Bidding  for  Commercial  Broadcast  and  Instructional  Television  Fixed  Service  Licenses;  Reexamination  of  the  Policy  Statement  on  Comparative  Broadcast  Hearings;  Proposals  to  Reform  the 
 Commissions  Comparative  Hearing  Process  to  Expedite  the  Resolution  of  Cases,  13  FCC  Rcd  15920,  15994-  95  (1998). 


 70  See  Forum  on  Small  Business  Market  Entry  Barriers,  FCC  Public  Notice  64975  (rel.  Sept.  5,  1996).  In  2000, 
 the  Commission  released  five  studies  regarding  the  market  entry  barriers  faced  by  minorities,  women,  and  small  businesses  in  the  communications  industry.  See  FCC  Chairman  Kennard  and  Commissioner  Tristani  to  Host 


 Policy  Forum  on  Market  Entry  Barriers  Faced  by  Small,  Women-  and  Minority-  Owned  Businesses  on  Tuesday,  December  12,  2000,  16  FCC  Rcd  3772  (2000).  We  believe  additional  evidence  is  necessary,  however,  before  we 
 reach  conclusions  on  these  important  issues.  We  note  that  MMTC  asks  that  we  include  in  this  record  and  seek  comment  on  these  five  studies.  We  take  official  notice  of  the  2000  market  entry  barrier  studies,  as  they  were 
 publicly  released  and  are  available  on  our  web  site,  so  it  is  unnecessary  to  include  them  in  the  record. 
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 ownership  of  broadcast  companies.  71  NABOB  recommends  that  we  should  maintain  our  current  ownership  rules;  use  Arbitron  markets  to  define  radio  markets;  give  greater  consideration  to  the 
 promotion  of  viewpoint  diversity  and  minority  ownership  when  we  review  assignment  of  license  and  transfer  of  control  applications;  eliminate  our  policy  of  granting  temporary  waivers  of  our  multiple 
 ownership  rules  (which  allow  merging  broadcasters  6-  24  months  to  come  into  compliance  with  the  rules);  adopt  a  bright-  line  test  to  limit  radio  ownership  consolidation;  and  urge  Congress  to  reinstate  the  minority 
 tax  certificate  policy.  72 
 48.  IPI  argues  that  maintenance  of  broadcast  ownership  caps  will  best  serve  the  distinct  programming  preferences  of  minority  groups.  73  AWRT  asks  us  to  include  the  goal  of  increasing  the 


 number  of  female-  owned  broadcast  businesses  as  we  consider  changes  to  our  broadcast  ownership  rules.  74  UCC  urges  the  Commission  to  explicitly  advance  through  its  ownership  rules  the  policy  goal  of 
 promoting  broadcast  ownership  opportunities  for  women,  minorities  and  small  businesses.  75 
 49.  MMTC  proposes  business  and  regulatory  initiatives  that  would  go  a  long  way  toward  increasing  entry  into  the  communications  industry  by  minorities.  76  MMTCs  initiatives  include:  (1) 


 equity  for  specific  and  contemplated  future  acquisitions;  (2)  enhanced  outreach  and  access  to  debt  financing  by  major  financial  institutions;  (3)  investments  in  institutions  specializing  in  minority  and  small 
 business  financing;  (4)  cash  and  in-  kind  assistance  to  programs  that  train  future  minority  media  owners;  (5)  creation  of  a  business  planning  center  that  would  work  one-  on-  one  with  minority  entrepreneurs  as 
 they  develop  business  plans  and  strategies,  seek  financing,  and  pursue  acquisitions;  (6)  executive  loans,  and  engineers  on  loan,  to  minority  owned  companies  and  applicants;  (7)  enhanced  access  to  broadcast 
 transactions  through  sellers  undertaking  early  solicitations  of  qualified  minority  new  entrants  and  affording  them  the  same  opportunities  to  perform  early  due  diligence  as  the  sellers  afford  to  established 
 non-  minority  owned  companies;  (8)  nondiscrimination  provisions  in  advertising  sales  contracts;  (9)  incubation  and  mentoring  of  future  minority  owners;  (10)  enactment  of  tax  deferral  legislation  designed 
 to  foster  minority  ownership;  (11)  examination  of  how  to  promote  minority  ownership  as  an  integral  part  of  all  FCC  general  media  rulemaking  proceedings;  and  (12)  ongoing  longitudinal  research  on  minority 
 ownership  trends,  conducted  by  the  FCC,  NTIA,  or  both  77  ;  (13)  sales  to  certain  minority  or  small  businesses  as  alternatives  to  divestitures. 


 50.  These  comments  contain  many  creative  proposals  to  advance  minority  and  female 
 71  See,  e.  g.,  MMTC/  NABOB  Motion  for  Further  Extension  of  Time,  filed  Dec.  9,  2002  at  4-  5  (asking  the 
 Commission  to  affirm  that  minority  ownership  is  a  central  interest  in  ownership  proceedings). 
 72  NABOB  Comments  at  3-  4,  17-  25;  NABOB  Reply  Comments  at  i-  ii,  2-  5,  9-  11. 


 73  IPI  Comments  at  58. 
 74  AWRT  Comments  at  5-  7. 
 75  UCC  Comments  at  17-  19.  UCC  also  asks  that  we  reject  NABs  proposal  for  a  more  relaxed  television  duopoly 
 rule  waiver  standard,  arguing  that  more  easily-  obtained  waivers  would  undermine  opportunities  for  new  market  entrants,  including  women  and  minorities.  UCC  Reply  Comments  at  23-  25. 


 76  MMTC  Nov.  5,  2002  Comments  at  Tab  10,  Twelve  Minority  Ownership  Solutions. 
 77  Id. 
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 ownership.  Clearly,  a  more  thorough  exploration  of  these  issues,  which  will  allow  us  to  craft  specifically  tailored  rules  that  will  withstand  judicial  scrutiny,  is  warranted.  78  Therefore,  we  will  issue  a  Notice  of 
 Proposed  Rulemaking  to  address  these  issues  and  incorporate  comments  on  these  issues  received  in  this  proceeding  into  that  proceeding. 


 51.  We  see  significant  immediate  merit  in  MMTCs  proposal  regarding  the  transfer  of  media  properties  that  collectively  exceed  our  radio  ownership  cap.  MMTC  recommends  that  the  Commission 
 generally  forbid  the  wholesale  transfer  of  media  outlets  that  exceed  our  ownership  rules  except  where  the  purchaser  qualifies  as  a  socially  and  economically  disadvantaged  business  (SDB).  79  As  discussed  in  the 
 Grandfathering  and  Transition  Procedures,  Section  VI(  D)  infra,  we  agree  with  MMTC  that  a  limited  exception  to  a  no  transfer  policy  for  above-  cap  combinations  would  serve  the  public  interest.  We  agree 
 with  MMTC  that  the  benefits  to  competition  and  diversity  of  a  limited  exception  allowing  entities  to  sell  above-  cap  combinations  to  eligible  small  entities,  which  we  define  below,  outweigh  the  potential  harms 
 of  allowing  the  above-  cap  combination  to  remain  intact.  Greater  participation  in  communications  markets  by  small  businesses,  including  those  owned  by  minorities  and  women,  has  the  potential  to  strengthen 
 competition  and  diversity  in  those  markets.  It  will  expand  the  pool  of  potential  competitors  in  media  markets  and  should  bring  new  competitive  strategies  and  approaches  by  broadcast  station  owners  in  ways 
 that  benefit  consumers  in  those  markets. 
 52.  In  addition,  MMTC  proposes  that  we  adopt  an  equal  transactional  opportunity  rule  similar  in  some  respects  to  our  EEO  requirements.  80  While  such  a  rule  is  worthy  of  further  exploration, 


 we  decline  to  adopt  a  rule  without  further  consideration  of  its  efficacy  as  well  as  any  direct  or  inadvertent  effects  on  the  value  and  alienability  of  broadcast  licenses.  We  see  merit  in  encouraging  transparency  in 
 dealmaking  and  transaction  brokerage,  consistent  with  business  realities.  We  also  reiterate  that  discriminatory  actions  in  this,  and  any  other  context,  is  contrary  to  the  public  interest.  For  these  reasons, 
 we  intend  to  refer  the  question  of  how  best  to  ensure  that  interested  buyers  are  aware  of  broadcast  properties  for  sale  to  the  Advisory  Committee  on  Diversity  for  further  inquiry  and  will  carefully  review 
 any  recommendations  this  Committee  may  proffer.  As  soon  as  the  Commission  receives  authorization  to  form  this  committee  we  will  ask  it  to  make  consideration  of  this  issue  among  its  top  priorities.  81 


 B.  Competition 
 53.  In  this  section,  we  define  our  objectives  with  respect  to  media  competition  and  we  address  arguments  that  we  should  not  pursue  competition  as  a  public  interest  objective  and  instead  defer  all 


 competition  concerns  to  the  antitrust  authorities,  i.  e.,  the  Department  of  Justice  or  the  Federal  Trade 


 78  See  Adarand  Constructors  Inc.  v.  Pena,  515  U.  S.  200,  227  (1995)  (holding  that  all  racial  classifications 
 imposed  by  a  governmental  agency  must  be  analyzed  by  reviewing  courts  under  strict  scrutiny,  and  are  constitutional  only  if  they  are  narrowly  tailored  measures  that  further  compelling  governmental  interests). 


 79  MMTC  Comments  at  107.  See  also  NAB  Reply  Comments  at  44  (  Although  NAB  would  go  further,  so  that 
 station  owners  would  be  allowed  to  transfer  properly  formed  station  combinations  freely  to  any  purchaser,  whether  an  SDB  or  not,  NAB  does  not  oppose  MMTCs  proposal.). 


 80  MMTC  Comments  at  115-  120. 
 81  We  anticipate  that  the  Committee  will  make  recommendations  on  ways  to  improve  our  regulatory  programs 
 designed  to  enhance  new  entry  into  broadcasting. 
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 Commission.  82 
 54.  Since  the  beginning  of  the  federal  governments  regulation  of  broadcast  spectrum,  it  has  been  a  basic  tenet  of  the  communications  policy  that  there  be  competition  in  the  radio  broadcasting 


 industry.  83  For  that  reason,  the  Communications  Act  prohibits  us  from  grant[  ing]  a  monopoly  in  the  field  of  broadcasting,  84  and  we  are  directed  instead  to  serve  the  public  interest  by  assur[  ing]  fair 
 opportunity  for  open  competition  in  the  use  of  broadcasting  facilities.  85  From  its  inception,  the  Commission  has  adhered  closely  to  that  mandate  and  sought  to  ensure  that  transfers  and  assignments  of 
 station  licenses  remain  consistent  with  the  policy  of  free  competition  embodied  in  the  Communications  Act.  86 


 55.  The  1996  Act  reinforces  the  link  between  competitive  markets  and  the  public  interest.  One  of  the  central  aims  of  the  1996  Act  was  to  introduce  competition  to  communications  industries  that 
 traditionally  have  been  thought  of  as  natural  monopolies.  87  As  the  preamble  to  the  1996  Act  makes  manifest,  Congress  believed  that  greater  competition  and  reduced  regulation  would  secure  lower  prices 
 and  higher  quality  services  for  American  telecommunications  consumers  and  encourage  the  rapid  deployment  of  new  telecommunications  technologies.  88  Thus,  the  1996  Act  embodies  a  philosophy   
 new  to  telecommunications,  but  well-  established  in  broadcasting    that  competition  is  the  most  effective  means  of  producing  the  marketplace  results  that  best  serve  the  public  interest. 


 56.  We  thus  see  nothing  in  the  1996  Act  that  signifies  a  retreat  from  our  deep  and  abiding  interest  in  promoting  and  preserving  competition  in  broadcasting.  Indeed,  by  directing  us  to  determine 
 whether  our  ownership  rules  are  necessary  in  the  public  interest  as  a  result  of  competition,  we  believe  Congress  charged  us  to  implement  policies  that  create  opportunities  for  greater  competition    both  among 
 broadcasters  and  between  broadcasters  and  other  outlets    that  would  lessen  the  need  for  prescriptive  ownership  regulations.  Regardless  of  whether  we  conclude  in  a  particular  context  that  maintaining, 
 modifying,  or  repealing  one  of  our  ownership  rules  best  advances  our  interest  in  competition,  it  is  clear  that  competition  is  a  policy  that  is  intimately  tied  to  our  public  interest  responsibilities  and  one  that  we 


 82  Fox  Comments  at  57-  59;  NAB  Comments  in  MM  Docket  No.  01-  317  at  28-  30;  Viacom  Comments  at  53,  67- 
 69;  WVRC  Comments  in  MM  Docket  No.  00-  244  at  18;  Cox  Comments  in  Docket  No.  00-  244  at  15-  16;  Entercom  Comments  in  Docket  No.  00-  244  at  3. 


 83  Mansfield  Journal  Co.  v.  FCC,  180  F.  2d  28,  33  (1950). 
 84  FCC  v.  Sanders  Bros.  Radio  Station,  309  U.  S.  470,  474-  76  (1940). 
 85  United  States  v.  Storer  Broadcasting  Co.,  351  U.  S.  192,  203  (1956);  see  also  FCC  v.  Pottsville  Broadcasting 
 Co.,  309  U.  S.  134,  137  (1940)  (  Congress  moved  under  the  spur  of  a  widespread  fear  that  in  absence  of  governmental  control  the  public  interest  might  be  subordinated  to  monopolistic  domination  in  the  broadcasting 


 field.). 
 86  See  Genesee  Radio  Corp.,  5  F.  C.  C.  183,  186-  87  (1938). 


 87  See  Sanders  Bros.,  309  U.  S.  at  474-  75. 
 88  1996  Act  Preamble,  110  Stat.  56;  see  also  Joint  Explanatory  Statement  at  113  (1996  Act  provide[  s]  for  a 
 procompetitive,  de-  regulatory  national  policy  framework  designed  to  accelerate  rapidly  private  sector  deployment  of  advanced  telecommunications  and  information  technologies  and  services  to  all  Americans  by  opening  all 


 telecommunications  markets  to  competition). 
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 have  a  statutory  obligation  to  pursue.  As  recently  as  last  year,  the  Court  of  Appeals  for  the  District  of  Columbia  reaffirmed  this  point  when  it  stated:  [  t]  o  the  extent  Sinclair  maintains  that  consideration  of 
 competition  is  beyond  the  proper  purview  of  the  Commission,  it  is  simply  wrong.  89 
 57.  We  hereby  affirm  our  longstanding  commitment  to  promoting  competition  by  ensuring  pro-  competitive  market  structures.  Consumers  receive  more  choice,  lower  prices,  and  more  innovative 


 services  in  competitive  markets  than  they  do  in  markets  where  one  or  more  firms  exercises  market  power.  90  These  benefits  of  competition  can  be  achieved  when  regulators  accurately  identify  market 
 structures  that  will  permit  vigorous  competition. 
 58.  In  limiting  broadcast  ownership  to  promote  economic  competition,  we  also  take  major  strides  toward  protecting  and  promoting  our  separate  policy  goal  of  protecting  competition  in  the 


 marketplace  of  ideas  --  viewpoint  diversity.  This  is  because  antitrust  theory  has  at  its  core  an  objective  that  is  similar  to  this  agencys  goal  of  promoting  viewpoint  diversity:  both  public  policy  objectives  share 
 a  common  belief  that  the  aggregation  of  inordinate  market  share  by  a  small  number  of  firms  will  tend  to  harm  public  welfare;  both  are  built  on  the  notion  that  highly  concentrated  markets  tilt  the  proper  balance 
 of  power  too  far  in  favor  of  some  firms  and  against  those  who  would  challenge  them.  91 
 59.  In  this  proceeding,  Fox  argues  that  because  economic  markets  are  narrower  than  idea  markets,  we  should  eliminate  our  broadcast  ownership  rules.  Fox  contends  that  antitrust  enforcement  will 


 prevent  mergers  on  economic  competition  grounds  before  markets  would  become  unreasonably  concentrated  on  diversity  grounds.  92  Although  our  own  analysis  of  the  record  does  not  support  Foxs 
 view  in  all  cases,  we  take  this  opportunity  to  underscore  that  in  many  markets,  the  record  evidence  does  show  that  our  competition-  based  ownership  limits  (i.  e.  the  caps  on  local  radio  and  local  television 
 ownership)  more  than  adequately  protect  viewpoint  diversity  in  a  large  number  of  markets  despite  being  based  on  standard  antitrust  principles.  For  example,  as  explained  below,  we  adopt  rules  allowing 
 television  combinations  subject  to  the  proviso  that  one  company  may  not  combine  two  of  the  top  four-rated  stations  in  a  local  market.  93  This  rule  is  grounded  in  economic  competition  analysis,  but  it  also  has 
 the  effect  of  separating  ownership  of  those  local  television  stations  most  likely  to  be  significant  contributors  to  local  viewpoint  diversity  through  the  production  of  local  news  and  public  affairs 
 programming.  Nonetheless,  contrary  to  Foxs  contention,  our  analysis  of  the  record  leads  us  to  conclude  that  preserving  competitive  markets  will  not,  in  all  cases,  adequately  protect  viewpoint  diversity.  As 
 discussed  in  the  Cross-  Media  Limits  section  below,  we  find  that  certain  combinations  in  smaller  markets  would  unreasonably  threaten  viewpoint  diversity  even  if  they  would  not,  under  standard  antitrust  theory, 
 result  in  competitive  harms. 


 89  Sinclair,  284  F.  3d  148  (citing  NCCB,  436  U.  S.  at  795). 
 90  See  F.  M.  Scherer  and  David  Ross,  INDUS.  MKT  STRUCTURE  AND  ECON.  PERFORMANCE  (3rd  Ed.)  at  19-  28 
 (Houghton  Mifflin  Co.,  Boston  MA,  1990). 
 91  Because  of  this  common  theoretical  underpinning  between  competition  policy  and  viewpoint  diversity  policy, 
 some  have  advocated  in  favor  of  expanding  antitrust  regulation  to  include  protecting  competition  in  the  marketplace  of  ideas.  See  Maurice  E.  Stucke  and  Allen  P.  Grunes,  Antitrust  and  the  Marketplace  of  Ideas,  69 


 ANTITRUST  L.  J.  249  (2001). 
 92  Fox  Comments  at  26-  29. 


 93  See  Local  TV  Ownership  Rule,  Section  VI(  A),  infra. 
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 60.  Measurement  of  competition.  Historically  we  have  relied  on  assessments  of  competition  in  advertising  markets  as  a  proxy  for  consumer  welfare  in  media  markets.  94  We  found  that  competition 
 among  broadcast  outlets  was  likely  to  benefit  consumers  by  making  available  programming  that  meets  the  programming  preferences  of  consumers.  In  our  2001  decision  modifying  the  dual  network  rule,  however, 
 we  suggested  that  the  changing  nature  of  electronic  media  markets    particularly  the  direct  payment  by  a  majority  of  consumers  for  delivered  video  programming    might  cause  us  to  revisit  our  traditional  focus 
 on  advertising  markets  as  the  appropriate  means  of  measuring  competition  in  connection  with  our  broadcast  ownership  limits.  95 


 61.  Although  advertising  markets  continue  to  be  a  reasonable  basis  on  which  to  evaluate  competition  among  media  companies,  in  this  Order  we  will  rely  more  heavily  on  other  metrics.  We  do  so 
 because  changing  business  models  affect  the  nature  of  competition  in  the  relevant  economic  markets.  In  the  past,  television  stations  generally  faced  economic  competition  from  other  television  stations,  and  radio 
 stations  from  other  radio  stations.  The  television  and  radio  markets  relied  principally  on  advertising  revenues  to  fund  their  businesses.  Today,  the  financial  models  for  the  television  and  radio  businesses  are 
 changing.  A  large  portion  of  the  revenue  in  the  television  business  now  consists  of  direct  payments  by  consumers.  Eighty-  five  percent  of  American  households  subscribe  to  television  programming  supplied 
 by  multichannel  video  programming  service  from  delivery  systems  (MVPDs)    cable  television  and  direct  broadcast  satellite  --  to  watch  television.  96  MVPDs,  in  turn,  typically  pay  non-  broadcast  programming 
 networks,  such  as  ESPN,  CNN,  and  MTV,  for  the  right  to  deliver  those  channels  to  subscribers.  The  payments  received  by  program  networks  represent  one  source  of  their  revenue.  Non-  broadcast 
 programming  networks  also  however,  sell  advertising  time  on  their  channels.  Thus,  in  competing  with  broadcasters,  non-  broadcast  programming  networks  typically  have  two  income  streams  to  develop  or 
 purchase  programming.  Broadcasters  continue  to  rely  overwhelmingly  on  advertising  revenue.  97 
 62.  We  also  find  that  the  subscription  model  of  cable  television  and  DBS  offer  an  additional  competitive  advantage  over  advertising-  only  broadcast  television  stations.  Broadcast  stations  are  limited 


 in  their  ability  to  maximize  consumer  welfare  because  broadcast  programming  is  a  public  good.  98  Local 
 94  Amendment  to    73.3555  of  the  Commissions  Rules  Relating  to  Multiple  Ownership  of  AM,  FM,  and  TV 
 Broadcast  Stations,  100  F.  C.  C.  2d  17  (1984)  (  1984  Multiple  Ownership  Report  and  Order);  Revision  of  Radio  Rules  and  Policies,  7  FCC  Rcd  6387  (1992)  (  1992  Radio  Ownership  Order);  Review  of  the  Commissions 


 Regulations  Governing  TV  Broadcasting,  TV  Satellite  Stations  Review  of  Policy  &  Rules,  14  FCC  Rcd  12903  (1999)  (  Local  TV  Ownership  Report  and  Order);  clarified  in  Memorandum  Opinion  &  Second  Order  on 
 Reconsideration,  16  FCC  Rcd  1067  (2001)(  Local  TV  Ownership  Recon  Order). 
 95  Amendment  of  Section  73.658(  g)  of  the  Commissions  Rules    The  Dual  Network  Rule,  16  FCC  Rcd  11114 
 (2001). 
 96  See  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17 
 FCC  Rcd  26901,  26975  (2002)  (  2002  Video  Competition  Report). 
 97  For  example,  the  cable  industry  received  $15.5  billion  in  advertising  revenues  and  $35.5  billion  in  subscriber 
 payments  for  video  programming  in  2001.  By  contrast,  the  broadcast  television  industry  received  $38.9  billion  in  advertising  revenue.  (Universal  McCann,  U.  S.  Advertising  Vol.  (March  2003))  Kagan  World  Media,  Broadband 


 Cable  Financial  Databook  2002  (2002)  at  10-  11. 
 98  A  public  good  is  a  good  whose  consumption  does  not  preclude  consumption  of  the  same  good  by  other 
 consumers.  Andrew  Mas-  Colell,  Michel  D.  Whinston,  and  Jerry  R.  Green,  MICROECONOMIC  THEORY  (Oxford  Univ.  Press  1995)  at  359-  64. 
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 television  stations  have  thus  far  been  unable  to  capture  and  profit  from  viewers  relative  intensity  of  preference  for  certain  programming.  That  is,  the  advertising-  based  business  model  for  broadcast  stations 
 does  not  differentiate  between  programming  that  viewers  value  highly  and  programming  that  is  viewed,  but  valued  less.  99  As  long  as  viewers  are  watching  a  broadcast  show,  they  are  sold  to  advertisers  at  a 
 particular  rate  irrespective  of  the  intensity  of  their  preference  for  that  show. 
 63.  The  business  model  of  cable  television  and  DBS,  by  contrast,  permits  non-  broadcast  channels  to  extract  direct  payments  from  viewers  based  partly  on  viewers  strength  of  preference  for 


 different  programming.  MVPDs  accomplish  this  by  tiering  groups  of  specialized  video  channels  and  by  selling  certain  other  highly  valued  channels  on  a  channel-  by-  channel  basis.  The  vast  majority  of  MVPD 
 viewers  purchase  the  basic  tier  of  MVPD  service  that  includes  both  general  interest  channels  and  special  interest  channels.  MVPDs  also  offer  highly  desired,  niche-  oriented,  channels  as  part  of  separate 
 tiers  and  certain  others  as  stand-  alone  premium  channels.  Viewers  that  highly  value  either  purchase  them  as  part  of  a  tier  of  channels  or  on  a  stand-  alone  basis.  This  ability  of  non-  broadcast  channels  to  charge 
 viewers  for  their  programming,  along  with  selling  advertising  on  that  programming,  allows  certain  non-broadcast  channels  to  segment  the  viewing  market  through  tiered  or  premium  offerings,  thereby  capturing 
 and  profiting  from  viewers  intensity  of  preference  in  a  way  that  broadcast  stations,  through  an  advertising-  based  business  model,  cannot. 


 64.  We  agree  with  broadcasters  who  contend  that  the  MVPD  business  model,  with  two  revenue  streams,  has  become  a  competitive  dynamic  for  which  our  competitive  analysis  should 
 account.  100  Therefore,  in  analyzing  markets  comprised  of  both  free  over-  the-  air  broadcasters  as  well  as  subscription  delivery  systems,  we  will  look  to  audience  share  as  one  metric  for  assessing  the  state  of 
 competition,  which  we  find  to  be  a  more  accurate  gauge  of  competition  in  these  circumstances.  We  will  not  discard  advertising  market  analysis  where  appropriate,  but  we  limit  its  reliance  to  discrete  markets 
 where  we  believe  the  foregoing  analysis  is  inapplicable.  This  includes  our  analysis  of  the  dual  network  rule  and  the  national  television  ownership  cap  and  in  determining  whether  different  media  platforms 
 should  be  regarded  as  economic  substitutes.  For  those  purposes,  we  will  continue  to  look  to  advertising  market  shares  as  one  consideration,  where  that  is  an  appropriate  gauge  of  competition,  in  determining 
 whether  opportunities  for  media  properties  to  earn  revenue  may  be  put  at  risk  absent  some  structural  regulation. 


 65.  To  the  extent  we  rely  on  other  competitive  metrics,  we  note  that  the  antitrust  authorities  generally  focus  their  inquiry  on  price  competition,  and  their  primary  concern  is  in  ensuring  economic 
 efficiency  through  the  operation  of  a  competitive  market  structure.  Although  related,  the  Commissions  public  interest  inquiry  has  a  different  focus.  As  our  predecessor,  the  Federal  Radio  Commission  put  it, 
 [  t]  he  emphasis  must  be  first  and  foremost  on  the  interest,  the  convenience,  and  the  necessity  of  the  .  .  .  public,  and  not  on  the  interest,  convenience,  or  necessity  of  the  individual  broadcaster,  or  the 
 advertiser.  101  Thus,  in  evaluating  our  interest  in  preserving  competitive  broadcast  markets,  we  will 
 99  For  a  discussion  of  the  effects  of  the  public  good  nature  of  broadcast  television  and  the  issues  faced  by 
 broadcasters  and  regulators,  see  Thomas  G.  Krattenmaker  and  Lucas  A.  Powe,  Jr.,  REGULATING  BCAST  PROGRAMMING  (MIT  Press  and  AEI  Press,  1995)  at  40-  43. 


 100  Victor  B.  Miller,  Christopher  H.  Ensley,  Tracy  B.  Young,  Television  Industry  Summit  2002:  Leveling  the 
 Playing  Field,  The  Case  for  Deregulation,  Bear  Stearns  (Jan.  2003)  at  51-  64,  168-  69,  184. 
 101  Fed.  Radio  Commn,  Second  Ann.  Rpt.  169-  70  (1928)  (quoted  in  Pottsville  Broadcasting,  309  U.  S.  at  138 
 n.  2). 
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 consider  the  ultimate  effect  that  a  diminution  in  competition  would  have  on  the  consuming  public. 
 66.  There  is  no  serious  dispute  that,  if  consumers  uniformly  paid  a  subscription  fee  to  all  television  and  radio  stations  to  access  programming,  we  would  have  an  interest  in  ensuring  competition  in 


 broadcasting.  102  One  reason  for  our  interest  is  that  competition  works  to  constrain  prices  to  efficient  levels,  making  access  to  programming  services  more  affordable  and  therefore  more  available  to  a  greater 
 number  of  Americans.  103  Here,  of  course,  radio  and  television  programming  is  a  public  good,  supported  by  advertising  revenues  and  available  without  charge  to  everyone  with  the  proper  equipment.  But  it  does 
 not  follow  from  the  public  good  nature  of  broadcast  television  and  radio  that  our  competition  concerns  are  any  less  important  in  this  area. 


 67.  Although  lower  prices  are  an  important  benefit  of  competitive  markets,  we  have  repeatedly  emphasized  that  competition  also  is  the  wellspring  of  greater  innovation  and  improvements  in 
 the  quality  of  service.  104  Thus,  although  the  public  does  not  pay  a  subscription  fee  to  receive  over-  the-  air  broadcast  signals,  we  continue  to  have  a  public  interest  responsibility,  distinct  from  our  diversity  and 
 localism  goals,  to  ensure  that  broadcasting  markets  remain  competitive  so  that  all  the  benefits  of  competition    including  more  innovation  and  improved  service    are  made  available  to  the  public. 


 68.  Therefore,  we  conclude  that  our  duty  as  an  agency  runs  to  consumers,  not  advertisers.  In  many  cases,  competitive  market  structures  specifically  designed  to  protect  consumers  also  will  protect 
 advertisers,  and  vice  versa.  Nonetheless,  in  setting  our  local  television  and  local  radio  ownership  caps,  we  will  rely,  where  possible,  on  measures  other  than  shares  of  advertising  markets  in  order  to  reflect  the 
 decreasing  relevance  of  advertising  market  shares  as  a  barometer  of  competition. 
 69.  Innovation.  In  the  Notice  we  sought  comment  on  whether  innovation  should  be  an  objective  of  our  broadcast  ownership  policies.  105  The  Information  Policy  Institute  (IPI)  contends  that  we 


 should  consider  the  effects  of  different  market  structures  on  innovation  incentives.  106  IPI  states  that  innovation  theory  premised  on  the  need  for  scale  does  not  automatically  justify  relaxed  broadcast 
 ownership  limits  because  large  firms  are  most  likely  to  innovate  only  if  they  face  sufficient  competitive  pressure.  With  respect  to  media  markets  generally,  IPI  argues  that  relaxed  ownership  regulations  are 
 unlikely  to  increase  innovation  in  media  markets  because,  according  to  IPI,  the  affected  industries  are  mature.  107  NAB/  NASA  also  implies  that  innovation  is  a  relevant  policy  objective  in  its  arguments  that  the 
 existing  national  television  cap  preserves  independently-  owned  groups  of  affiliates  that  a  proven  record  of  programming  and  technological  innovation.  108 


 102  See,  e.  g.,  Application  of  EchoStar  Communications  Corp.,  General  Motors  Corp.,  and  Hughes  Electronics 
 Corp.  (Hearing  Designation  Order),  17  FCC  Rcd  20559,  20603  (2002)  (  EchoStar/  DirecTV  HDO). 
 103  See,  e.  g.,  id.  at  20603    97.  See  also  47  U.  S.  C.    151. 


 104  See,  e.  g.,  id.  at  20559    176. 
 105  Notice,  17  FCC  Rcd  at  18525-  26    68. 
 106  IPI  Comments  at  50. 
 107  Id.  at  52. 
 108  NAB/  NASA  Reply  Comments  at  23-  27. 
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 70.  We  agree  with  IPI  and  NAB/  NASA  that  innovation  should  be  a  policy  objective  of  our  broadcast  ownership  regulations.  Consumers  benefit  from  competitive  markets  in  multiple  ways, 
 including  lower  prices,  greater  choice  of  sellers,  and  innovative  products  and  services.  Where  a  market  such  as  broadcasting  is  characterized  by  a  significant  degree  of  non-  price  competition,  it  may  be 
 particularly  important  for  us  to  focus  on  how  our  ownership  rules  affect  innovation  incentives.  Innovation  may  be  less  measurable  in  the  short  term  than  other  attributes  of  media  market,  such  as  price, 
 total  output,  and  number  of  firms  in  the  market,  but  over  longer  periods  of  time,  may  represent  a  critical  driver  of  consumer  welfare. 


 71.  The  transition  from  analog  to  digital  services  by  broadcasters  represents  a  potentially  significant  enhancement  to  consumer  welfare.  Digital  transmission  of  video  and  audio  programming  by 
 television  and  radio  stations  may  facilitate  new  services  for  consumers  by  permitting  more  efficient  bandwidth  utilization.  With  respect  to  local  televisions  stations,  this  additional  bandwidth  could  be  used 
 to  transmit  high-  definition  programming;  to  transmit  one  or  more  additional  program  streams;  or  to  deliver  entirely  new  services.  109  NAB/  NASA  has  argued  that  local  television  ownership  structures  are 
 very  likely  to  affect  stations  ability  to  proceed  with  the  ongoing  digital  transition.  NAB  contends  that  the  fixed  costs  associated  with  digital  television  equipment  upgrades  fall  disproportionately  on  stations  in 
 smaller  markets  and  that  station  combinations  will  speed  the  transition.  110  In  addition,  the  introduction  of  digital  transmission  by  radio  stations  may  permit  greater  competition  and  innovation  in  radio  markets  by 
 facilitating  improved  signal  quality  and  by  permitting  stations  to  deliver  data  along  with  audio  to  users  receivers. 


 72.  In  sum,  we  conclude  that  the  Commission  should  seek  to  promote  innovation  through  its  broadcast  ownership  limits.  Consumer  welfare  is  likely  to  be  enhanced  when,  all  else  being  equal,  the 
 Commission  permits  broadcast  market  structures  that  encourage  innovation.  We  agree  with  IPI,  however,  that  multiple  factors  influence  the  pace  of  innovation,  only  one  of  which  is  market  structure.  111  We  will 
 therefore  make  ownership  decisions  that  promote  innovation  in  media  markets  based  principally  on  evidence  that  particular  market  structures  or  firm  characteristics  tend  to  encourage  innovation. 


 C.  Localism 
 73.  In  the  Notice,  we  sought  comment  on  the  extent  to  which  localism  should  continue  to  be  a  policy  goal  in  our  regulation  of  broadcast  ownership.  We  agree  with  NAB/  NASA  that  localism  continues 


 to  be  an  important  policy  objective.  Localism  is  rooted  in  Congressional  directives  to  this  Commission  and  has  been  affirmed  as  a  valid  regulatory  objective  many  times  by  the  courts.  We  hereby  reaffirm  our 
 commitment  to  promoting  localism  in  the  broadcast  media. 
 74.  Federal  regulation  of  broadcasting  has  historically  placed  significant  emphasis  on  ensuring  that  local  television  and  radio  stations  are  responsive  to  the  needs  and  interests  of  their  local  communities. 


 In  the  Communications  Act  of  1934,  Congress  directed  the  Commission  to  make  such  distribution  of  licenses,  frequencies,  hours  of  operation,  and  power  among  the  several  States  and  communities  as  to 


 109  See,  e.  g.,  NAB/  NASA  Comments  at  26-  27  (23  companies  owning  television  stations  formed  iBlast  to  explore, 
 research,  and  develop  new  business  relationships  and  new  uses  for  the  digital  spectrum). 
 110  NAB  Comments  at  71-  72. 


 111  IPI  Comments  at  48  ([  T]  he  relationship  of  market  structure,  R&  D  spending,  and  technological  progress  .  .  . 
 involves  a  myriad  of  ill-  understood  and  understudied  complex  interactions.). 
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 provide  a  fair,  efficient,  and  equitable  distribution  of  radio  service  to  each  of  the  same.  112  In  the  earliest  government  regulation  of  radio,  the  Commission  embraced  localism.  In  the  Federal  Radio  Commissions 
 1927  Report  to  Congress,  it  wrote:  The  Commission  found  it  possible  to  reassign  the  allocated  stations  to  frequencies  which  would  serve  as  many  communities  as  possible  to  ensure  those  communities  had  at  least 
 one  station  that  would  serve  as  a  basis  for  the  development  of  good  broadcasting  to  all  sections  of  the  country.  New  York  and  Chicago  stations  were  not  allowed  to  dominate  the  situation.  113 


 75.  When  the  Commission  created  the  Table  of  Allotments  in  1952  pursuant  to  the  Communications  Act,  localism  was  the  organizing  principle  of  the  plan.  In  announcing  the  allotments, 
 the  Commission  explained  that  dispersed  allotments  protect[]  the  interests  of  the  public  residing  in  smaller  cities  and  rural  areas  more  adequately  than  any  other  system.  114  In  the  legislative  history  of  the 
 1996  Act,  Congress  strongly  reaffirmed  the  importance  of  localism:  Localism  is  an  expensive  value.  We  believe  it  is  a  vitally  important  value,  however  [and]  should  be  preserved  and  enhanced  as  we  reform 
 our  laws  for  the  next  century.  115 
 76.  The  courts  too  have  long  viewed  localism  as  an  important  public  interest  objective  of  broadcast  regulation.  In  NBC  v.  United  States,  the  Supreme  Court  wrote:  Local  program  service  is  a 


 vital  part  of  community  life.  A  station  should  be  ready,  able,  and  willing  to  serve  the  needs  of  the  local  community.  116  Last  year  the  D.  C.  Circuit  affirmed  the  legitimacy  of  Commission  regulation  to  preserve 
 localism,  stating:  [  T]  he  public  interest  has  historically  embraced  diversity  (as  well  as  localism)  .  .  .  and  nothing  in    202(  h)  signals  a  departure  from  that  historic  scope.  117 


 77.  Measurement  of  localism.  We  remain  firmly  committed  to  the  policy  of  promoting  localism  among  broadcast  outlets.  Today  we  seek  to  promote  localism  to  the  greatest  extent  possible 
 through  market  structures  that  take  advantage  of  media  companies  incentives  to  serve  local  communities.  In  addition,  we  seek  to  identify  characteristics  of  those  broadcasters  that  have  demonstrated  effective 
 service  to  individual  local  communities  and  to  encourage  their  entry  into  markets  currently  prohibited  by  our  existing  rules. 


 78.  To  measure  localism  in  broadcasting  markets,  we  will  rely  on  two  measures:  the  selection  of  programming  responsive  to  local  needs  and  interests,  and  local  news  quantity  and  quality.  The 
 Commission  decided  long  ago  that  local  station  licensees  have  a  responsibility  to  air  programming  that  is  suited  to  the  tastes  and  needs  of  their  community  and  that  the  station  licensee,  not  a  network  or  any  other 
 party,  must  decide  what  programming  will  best  serve  those  needs.  118  Program  selection,  then,  is  a  means 
 112  47  U.  S.  C.    307(  b). 


 113  SECOND  ANNUAL  REPORT  OF  THE  FEDERAL  RADIO  COMMISSION  TO  THE  CONGRESS  OF  THE  UNITED  STATES  FOR 
 THE  YEAR  ENDED  JUNE  30  (1928)  at  8-  9. 
 114  Sixth  Report  and  Order,  17  Fed.  Reg.  3905  (1952). 


 115  H.  Rep.  No.  104-  104  (1996)  at  221. 
 116  NBC  v.  United  States,  319  U.  S.  190,  203  (1943). 
 117  Fox  Television,  280  F.  3d  at  1042. 
 118  See  Deregulation  of  Radio,  84  F.  C.  C.  2d  968,  981  (citing  En  Banc  Programming  Inquiry  Statement,  44  F.  C.  C. 
 2303,  2314  (1960)). 
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 by  which  local  stations  respond  to  local  community  interests,  and  we  will  use  it  as  one  measure  of  localism. 
 79.  A  second  measure  of  localism  is  the  quantity  and  quality  of  local  news  and  public  affairs  programming.  Commenters  have  argued  that  news  and  public  affairs  goes  to  the  core  of  the  Commissions 
 policy  objectives.  119  We  agree  that  the  airing  of  local  news  and  public  affairs  programming  by  local  television  stations  can  serve  as  a  useful  measure  of  a  stations  effectiveness  in  serving  the  needs  of  its 
 community.  Our  decision  to  consider  local  news  attributes  in  our  decisions  is  consistent  with  our  1984  evaluation  of  the  national  television  cap.  In  that  decision  we  analyzed  record  evidence  regarding  the 
 amount  and  quality  of  local  news  produced  by  owners  of  different-  sized  television  station  groups.  120  As  discussed  below,  this  measure  of  service  to  local  markets  is  relevant  to  our  consideration  of  both  the 
 national  television  cap  and  our  local  broadcast  rules. 
 D.  Regulatory  Certainty 
 80.  After  defining  our  policy  goals  of  diversity,  competition  and  localism,  we  must  determine  the  particular  regulatory  framework  that  would  best  achieve  these  goals.  In  the  Notice  and  in 


 the  Local  Radio  Ownership  NPRM  we  sought  comment  on  whether  to  adopt  a  pure  case-  by-  case  analysis  or  bright  line  rules.  121  Based  on  the  record  and  our  own  experience  administering  structural  ownership 
 rules,  we  conclude  that  the  adoption  of  bright  line  rules,  on  balance,  continues  to  play  a  valuable  role  in  implementing  the  Commissions  goals.  We  have  also  decided  to  retain  our  existing  framework  of  targeted, 
 outlet-  specific,  multiple  ownership  rules,  that  cover  the  various  media  and  perceived  areas  of  potential  competition  and  diversity  concerns  rather  than  adopting  a  single  rule  to  cover  all  media.  122 


 81.  The  Commission  is  required  to  examine  any  proposed  transfer  of  a  broadcast  license  and  must  affirmatively  find  that  the  transfer  is  in  the  public  interest.  In  the  context  of  broadcast  transactions, 
 the  Commissions  analysis  is  simplified  by  the  extensive  body  of  structural  rules  we  adopt  herein.  Thus,  the  extensive  rulemaking  proceeding  used  to  develop  these  broadcast  ownership  rules  takes  full  account  of 
 the  Commissions  public  policy  goals  of  diversity,  competition,  and  localism.  These  rules  squarely  embody  the  Commissions  public  interest  goals  of  limiting  the  effect  of  market  power  and  promoting 
 localism  and  viewpoint  diversity. 
 82.  As  we  stated  in  the  Notice,  bright  line  rules  and  case-  by-  case  analysis  both  offer  different  advantages  and  disadvantages  associated  with  predictability  of  outcome,  administrative  costs,  flexibility  in 


 119  CFA  Comments  at  29  (  The  primary  purpose  of  ownership  rules  should  be  to  ensure  a  diverse,  antagonistic 
 marketplace  for  news  and  information    not  entertainment.). 
 120  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  37-  38. 


 121  Notice,  17  FCC  Rcd  at  18538-  39    106-  111;  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19886-  87    57- 
 60. 
 122  In  the  Notice,  we  asked  whether  we  should  adopt  a  single  rule,  instead  of  outlet-  specific  rules,  in  order  to 
 assure  consistency.  We  also  asked  whether  such  a  rule  could  be  focused  on  promoting  viewpoint  diversity  and  whether  it  might  apply  to  cable  systems.  17  FCC  Rcd  at  18538-  39.  CWA  proposes  that  if  we  relax  our  local  TV 


 ownership  rules,  we  should  adopt  a  single,  unified  rule  to  cover  all  local  media  markets.  CWA  Comments  at  46-  48.  Our  new  Cross  Media  Limits  are  targeted  to  viewpoint  diversity,  but,  as  discussed  below,  it  does  not 
 encompass  cable  systems. 
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 administering  our  rules,  and  application  processing  time.  Many  parties  favor  bright  line  rules  and  oppose  case-  by  case  analysis  because  bright  line  rules  provide  certainty  to  outcomes,  conserve  resources,  reduce 
 administrative  delays,  lower  transaction  costs,  increase  transparency  of  our  process,  and  ensure  consistency  in  decisions.  123  We  believe  that  these  factors  weigh  in  favor  of  the  bright  line  rule  approach.  Commenters 
 who  support  adopting  case-  by-  case  instead  of  structural  rules  in  the  context  of  the  local  television  ownership  rule  and  radio/  television  ownership  rule,  argue  that  blind  adherence  to  structural  limits  would 
 not  adequately  reflect  the  true  nature  of  a  market,  and  that  competition  in  local  markets  would  be  sufficiently  safeguarded  by  case-  by-  case  analysis.  124  As  discussed  below,  we  have  taken  into 
 consideration  the  nature  of  markets  and  our  responsibility  to  ensuring  a  competitive  marketplace  in  designing  the  structural  rules. 


 83.  Other  commenters  oppose  case-  by-  case  analysis,  particularly  in  the  context  of  radio  transactions.  These  commenters  argue  that  the  current  case-  by-  case  approach  adopted  in  the  interim  policy 
 has  brought  more  uncertainty,  administrative  delays,  greater  transaction  costs  to  the  application  process,  and  has  invited  abuse  by  competitors.  125  Moreover,  UCC  claims  that  the  current  approach  has  failed  to 
 protect  against  unreasonable  consolidation  in  the  radio  industry.  126  A  case-  by-  case  approach  also  makes  business  planning  difficult  on  the  industry  side  and  is  resource-  intensive  for  the  Commission,  raising 
 regulatory  costs.  We  agree  with  the  majority  of  commenters  that  favor  bright  line  rules.  The  bright  line  rules  we  establish  in  this  Order  will  protect  diversity,  competition,  and  localism  while  providing  greater 
 regulatory  certainty  for  the  affected  companies  than  would  a  case-  by-  case  review.  Any  benefit  to  precision  of  a  case-  by-  case  review  is  outweighed,  in  our  view,  by  the  harm  caused  by  a  lack  of  regulatory  certainty 
 to  the  affected  firms  and  to  the  capital  markets  that  fund  the  growth  and  innovation  in  the  media  industry.  Companies  seeking  to  enter  or  exit  the  media  market  or  seeking  to  grow  larger  or  smaller  will  all  benefit 
 from  clear  rules  in  making  business  plans  and  investment  decisions.  Clear  structural  rules  permit  planning  of  financial  transactions,  ease  application  processing,  and  minimize  regulatory  costs.  127 


 84.  We  recognize  that  bright  line  rules  preclude  a  certain  amount  of  flexibility.  A  case-  by-case  analysis  would  allow  the  Commission  to  reach  decisions  by  taking  into  account  particular 
 circumstances  of  every  case.  For  instance,  bright  line  rules  may  be  over-  inclusive,  by  preventing  transactions  that  would  result  in  increased  efficiencies,  or  under-  inclusive,  by  allowing  transactions  that 
 would  raise  concerns,  if  the  circumstances  of  the  case  were  reviewed.  However,  our  experience  with  the 


 123  NAB  Comments  at  48-  49;  Bonneville  Comments  at  8;  NAB  Comments  in  MM  Docket  No.  01-  317  at  47,  48- 
 49;  Eure  Comments  in  MM  Docket  No.  01-  317  at  5;  HBC  Comments  in  MM  Docket  No.  01-  317  at  13;  MMTC  Comments  in  MM  Docket  No.  01-  317  at  49. 


 124  Buckley  Comments  at  1,  5;  Paxson  Comments  at  29-  30,  Pappas  Comments  at  14-  15. 
 125  NAB  Comments  in  MM  Docket  No.  01-  317  at  47;  NABC  Comments  in  MM  Docket  No.  01-  317  at  17;  UCC 
 Comments  in  MM  Docket  No.  01-  317  at  24;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  25,  n.  81;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  23;  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at  7; 


 Mapleton  Comments  in  MM  Docket  No.  01-  317  at  7;  MBC  Comments  in  MM  Docket  No.  01-  317  at  10. 
 126  UCC  Comments  in  MM  Docket  No.  01-  317  at  20. 


 127  Cf.  Review  of  the  Commissions  Regulations  Governing  Attribution  of  Broadcast  and  Cable/  MDS  Interests; 
 Review  of  the  Commissions  Regulations  and  Policies  Affecting  Investment  in  the  Broadcast  Industry;  Reexamination  of  the  Commissions  Cross-  Interest  Policy,  14  FCC  Rcd  12559,  12581-  82    43-  44  (1999)  (  1999 


 Attribution  Report  and  Order)  on.  recon.,  16  FCC  Rcd  1097  (2001). 
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 current  case-  by-  case  analysis  used  for  radio  transactions  leads  us  to  believe  that  this  approach  in  the  area  of  media  ownership  is  fraught  with  administrative  problems.  Currently,  any  radio  transaction  that 
 proposes  a  radio  station  combination  that  would  provide  one  station  group  with  a  50%  share  of  the  advertising  revenue  in  the  local  radio  market,  or  the  two  station  groups  with  a  70%  advertising  revenue, 
 undergoes  additional  public  interest  analysis.  For  each  of  these  transactions,  the  staff  conducts  an  individual  competitive  analysis  and  may  request  additional  information  from  the  parties  if  it  is  necessary  in 
 order  to  reach  a  decision  on  a  particular  transaction.  The  administrative  time  and  resources  required  for  such  an  undertaking  are  considerable.  Moreover,  such  an  approach  hinders  business  planning  and  industry 
 investment  for  all  radio  firms  falling  within  the  ambit  of  our  case-  by-  case  review.  We  are  not  persuaded  that  this  approach  is  necessary  in  order  to  administer  our  ownership  rules  effectively.  Indeed,  we 
 eliminated  the  cross-  interest  policy  in  1999,  having  held  that  the  regulatory  costs  and  chilling  effects  of  that  case-  by-  case  approach  to  broadcast  transactions,  overlaid  on  top  of  our  structural  rules,  and  the 
 benefits  of  applying  a  clear  and  discernable  standard  outweighed  any  risks  of  potential  abuses  in  eliminating  the  policy.  128 


 85.  The  bright  line  rules  adopted  today  have  been  developed  based  upon  our  review  of  the  media  marketplace  and  our  assessment  of  what  ownership  limits  are  necessary  in  order  to  promote  our 
 goals  in  applying  ownership  rules.  We  are  confident  that  the  modified  rules  will  reduce  the  chances  of  precluding  transactions  that  are  in  the  public  interest  or,  alternatively,  permitting  transactions  that  are  not 
 in  the  public  interest.  129  In  addition,  we  have  discretion  to  review  particular  cases,  and  we  are  obligated  to  give  a  hard  look  both  to  waiver  requests,  130  where  a  bright  line  ownership  limit  would  proscribe  a 
 particular  transaction,  as  well  as  petitions  to  deny.  131 


 128  Id.  at  12609-  12611    112-  16. 
 129  Our  decision  is  not  inconsistent  with  our  decision  to  modify  the  CMRS  Spectrum  Cap  rule.  See  2000  Biennial 
 Regulatory  Review  Spectrum  Aggregation  Limits  for  Commercial  Mobile  Radio  Services,  16  FCC  Rcd  22668  (2001).  There,  the  Commission  moved  from  prophylactic  spectrum  limits  to  a  case-  by-  case  approach,  finding  that 


 in  light  of  the  growth  of  both  competition  and  consumer  demand  in  the  CMRS  market,  spectrum  caps  were  no  longer  necessary.  Id.  at  22693.  There,  we  determined  that  structural  rules  were  no  longer  necessary  because  of 
 the  competitive  nature  of  the  marketplace,  and  that  the  current  spectrum  caps  were  interfering  with  the  marketplaces  creation  of  incentives  regarding  choice  of  technology.  Our  basis  for  choosing  to  move  to  a  case-  by-case 
 analysis  in  that  context  simply  does  not  apply  in  the  context  of  broadcast  rules. 
 130  WAIT  Radio  v.  FCC,  418  F.  2d  1153,  1159  (D.  C.  Cir.  1969)  (setting  out  criteria  for  waivers  of  Commission 
 rules);  see  also  47  C.  F.  R.    1.3. 
 131  See  47  U.  S.  C.  309(  d).  A  petition  must  contain  specific  allegations  of  fact  sufficient  to  show  that  (1)  the 
 petitioner  is  a  party  in  interest,  (2)  a  grant  of  the  application  would  be  prima  facie  inconsistent  with  the  public  interest,  and  (3)  a  substantial  and  material  question  is  presented  to  be  determined  by  the  Commission.  Sanders 


 Bros,  309  U.  S.  at  477;  Maumee  Valley  Broadcasting,  Inc.,  12  FCC  Rcd  3487,  3488-  89  (1997),  as  modified  by,  CHET-  5  Broadcasting,  L.  P.,  14  FCC  Rcd  13041  (1999);  Citizens  for  Jazz  on  WRVR,  Inc.  v.  FCC,  775  F.  2d  392, 
 394-  95  (D.  C.  Cir.  1985);  Mobile  Communications  Corp.  of  America  v.  FCC,  77  F.  3d  1399,  1409-  10  (D.  C.  Cir.  1996). 
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 IV.  MODERN  MEDIA  MARKETPLACE 
 A.  Introduction    The  Evolution  of  Media 
 86.  Todays  media  marketplace  is  characterized  by  abundance.  The  public  is  better  informed,  better  connected,  and  better  entertained  than  they  were  just  a  decade  ago.  Traditional  modes  of  media  (e.  g., 


 newspapers,  television,  radio)  have  greatly  evolved  since  the  Commission  first  adopted  media  ownership  rules  in  1941,  132  and  new  modes  of  media  have  transformed  the  landscape,  providing  more  choice,  greater 
 flexibility,  and  more  control  than  at  any  other  time  in  history.  Today  we  can  access  news,  information,  and  entertainment  in  many  enhanced  and  non-  traditional  ways  via:  cable  and  satellite  television,  digital 
 transmission,  personal  and  portable  recording  and  playback  devices,  handheld  wireless  devices,  and  perhaps  the  most  extraordinary  communications  development,  the  Internet.  In  short,  the  number  of  outlets 
 for  national  and  local  news,  information,  and  entertainment  is  large  and  growing.  133 
 87.  Such  abundance  in  the  media  was  not  always  available,  however.  The  modern  media  marketplace  is  dramatically  different  from  the  media  world  of  sixty  years  ago.  134  In  fact,  the  modern  media 


 marketplace  is  far  different  than  just  a  decade  ago.  Ten  years  ago  the  world  wide  web  was  still  nascent  and  was  used  primarily  by  technology  enthusiasts.  Digital  was  a  term  largely  used  to  describe  the  abstract 
 world  of  zeros  and  ones;  DVD  players  had  not  yet  hit  the  commercial  market;  and  satellite  television  was  available  only  via  analog  C-  Band  dishes  that  were  almost  eight  feet  in  diameter.  Cable  television  was  also 
 an  analog  transmission,  resulting  in  87%  of  cable  systems  offering  fewer  than  53  channels.  135  Video  programming  was  available  24-  hours  a  day,  seven  days  a  week,  but  there  were  far  fewer  choices  for  news 
 and  entertainment  than  there  are  today.  136 
 88.  This  digital  migration  is  having  an  effect  on  todays  youth  in  a  way  that  television  had  on  the  baby  boom  generation  of  the  early  fifties,  and  radio  had  on  the  youth  of  the  Depression.  Todays 


 high  school  seniors  are  the  first  generation  of  Americans  to  have  grown  up  with  this  extraordinary  level  of  abundance  in  todays  media  marketplace.  At  home  and  at  school,  the  majority  of  teens  have  access  to 
 cable  television  and  high  speed  Internet  access.  137  At  home,  many  teens  have  access  to  as  many  as  100  to 
 132  In  1941,  based  on  the  findings  of  the  Chain  Broadcasting  Report,  the  Commission  promulgated  the  first  of  its 
 broadcast  ownership  rules  restricting  the  development  and  commercial  business  practices  of  the  broadcast  radio  networks.  The  Chain  Broadcasting  Report  found  that  the  radio  networks  had  behaved  in  a  manner  that  was 


 contrary  to  the  competition  and  diversity  goals  defined  by  the  Federal  Radio  Commission.  Report  on  Chain  Broadcasting,  Commission  Order  No.  37,  Docket  No.  5060  (May  1941). 


 133  See  e.  g.,  NAB  Comments  at  10;  see  Appendix  B. 
 134  Fox  Comments  at  i. 
 135  Implementation  of  Section  19  of  the  1992  Cable  Act  (Annual  Assessment  of  the  Status  of  Competition  in  the 
 Market  for  the  Delivery  of  Video  Programming),  9  FCC  Rcd  7442,  7567  (1994)  (  1994  Video  Competition  Report)  (23%  of  cable  systems  offered  fewer  than  30  channels  of  programming). 


 136  Today,  there  are  more  than  308  non-  broadcast  networks  available  for  carriage  by  cable  systems,  whereas  in 
 1993,  there  were  only  106  non-  broadcast  programming  services  available  for  carriage.  See  2002  Video  Competition  Report,  17  FCC  Rcd  at  26907;  1994  Video  Competition  Report,  9  FCC  Rcd  at  7522,  7589-  92. 


 137  Approximately  81,000  public  and  private  schools  are  served  by  cable  in  the  classroom,  reaching  78%  of  K-  12 
 students.  In  2001,  approximately  99%  of  public  schools  had  Internet  access,  and  about  85%  of  public  schools  had  high-  speed  Internet  access.  Cable  in  the  Classroom,  Overview,  at  http://  www.  ciconline.  com/  PressRoom/  PressKit/ 


 (continued.) 
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 200  channels  of  video  programming.  138  The  current  generation  of  teens  has  always  lived  with  24-  hour  national  and  regional  news  networks,  local  television  stations,  and  cable  news  channels,  139  and  thus  have 
 come  to  expect  immediate  and  continuous  access  to  news,  information,  and  entertainment.  Their  world  has  never  been  different. 


 89.  Section  202(  h)  requires  the  Commission  to  consider  whether  any  of  its  broadcast  ownership  rules  are  necessary  in  the  public  interest  as  a  result  of  competition.  This  Order  confronts  that 
 challenge  by  determining  the  appropriate  regulatory  framework  for  broadcast  ownership  in  a  world  characterized  not  by  information  scarcity,  but  by  media  abundance.  This  section  tracks  the  history  of  the 
 modern  media  marketplace  to  illustrate  the  rapid  evolution  of  media  outlets  over  the  past  sixty  years. 
 B.  History  of  the  Modern  Media  Marketplace 
 1.  The  Age  of  Radio 
 90.  At  the  time  commercial  broadcast  radio  was  introduced  during  the  early  1920s,  newspapers  were  the  primary  source  of  news  and  information,  with  circulation  reaching  nearly  28  million 


 readers.  140  The  advent  of  commercial  broadcast  radio  offered  the  public  a  far  more  accessible  and  immediate  mode  of  receiving  information  and  entertainment  than  print.  It  also  gave  the  public  additional 
 choices  and  additional  viewpoints.  141  Initially,  the  entertainment  community  was  fearful  of  competition  from  this  new  medium,  but  they  soon  embraced  radio  for  the  new  opportunities  it  offered.  142 


 91.  On  November  2,  1920,  KDKA,  the  first  licensed  commercial  radio  station,  reported  the  results  of  the  Harding-  Cox  presidential  race.  143  This  broadcast  marked  a  significant  turning  point  in  the 
 (Continued  from  previous  page)  TheOrganization/  overview  (visited  May  5,  2003);  National  Center  for  Education  Statistics,  Internet  Access  in  U.  S. 
 Public  Schools  and  Classrooms:  1994-  2001,  at  http://  nces.  ed.  gov/  pubs2002/  internet/  3.  asp  (visited  May  5,  2003). 
 138  DBS  provides  as  many  as  200  channels  of  video  programming.  Many  cable  systems  also  currently  offer  a 
 digital  tier  of  service  which,  in  many  cases,  provides  subscribers  with  a  total  of  more  than  100  channels  of  video  programming.  OPP  Working  Paper  No.  37,  Broadcast  Television:  Survivor  in  a  Sea  of  Competition  by  Jonathan 


 Levy,  Marcelino  Ford-  Livene,  and  Anne  Levine  (Sept.  2002)  at  43,  48,  54  (  OPP  Working  Paper  No.  37). 
 139  CST  Comments  at  4. 


 140  Historical  Statistics  of  the  United  States:  Colonial  Times  to  1957,  A  Statistical  Abstract  Supplement,  US 
 Department  of  Commerce,  Bureau  of  the  Census  at  R  169-  72. 
 141  Alfred  D.  Chandler,  Jr.  and  James  W.  Cortada,  Eds.,  A  NATION  TRANSFORMED  BY  INFORMATION:  HOW 
 INFORMATION  HAS  SHAPED  THE  US  FROM  COLONIAL  TIMES  TO  THE  PRESENT  (Oxford  University  Press,  New  York, 
 NY,  2000)  at  149. 


 142  Vaudeville  theatre  owners  and  booking  agents  discouraged  their  acts  from  performing  over  radio,  fearing 
 competition  from  the  new  medium.  Similarly,  the  musical  community  feared  that  frequent  airplay  of  songs  would  render  the  songs  valueless  in  the  sales  market.  Phyllis  Stark,  A  History  of  Radio  Broadcasting,  BILLBOARD  (Nov. 


 1,  1994)  at  http://  www.  kcmetro.  cc.  mo.  us/  pennvalley/  biology/  lewis/  Crosby/  billboard.  htm  (visited  Jan.  27,  2003). 
 143  Reed  Bunzel,  BCASTING  (Dec.  9,  1991,  Supp.)  at  27;  People  and  Discoveries:  KDKA  Begins  to  Broadcast, 
 WGHB  Educational  Foundation,  at  http://  www.  pbs.  org/  wgbh/  aso/  databank/  entries/  dt20ra.  html  (visited  Jan.  28,  2003);  Elizabeth  McLeod,  Which  Was  the  First  U.  S.  Radio  Station?,  (July  8,  1998)  at 


 http://  members/  aol/  com/  jeff99500/  first.  html  (visited  Feb.  3,  2003).  Rich  Brown,  BCASTING  (Dec.  9,  1991,  Supp.)  (continued.) 
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 timely  dissemination  of  news;  people  with  radio  could  hear  the  results  of  the  election  before  they  could  read  about  it  in  the  newspapers. 
 92.  Although  the  initial  audience  for  commercial  radio  was  small,  there  continued  to  be  significant  advances  in  the  early  years.  144  On  August  5,  1921,  a  major  league  baseball  game  was 
 broadcast,  providing  the  first  sports  broadcast  for  a  mass  audience.  145  A  year  later,  Warren  G.  Harding  became  the  first  President  to  have  his  voice  broadcast  by  radio.  146  Also  that  year,  the  first  radio 
 advertisement  was  aired  in  New  York  City.  147  Originally,  radio  broadcasts  were  operated  by  those  wishing  to  promote  their  own  businesses  and  by  radio  manufacturers  as  a  means  to  promote  and  sell  radios 
 themselves.  As  relevant  content  grew,  so  did  acceptance  of  radio  by  the  public  and  by  advertisers,  eventually  leading  to  advertising-  financed  operations.  148  By  1926,  just  six  years  after  the  first  official 
 commercial  broadcasts,  there  were  528  stations  and  5.7  million  radio  sets,  generating  a  weekly  radio  audience  of  23  million  listeners.  149 


 93.  In  only  a  decade,  radio  became  important  in  the  daily  lives  of  Americans.  By  1931,  there  were  more  than  600  radio  stations  and  12  million  radio  sets.  150  Unlike  todays  targeted,  niche 
 programming,  however,  a  typical  radio  stations  programming  in  the  early  1930s  was  largely  variety  format,  including  a  small  amount  of  many  different  types  of  programming.  151  Notable  and  newsworthy 
 events  were,  of  course,  the  exception  to  the  variety  format.  In  1932,  for  example,  several  New  York  area  radio  stations  provided  continuous  coverage  of  the  Lindbergh  kidnapping,  the  first  such  reporting  of  its 
 time.  152  The  following  year,  President  Roosevelt  began  delivering  his  now  famous  Fireside  Chats.  The  first  of  Roosevelts  thirty  Fireside  Chats  occurred  on  Sunday,  March  12,  1933,  the  nadir  of  the  Great 
 Depression.  Those  who  listened  to  Roosevelts  broadcast  on  March  12th  heard  the  President  deliver  a 


 (Continued  from  previous  page)  at  6;  Jeff  Miller,  A  Chronology  of  AM  Radio  Broadcasting  Part  1:  1900-  1922  (Nov.  11,  2002)  at 
 http://  members/  aol/  com/  jeff560/  chrono1.  html  (visited  Jan.  31,  2003). 
 144  A  year  after  the  first  licensed  commercial  broadcast,  there  were  only  100,000  homes  with  radio,  representing 
 only  0.2%  of  the  population.  SCHRODERS  INTL  MEDIA  AND  ENT.  RPT  2000  (Schroders  &  Co.,  2000)  at  257  (  SCHRODERS  MEDIA  REPORT  2000). 


 145  Miller,  supra  note  143  (citing,  Joseph  Narhan  Kane,  Steven  Anzovin,  and  Janet  Podell,  FAMOUS  FIRST  FACTS 
 (HW  Wilson  Company,  1998);  Bunzel,  supra  note  143. 
 146  Miller,  supra,  (citing  Kane,  Anzovin,  and  Podell,  supra). 


 147  SCHRODERS  MEDIA  REPORT  2000,  supra  note  144  at  257. 
 148  Id. 
 149  Bunzel,  supra  note  143  at  27. 
 150  Brown,  supra  note  143  at  6. 
 151  Programming  was  made  up  of  about  63  percent  music,  21  percent  educational,  12  percent  literature,  three 
 percent  religion,  and  one  percent  novelties.  Stark,  supra  note  142. 
 152  Brown,  supra  note  143  at  10. 
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 reassuring  message  in  a  calm  voice,  an  impossible  conveyance  for  print  media.  153  Roosevelts  voice  brought  hope  to  many  Americans,  who  were  at  the  time  in  need  of  a  direct,  personal  message  from  their 
 president.  Radio  also  provided  Americans  with  levity  and  diversion  during  the  economic  hard  times  of  the  Depression.  Shows  like  Amos  and  Andy  (1928-  1960),  Rin-  Tin-  Tin  (1930-  1955)  and  Little  Orphan  Annie 
 (1931-  1942)  provided  accessible  entertainment  to  a  mass  audience.  154 
 94.  Much  the  same  way  Roosevelts  direct  messages  provided  instant  reassurance  during  the  Depression,  contemporaneous  broadcasts  and  on-  location  reporting  provided  Americans  with  a  new  sense 


 of  connectedness  and  authenticity.  Direct  reports  allowed  the  listening  public  to  hear  events  for  themselves  as  they  unfolded,  as  opposed  to  their  waiting  for  the  newspapers  to  provide  written,  second-hand 
 accounts.  The  on-  location  radio  broadcast  of  the  explosion  of  the  zeppelin  Hindenberg  in  1937,  was  the  first  coverage  of  its  kind.  155  Similarly,  Americans  were  notified  instantly  of  the  Japanese  attack  on 
 Pearl  Harbor  via  breaking  news  bulletins.  156  But  it  was  President  Roosevelts  address  to  the  nation,  broadcast  on  December  9,  1941,  the  day  after  war  was  declared,  that  attained  the  largest  single  audience  in 
 radio  history  to  date    an  estimated  90  million  listeners.  157  During  World  War  II,  radio  proved  a  vital  asset  in  the  dissemination  of  news  and  public-  service  messages,  and  it  boosted  the  morale  of  those  remaining  on 
 the  home-  front. 
 2.  The  Introduction  of  Television 
 95.  Although  General  Electric  (  GE)  began  regular  television  broadcasting  from  a  station  in  Schenectady,  New  York,  in  1928,  it  was  not  until  1941  that  the  first  commercial  television  station  was 


 introduced.  158  By  1945  there  were  still  fewer  than  7,000  television  sets  in  the  U.  S.  and  only  nine  stations  on  the  air:  three  in  New  York,  two  in  Chicago  and  Los  Angeles,  and  one  in  Philadelphia  and  Schenectady. 
 By  1947,  television  had  begun  to  gain  popular  momentum.  The  childrens  series  Howdy  Doody  premiered  that  year  as  a  one-  hour  Saturday  program.  Howdy  Doody  was  significant  because  of  its  focus  on 
 programming  for  children,  marking  the  first  generation  of  Americans  to  be  raised  with  television  programming.  159  Meet  the  Press,  the  first  network  television  news  series,  also  debuted  in  1947.  160  Meet 


 153  Robert  A.  Wilson  and  Stanley  Marcus,  American  Greats  (Public  Affairs  Press)  at 
 www.  kevinbaker.  info/  e_  ag_  fr  fc.  html  (visited  Jan.  24,  2003). 
 154  Louis  V.  Genco,  Old-  Time  Radio:  The  Golden  Years,  The  Original  Old  Time  Radio  WWW  Pages  (2003)  at 
 http://  www.  old-  time.  com/  golden_  age/  index.  html  (visited  Jan.  31,  2003). 
 155  A  Chicago  recording  team  on  a  routine  assignment  recorded  the  Hindenberg  explosion.  Because  of  the  event, 
 NBC  broke  its  rigid  programming  rules  and  put  it  on  the  air.  Brown,  supra  note  143  at  10. 
 156  James  F.  Widner,  The  Bombing  of  Pearl  Harbor  (2000)  at  http://  www/  otr.  com/  r-  a-  i-  new_  pearl.  html  (visited 
 Jan.  31,  2003). 
 157  Brown,  supra  note  143  at  11.  Between  1981  and  1998,  the  number  of  listeners  in  the  average  quarter-  hour  was 
 approximately  24,000  listeners,  compared  with  the  estimated  90  million  listeners  who  tuned  in  to  hear  Roosevelts  speech.  SCHRODERS  MEDIA  REPORT  2000,  supra  note  144  at  256. 


 158  Steven  E.  Schoenherr,  History  of  Television  (Dept.  of  History:  U.  of  San  Diego)  at 
 http://  history.  acusd.  edu/  gen/  recording/  television1.  html  (visited  Jan.  27,  2003). 
 159  Nielsen  Media  Research,  2000  RPT  ON  TV:  THE  FIRST  FIFTY  YEARS  (2000)  at  13  (  THE  FIRST  FIFTY  YEARS). 


 160  Id. 
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 the  Press  is  still  aired  today  and  remains  the  longest  running  series  of  any  kind  on  network  television.  161  In  addition  to  new  programming,  many  radio  stars,  like  George  Burns  and  Gracie  Allen,  began  to  move  their 
 acts  to  television  in  the  late  1940s.  With  World  War  II  over,  and  the  Depression  behind  them,  Americans  began  to  accept  television  as  a  cogent  means  of  receiving  information  and  entertainment. 


 96.  It  was  during  the  1950s,  that  television  first  became  integrated  into  the  daily  lives  of  Americans.  In  1951,  just  ten  years  after  televisions  introduction  to  the  public,  there  were  more  than  108 
 stations  on  the  air  and  more  than  15  million  households  with  television  sets.  162  Additional  validation  of  the  still-  new  technology  was  evidenced  by  the  mass  exodus  of  advertisers  from  radio  to  television.  163 
 Furthermore,  the  production  of  popular  programming  escalated  during  the  1950s.  In  1951,  CBS  broadcast  the  first  color  television  program,  and  I  Love  Lucy,  one  of  televisions  first  filmed  situation-  comedies, 
 debuted,  remaining  one  of  the  most  well-  known  entertainment  programs  in  television  history.  In  1952,  the  Today  Show  debuted.  164  It  was  the  first,  and  remains  the  longest  running  early-  morning  network  show  to 
 date. 
 3.  The  Multimedia  Landscape  I    1960s 
 97.  By  1960,  a  multi-  media  landscape  began  to  form,  though  media  at  that  time  was  still  dominated  by  broadcast  radio  and  television.  Forty  years  after  the  introduction  of  commercial  broadcast 


 radio,  and  19  years  after  the  introduction  of  commercial  broadcast  television,  there  were  4,086  radio  stations  and  573  television  stations.  165  Approximately  45  million  homes  had  a  television  in  1960,  and 
 about  six  million  of  those  had  more  than  one  television.  166  Relatively  few  markets  had  cable  systems  in  1960,  and  nationwide  there  were  only  about  750,000  cable  subscribers.  167  There  were  approximately 
 1,700  daily  newspapers  in  1960  with  a  total  circulation  of  about  58  million  readers.  168 


 161  Id. 
 162  Stations  on  the  Air  1946-  65,  TV  FACTBOOK  (1965  Ed)  (Warren  Publishing,  1965)  at  45-  a;  Statistical  Analysis, 
 1946-  64:  The  Television  Industry,  TV  FACTBOOK  NO.  35  (Warren  Publishing,  1965)  at  44-  a. 
 163  The  History  of  Film  &  Television  (High-  Tech  Productions)  at  http://  www.  high-  techproductions.  com/ 
 historyoftelevision.  htm  (visited  Jan.  27,  2003).  Variety  Magazine  describes  the  exodus  of  advertisers  from  Radio  to  television  as  the  greatest  exhibition  of  mass  hysteria  in  biz  annals.  Id. 


 164  THE  FIRST  FIFTY  YEARS,  supra  note  159  at  13. 
 165  BCASTING  &  CABLE  YEARBOOK  2000  (R.  R.  Bowker,  2000)  at  B-  250,  D-  718. 
 166  Statistical  Analysis,  TV  FACTBOOK  NO.  47  (1987  Ed.)  at  67-  a;  1946-  64:  The  Television  Industry,  supra  note 
 162  at  44-  a. 
 167  MOWG  Study  No.  1,  A  Comparison  of  Media  Outlets  and  Owners  for  Ten  Selected  Radio  Markets  by  Scott 
 Roberts,  Jane  Frenette,  and  Dione  Stearns  (Sept.  2002)  at  Table  2  (  MOWG  Study  No.  1);  Kagan  World  Media,  CABLE  TV  INVESTOR  (May  24,  2002)  at  8. 


 168  Historical  Statistics  of  the  United  States:  Colonial  Times  to  1957,  supra  note  140  at  R  169-  72. 
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 98.  As  the  chart  below  reflects,  the  number  of  outlets  per  market  169  in  1960  varied  largely  by  size  of  the  market.  The  smallest  markets  had  few  choices,  while  large  markets  had  comparatively  more 
 outlets  for  news,  information,  and  entertainment. 


 Selected  Media  Outlet  Counts  for  Ten  Radio  Markets    1960 
 Radio  Radio  Mkt  Radio  Total  TV  Total  Newspapers 
 Market  Rank  Station  s  owner  s  station  s  owner  s  daily  owner  s 


 New  York  NY  1  74  52  7  7  8  8  Kansas  City  MO  29  18  15  3  3  1  1 
 Birmingham  AL  57  22  19  4  3  2  1  Little  Rock  AR  85  12  12  3  3  2  2 
 Lancaster  PA  113  7  5  5  5  2  1  Burlington  VT/ 
 Plattsburgh  NY  141  10  9  2  2  2  2  Myrtle  Beach  SC  169  4  4  1  1  1  1 
 Terre  Haute  IN  197  9  7  1  1  2  1  Charlottesville 
 VA  225  7  4  0  0  1  1  Altoona  PA  253  6  5  3  3  1  1 


 Source:  MOWG  Study  No.  1,  selected  information  from  Tables  1,  2,  and  3. 
 99.  An  informal  analysis  of  the  news  and  public  interest  programming  available  to  the  public  over  television  in  1960,  170  revealed  that  in  selected  sample  markets,  local  news  programming  in  1960  was 
 limited  to  approximately  one  or  two  hours  per-  station,  per-  day  (or  a  total  of  three  to  five  hours  of  local  news  programming  produced  daily  by  all  television  stations  combined  in  a  given  market).  171  National 


 169  This  study  compared  the  availability  and  ownership  of  media  in  ten  different  radio  markets.  The  radio  market 
 represents  a  core  geographic  area  where  most  consumers  reside.  Virtually  all  media  is  available  from  the  perspective  of  these  residents.  MOWG  Study  No.  1,  Executive  Summary,  n.  1.  This  market  definition  is  not 


 necessarily  consistent  with  the  market  definition  in  our  rules. 
 170  In  this  analysis,  Commission  staff  examined  current  and  historic  TV  Guide  magazines  to  determine  the  amount 
 of  differing  types  of  programming  (local  news,  national  news  and  public  interest  programming)  provided  by  stations  in  markets  of  differing  sizes.  The  study  examined  the  amount  of  programming  available  in  a  sample  day 


 in  three  cities,  New  York,  Little  Rock,  and  Terre  Haute,  selected  from  the  larger  group  of  ten  cities  represented  in  MOWG  Study  No.  1.  The  three  cities  chosen  for  this  particular  informal  study  were  each  chosen  to  respectively 
 represent  small,  medium,  and  large  television  markets.  Programming  schedules  for  between  the  hours  of  6am  and  midnight  on  July  1  st  of  the  given  year  were  examined  for  each  city  to  determine  how  much  of  each  type  of 
 programming  was  available  to  consumers  in  the  selected  market.  (  Three  City  Study). 
 171  Id.  Since  consumers  can  only  watch  one  program  at  a  time,  the  figures  represented  in  this  summary  are  greater 
 than  the  actual  amount  of  programming  that  was  potentially  available  to  the  average  consumer. 
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 news  programming  in  1960  was  in  most  cases  limited  to  anywhere  from  five  minutes  per-  station,  per-  day,  to  one  hour  per-  station,  per-  day.  As  a  result,  in  most  markets,  there  was  less  than  one-  hour  of  national 
 news  programming  broadcast  daily  by  all  the  stations  combined  in  a  given  market.  172  Programming  characterized  as  public  interest  programming  173  on  average  was  aired  for  about  two  to  three  hours  per-station, 
 per-  day  (or  approximately  six  to  nine  hours  of  public  interest  programming  produced  per-  day  by  all  stations  combined  in  the  markets  we  reviewed).  174  Faced  with  this  set  of  facts,  FCC  Chairman  Newt 
 Minow  denounced  television  programming,  a  vast  wasteland,  and  urged  television  broadcasters  to  program  more  responsibly.  175  That  same  day,  however,  Senator  Hubert  Humphrey  called  television  the 
 greatest  single  achievement  in  communication  that  anybody  or  any  area  of  the  world  has  ever  known.  176  As  a  communication  medium,  television  held  great  potential,  but  whether  or  not  television  provided  a 
 valuable  service  to  the  American  people  was  still  a  point  of  contention. 
 4.  Television  Evolves 
 100.  Just  a  few  years  later,  few  could  argue  with  the  notion  that  television  had  become  a  vital  tool  for  the  timely  dissemination  of  news  and  information.  177  Between  1960  and  1963,  several  historical 


 events  were  broadcast  over  television,  changing  the  very  medium  itself  and  its  role  in  society.  On  September  26,  1960,  the  first  of  four  debates  between  presidential  candidates  Richard  M.  Nixon  and  John 
 F.  Kennedy  was  televised  to  an  audience  of  more  than  28  million  homes.  178  Prior  presidential  debates  had  only  been  broadcast  over  radio.  Historians  note  that  those  listening  to  the  debate  on  radio  thought  Nixon 
 had  won,  while  those  viewing  the  debate  on  television  thought  Kennedy  had  won.  179  The  use  of 
 172  Id. 
 173  Public  Interest  Programming  is  defined  for  these  purposes  as  programming  of  cultural,  civic,  childrens, 
 family,  public  affairs  and  educational  interest.  Id. 
 174  Id. 


 175  On  May  9,  1961,  FCC  Chairman  Newton  N.  Minow  said  before  a  meeting  of  television  executives:  I  invite 
 each  of  you  to  sit  down  in  front  of  your  own  television  set  when  your  station  goes  on  the  air  and  stay  there  for  the  day.  .  .  I  can  assure  you  that  what  you  will  observe  is  a  vast  wasteland.  Minow  went  on  to  say  that:  It  is  not 


 enough  to  cater  to  the  nation's  whims;  you  must  also  serve  the  nation's  needs.  Speeches,  The  History  Channel.  Com  at  http://  www.  historychannel.  com/  cgi-bin/ 
 frameit.  cgi?  p=  http%  3A//  www.  historychannel.  com/  speeches/  archive/  speech_  194.  html  (visited  Apr.  23,  2003). 
 176  Media  Literacy:  Timeline  of  Broadcast  Television,  University  of  California  at  Santa  Barbara  at 
 http://  www.  uweb.  ucsb.  edu/~  rena/  ttv.  html  (visited  Apr.  23,  2003).  In  an  article  run  in  THE  NEW  YORK  TIMES  MAGAZINE  in  1966  industry  analysts  contended  that  TV  is  not  an  art  form  or  a  cultural  channel;  it  is  an 


 advertising  medium  it  seems  a  bit  churlish  of  people  who  watch  television  to  complain  that  their  shows  are  lousy.  They  are  not  supposed  to  be  any  good.  They  are  supposed  to  make  money.  Id.  This  perspective  is  still 
 prevalent  today.  Bob  Thompson,  Lust-  See  TV,  THE  NEW  YORK  TIMES  MAGAZINE  (Jan.  26,  2003)  at  W13. 
 177  Today,  television  dominates  in  political  news  and  political  advertising,  provides  breaking  news,  and  conveys 
 the  immediacy  and  emotional  impact  of  its  visual  images.  AFL-  CIO  Comments  at  35. 
 178  THE  FIRST  FIFTY  YEARS,  supra  note  159  at  30. 


 179  John  F.  Kennedys  composed  disposition  and  visual  charm  contrasted  sharply  on  camera  with  a  seemingly 
 nervous  and  shifty-  eyed  Richard  Nixon.  Steve  McClellan  and  John  Eggerton,  Getting  the  Picture:  TV  Takes  The  Stage,  BCASTING  (Dec.  9,  1001)  at  33. 
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 television  by  political  candidates,  and  the  subsequent  need  for  them  to  adopt  a  television  persona,  thus  ushered  in  a  new  era  in  American  politics  and  a  new  era  for  television  as  an  important  medium  of 
 communications. 
 101.  In  1963,  television  provided  live  coverage  of  Martin  Luther  King  Jr.  s  I  Have  a  Dream  speech.  180  Dr.  Kings  speech  was  not  the  first  act  of  the  civil  rights  movement,  but  its  broadcast  on 


 national  television  provided  activists  nationwide  the  information  and  the  inspiration  on  which  to  mobilize  America  into  one  of  the  most  turbulent  and  progressive  eras  in  its  history.  Later  that  year,  television 
 unified  Americans  in  mourning  when  word  of  President  Kennedys  assassination  was  announced  in  a  breaking  news  bulletin  at  1:  40pm  EST,  November  22,  1963.  An  estimated  180  million  Americans 
 watched  their  television  sets  almost  continuously  for  four  days,  including  the  reporters  themselves,  who  in  many  cases  knew  no  more  than  the  viewers.  181  For  the  first  time,  the  nation  was  witnessing  the  same 
 tragic  event  in  unison.  Television  had  become  the  window  of  the  world.  182 
 5.  The  Introduction  of  Non-  Broadcast  Networks 
 102.  From  its  beginnings  in  1948,  through  the  late  1960s,  cable  television  extended  the  reach  of  broadcast  television  to  a  few  more  than  one  million  subscribers.  183  These  early  cable  systems 


 (originally  known  as  community  antenna  TV  systems)  were  born  out  of  the  need  to  carry  television  signals  into  areas  where  over-  the-  air  reception  was  either  non-  existent  or  of  poor  quality  because  of 
 interference.  In  some  cases,  cable  provided  limited  amounts  of  locally  distributed  non-  broadcast  programming,  but  it  wasnt  until  the  creation  of  nationally  distributed,  non-  broadcast  cable  programming 
 that  cable  became  a  competitive  medium  for  the  dissemination  of  news,  information,  and  entertainment.  Initially,  cable  operators  provided  non-  broadcast  programming  for  a  fee  in  order  to  boost  revenue.  Such 
 programming  was  called  premium  or  pay-  TV.  By  doing  so,  however,  they  increased  consumer  interest  in  cable  service,  thus  boosting  subscribership.  HBO  debuted  in  1972  as  a  regional  pay-  TV 
 network.  In  1975,  it  became  the  first  major  national  pay-  TV  network,  distributing  its  service  via  satellite  technology.  184  Satellite  distribution  gave  HBO  the  ability  to  reach  all  cable  subscribers  nationwide.  The 
 launch  of  HBO  over  satellite  was  closely  followed  by  the  launch  of  the  pay-  TV  network  Showtime  in  1976.  By  1977,  pay-  TV  households  surpassed  the  one  million  subscriber  mark,  and  total  cable 
 subscribership  reached  12.2  million  subscribers.  185 
 103.  Other  satellite-  distributed  networks  soon  followed  HBO  and  Showtime.  In  1976,  Turner  Broadcasting  Company  launched  the  first  basic  cable  network,  TBS  by  nationally  distributing  its 


 180  Chandler  and  Cortada,  supra  note  141  at  vi. 
 181  Americas  Long  Vigil,  TV  GUIDE  (Jan.  25,  1964)  at  http://  members.  aol.  com/  jeff570/  tvgjfk.  html  (visited  Jan. 
 27,  2003). 
 182  Ron  Cochran  of  ABC  news  is  reported  to  have  said:  Television  had  actually  become  the  window  of  the  world 
 so  many  had  hoped  it  might  be  one  day.  Id. 
 183  CABLE  TV  INVESTOR,  supra  note  167  at  8 


 184  Brown,  supra  note  143  at  19-  21;  Matt  Stump  and  Harry  Jessell,  Cable,  The  First  Forty  Years,  BROADCASTING 
 (Nov.  21,  1988)  at  42.  Earlier  attempts  at  pay-  TV  in  certain  cable  systems  in  the  late  fifties  were  short-  lived.  Id. 
 185  Brown,  supra;  see  also  CABLE  TV  INVESTOR,  supra  note  167  at  9. 
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 Atlanta-  based  broadcast  station.  Unlike  HBO,  TBS  did  not  derive  its  proceeds  from  subscription  fees,  but  rather  all  of  its  revenue  derived  from  the  sale  of  advertising.  186  Following  TBS,  numerous  other  basic 
 cable  networks  developed,  many  providing  non-  broadcast  niche  programming;  increased  competition  had  resulted  in  the  increased  segmentation  of  the  available  audience.  187  Unlike  the  general  interest,  variety 
 programming  of  the  broadcast  television  networks,  many  non-  broadcast  basic  cable  networks  provided  highly  specialized  programming  and  provided  it  on  a  24-  hour  basis.  Thus,  the  inclusion  of  non-  broadcast 
 networks  in  the  array  of  media  choices  gave  the  public  continuous  access  to  national  news,  information,  and  entertainment  [e.  g.,  all-  sports  network,  ESPN  (1979),  childrens  and  family  programming  network, 
 Nickelodeon  (1979),  all-  news  network,  CNN  (1980),  black-  entertainment  network,  BET  (1980),  and  all-weather  network,  The  Weather  Channel  (1982)]. 


 104.  Cable  operators  subsequently  found  a  market  for  their  services  in  heavily  populated  urban  areas  as  well  as  the  predominately  small-  market  rural  areas  they  first  served.  At  the  time  of  HBOs  initial 
 national  distribution  in  1975,  total  cable  subscribership  nationwide  was  approximately  9.8  million.  188  Only  five  years  later  in  1980,  with  the  addition  of  numerous  pay-  TV  and  basic  cable  networks,  there  were 
 more  than  19.2  million  subscribers,  an  increase  of  95.3  %.  189  But  as  a  competitor  to  broadcast  radio  and  television,  cables  appeal  was  primarily  national  in  orientation.  Although  some  regional  and  local  non-broadcast 
 networks  were  distributed  during  the  1970s  and  1980s,  the  banner  offerings  of  cable  systems  during  that  period  were  nationally-  distributed  networks. 


 6.  The  Introduction  of  Home-  Use  Satellite  Television  Technology 
 105.  Home  satellite  dish  (  HSD)  technology  was  developed  not  long  after  satellite  distribution  technologies  were  introduced.  HSD  technology  is  based  on  the  same  system  used  by  cable  operators  to 


 receive  network  signals  from  satellites  for  delivery  over  their  terrestrial  cable  systems;  HSD  is  essentially  the  home  reception  of  signals  transmitted  by  satellites  operating  in  the  C-  Band  frequency.  190  First 
 developed  in  1976,  HSD  technology  was  commercialized  around  1979.  191  At  its  inception,  HSD  owners  used  an  eight  foot  dish  to  receive  unscrambled  feed  programming  for  free,  and  scrambled  programming 
 purchased  in  a  secondary  market  from  licensed  program  packagers.  Owners  of  HSD  systems  could  gain  access  to  hundreds  of  channels  of  programming  placed  on  C-  Band  satellites  by  programmers  for  national 


 186  Years  later,  TBS  received  revenues  from  subscriptions  fees  charged  to  cable  operators,  in  addition  to  the 
 revenue  it  derived  from  advertising. 
 187  See  CST  Comments  at  3. 


 188  Kagan  World  Media,  BROADBAND  CABLE  FINANCIAL  DATABOOK  (July  2002)  at  7,  10. 
 189  CABLE  TV  INVESTOR,  supra  note  167  at  9. 
 190  Satellites  in  the  C-  Band  frequency  are  also  used  to  transmit  programming  to  cable  operators  via  C-  Band 
 receiving  dishes  at  the  cable  central  office  or  headend. 
 191  Media  Business  Corp.,  History  of  DTH,  SKY  RPT,  at  http://  www.  skyreport.  com/  dth_  his.  cfm  (visited  May  19, 
 2003). 
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 cable  distribution.  192  HSD  enhanced  consumer  access  to  non-  broadcast  television  programming,  much  the  same  way  cable  served  to  enhance  broadcast  television  service  in  its  early  years.  193 
 7.  The  Multimedia  Landscape  II    1980s 
 106.  By  1980,  traditional  media  (i.  e.,  broadcast  radio  and  television)  still  dominated  mainstream  use,  but  the  public  did  have  other  options.  Many  could  now  choose  among  both  broadcast 


 and  non-  broadcast  television  programming  to  access  news,  information  and  entertainment.  There  were  more  than  9,278  radio  stations  in  1980,  and  1,011  broadcast  television  stations.  194  Approximately  77.8 
 million  homes  had  a  television  in  1980  and  about  39.7  million  of  those  had  more  than  one  television.  195  There  were  about  19.2  million  cable  subscribers  and  HSD  was  added  to  the  marketplace  in  1980.  196 
 There  were  also  about  1,745  daily  newspapers  in  1980  with  a  total  circulation  of  62.2  million  readers.  197  In  addition  to  the  traditional  broadcast  television  stations  offered  over-  the-  air  and  via  cable  systems,  there 
 were  also  approximately  20  nationally-  distributed  non-  broadcast  networks  available  to  the  public  nationwide  and  an  unknown  number  of  regionally  distributed  non-  broadcast  networks.  198 


 107.  The  number  of  media  outlets  per  market  varied  in  1980  based  on  market  size,  as  they  had  in  1960.  Overall,  however,  as  the  chart  below  indicates,  most  markets  seemed  to  have  at  least  doubled  the 
 number  of  television  stations  and  station  owners  that  they  had  in  1960.  199 
 Selected  Media  Outlet  Counts  for  Ten  Radio  Markets    1980 


 Radio  Radio  Mkt  Radio  Total  TV  Total  Newspapers 
 Market  Rank  station  s  owner  s  Station  s  owner  s  daily  Owner  s 


 New  York  NY  1  128  100  17  15  8  8  Kansas  City  MO  29  36  27  6  6  1  1 
 Birmingham  AL  57  35  27  7  6  1  1 


 192  How  Many  DTH  Households  Are  Out  There  Anyway?,  SKY  RPT  (Oct.  1994)  at  1.  Much  of  the  decline  in  HSD 
 subscribership  results  from  owners  switching  to  DBS  services.  Not  only  are  DBS  dishes  smaller  in  size  and  easier  to  maintain,  but  they  are  also  less  expensive  than  typical  HSD  equipment 


 193  At  its  peak  of  popularity  in  1994,  there  were  an  estimated  4.5  million  active  HSD  users,  roughly  half  of  whom 
 subscribed  to  one  or  more  programming  services. 
 194  Cable  and  Services  Vol.  52,  TV  &  CABLE  FACTBOOK  (1984  ed.)  at  17. 


 195  Nielsen  Report  on  Television  (1982)  at  3. 
 196  CABLE  TV  INVESTOR  supra  note  167  at  9. 
 197  NAA,  FACTS  ABOUT  NEWSPAPERS  (2002)  at  4,  12,  14. 
 198  1994  Video  Competition  Report,  9  FCC  Rcd  at  7589-  92;  see  also  2002  Video  Competition  Report,  17  FCC  Rcd 
 at  26989-  91. 
 199  MOWG  Study  No.  1. 
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 Little  Rock  AR  85  26  23  6  4  2  2  Lancaster  PA  113  11  7  7  7  2  1 
 Burlington  VT/  Plattsburgh  NY  141  24  19  10  7  2  2 
 Myrtle  Beach  SC  169  16  11  4  3  1  1  Terre  Haute  IN  197  18  13  5  5  2  1 
 Charlottesville  VA  225  10  7  1  1  1  1 
 Altoona  PA  253  12  7  5  5  1  1 
 Source:  MOWG  Study  No.  1,  selected  information  from  Tables  1,  2,  and  3. 


 108.  Our  informal  analysis  of  the  news  and  public  interest  programming  available  to  the  public  via  television  200  revealed  that,  on  average,  most  television  stations  in  the  markets  we  reviewed  were  airing 
 more  local  news  programming  in  1980  than  they  did  in  1960,  though  some  small  market  stations  were  airing  less  local  news  programming.  201  In  addition,  in  the  large  market  that  we  studied,  New  York,  there 
 were  more  television  broadcast  stations  available  to  the  public  than  there  were  in  1960,  resulting  in  a  greater  total  amount  of  local  news  produced  in  these  markets,  on  a  given  day.  202  National  news  was  aired 
 over  television  broadcast  stations  for  about  thirty  or  forty-  five  minutes  per  station  per  day,  an  increase  over  1960  when  many  stations  aired  little  or  no  national  news  programming.  203  In  addition,  a  non-broadcast 
 television  network,  CNN,  aired  national  news  programming  for  24-  hours  per  day,  and  was  available  to  all  those  with  access  to  cable  or  HSD  systems,  marking  a  significant  shift  in  viewing  habits 
 from  the  sixties  when  news  and  coverage  of  significant  events  like  the  Vietnam  War  were  available  only  during  regularly-  scheduled  news  programming.  204  More  broadcast  television  stations  aired  public 
 interest  programming  in  1980  than  in  1960,  particularly  in  large  and  medium-  sized  markets  In  addition, 
 200  Three  City  Study,  supra  note  170. 
 201  In  New  York  and  Little  Rock,  most  television  stations  aired  more  hours  of  local  news  programming  in  1980 
 than  they  aired  in  1960.  Thus,  on  average,  the  total  number  of  hours  of  local  news  programming  aired  in  a  given  day  was  greater  than  in  1960.  In  Terre  Haute,  some  television  stations  aired  more  hours  of  local  news 


 programming  that  they  aired  in  1960,  while  others  aired  fewer  hours  of  local  news  programming  than  they  aired  in  1960.  Thus,  on  average,  the  total  number  of  hours  of  local  news  programming  aired  in  Terre  Haute  on  a  given 
 day  was  less  than  in  1960.  Since  consumers  can  only  watch  one  program  at  a  time,  the  figures  represented  in  this  summary  of  programming  available  in  1980  are  greater  than  the  actual  amount  of  programming  that  was 
 potentially  available  to  the  average  consumer,  but  are  relative  to  the  figures  in  the  summary  of  programming  aired  in  1960.  This  does  not  necessarily  hold  true  for  increases  resulting  from  the  addition  of  stations.  The  additional 
 television  stations  in  the  market  could  be  airing  programming  simultaneously  with  other  stations  in  the  market.  Thus  these  figures  would  not  represent  a  greater  number  of  hours  of  programming  available  to  a  given  consumer, 
 but  would  represent  a  greater  number  of  voices  in  a  given  market. 
 202  In  New  York  there  were  five  more  television  broadcast  stations  available  in  1980  than  there  were  in  1960,  each 
 airing  as  much  as  one  to  two  hours  of  local  news  content  daily.  In  Little  Rock  and  Terre  Haute,  there  were  the  same  number  of  television  stations  with  local  news  programming  in  1980  as  there  was  in  1960.  Id. 


 203  Three  City  Study. 
 204  Brown,  supra  note  143  at  24;  Robert  J.  Thompson,  500  Channels  But  No  Clear  Picture  of  What  We  Want,  THE 
 WASHINGTON  POST  (May  23,  2003)  at  B3. 
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 there  were  several  new  non-  broadcast  television  networks  providing  public  interest  programming  on  a  24-  hour  basis.  205  In  short,  the  addition  of  nationally  distributed  non-  broadcast  television  networks,  an 
 increase  in  the  number  independent  and  affiliate  broadcast  television  stations  and  in  the  number  of  hours  broadcast  per  station,  resulted  in  an  increase  in  the  news  and  public  interest  programming  available  in 
 markets  of  all  sizes  between  1960  and  1980. 
 8.  Competitive  Pressure  Builds:  A  Crowded  Programming  Market 
 109.  The  amount  of  competitive  programming  available  on  cable  continued  to  increase  during  the  eighties  and  into  the  nineties.  CNN  was  the  first  non-  broadcast  news  network  considered  formidable 


 competition  to  the  news  provided  by  the  well-  established  broadcast  networks  in  the  1980s.  206  In  addition  to  providing  direct  competition,  CNN  provided  consumers  access  to  24-  hour  news  coverage.  207  The 
 concise  format  of  a  majority  of  non-  broadcast  programming  networks  (e.  g.,  MTV,  which  provided  music  videos;  the  Weather  Channel  which  provided  successive  national,  regional,  and  local  forecasts;  CNNs 
 Headline  News,  which  provided  cycling  national  news  briefs),  was  attractive  to  audiences  who  were  developing  a  preference  for  scanning  quickly  through  the  many  new  channel  offerings  available  to  them. 
 While  some  non-  broadcast  networks  were  providing  general  interest  fare  in  the  mold  of  the  traditional  broadcast  networks  (e.  g.,  USA  Network,  Turner  Network  Television,  TBS),  many  provided  programming 
 geared  towards  a  particular  audience  interest  (e.  g.,  children,  young  adults,  sports,  weather,  news).  Regionally  distributed  non-  broadcast  networks  also  flourished  in  the  1980s  through  the  1990s.  More 
 than  25  regional  networks  commenced  service  in  the  eighties  and  more  than  51  regional  networks  commenced  service  in  the  nineties.  Some  of  these  networks  provide  regional  sports  (e.  g.,  Fox  Sports 
 Northwest,  Fox  Sports  Cincinnati,  SportsChannel  Florida),  regional  and  local  news  (e.  g.,  News  12  Long  Island,  County  Television  Network  San  Diego,  Pittsburgh  Cable  News  Channel),  or  regional-  interest 
 programming  (Sunshine  Network,  Nippon  Golden  Network,  California  Channel). 
 110.  When  the  Fox  broadcast  network  launched  as  a  challenger  to  the  Big  Three  networks  in  1985,  it  entered  the  market  building  on  the  niche  concept  employed  by  the  non-  broadcast  networks.  Fox 


 provided  general  interest  fare,  like  its  broadcast  competitors,  but  targeted  its  programming  to  the  teenage  demographic.  208  Later,  in  January  1995,  Paramount  and  Warner  Brothers  launched  the  UPN  and  WB 
 networks,  respectively,  both  building  on  similar  demographics  on  which  Fox  had  initially  entered  the  market.  209 


 205  Among  the  non-  broadcast  television  networks  providing  public  interest  programming  were  C-  SPAN,  launched 
 in  1979;  Bravo,  launched  in  1980;  The  Family  Channel  launched  in  1977;  Nickelodeon,  launched  in  1979,  and  The  Learning  Channel,  launched  in  1980. 


 206  Brown,  supra  note  143  at  21.  Later,  in  1991,  CNN  captured  large  audiences  with  its  24-  hour  coverage  of  the 
 Persian  Gulf  War. 
 207  In  1968,  coverage  of  the  Vietnam  War  amounted  to  the  evening  newscasts  on  the  broadcast  networks.  Today, 
 coverage  of  the  War  in  Iraq  is  available  over  the  broadcast  networks  and  on  three  separate  round-  the-  clock  cable  news  channels    72/  7.  Thompson,  supra  note  204. 


 208  Brown,  supra  note  143  at  21. 
 209  United  Paramount  Network,  The  Facts  at  http://  www.  viacom.  com/  prodbyunit1.  tin?  ixBusUnit=  30;  WTTA 
 Tampa  Bay,  Fl,  Warner  Bros.  Network  at  http://  wtta38.  com/  ads/  history.  htm  (visited  May  22,  2003). 
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 9.  Significant  Technological  Advances:  Recorded  Media,  Digital  Compression,  and  the  Internet 
 111.  Several  significant  advances  in  technology  during  the  1980s  and  1990s  supplied  the  footing  for  increased  competitive  pressure  on  the  media  marketplace.  Record-  and-  playback  devices  and 
 digital  technologies  transformed  traditional  and  new  media  into  high-  capacity,  high-  quality,  interactive  outlets  for  accessing  content.  The  Internet,  as  an  entirely  new  medium,  composed  of  an  amalgam  of  all 
 the  technologies  that  preceded  it,  completely  transformed  the  way  in  which  we  communicate  in  unimaginable  ways.  These  advances  not  only  enabled  the  provision  of  vast  amounts  of  content  they  also 
 put  more  control  in  the  hands  of  the  public,  allowing  them  to  control  what,  when,  and  how  they  receive  information. 


 112.  The  video-  cassette  recorder  (  VCR),  first  introduced  in  the  United  States  in  the  mid-1970s,  was  the  first  of  such  empowering  technologies.  Not  until  1982  did  the  VCR  become  inexpensive 
 enough  to  spur  widespread  adoption  by  the  public.  210  By  1986,  more  than  13  million  VCRs  had  been  sold  in  the  United  States.  211  The  VCR  empowered  the  public  with  the  ability  to  stray  from  the  pre-  set  video 
 programming  schedule  inherent  in  broadcast  television  content.  Furthermore,  content  not  available  over  other  video  media,  or  content  which  had  been  previously  available  over  broadcast  television  was  created 
 specifically  for  VCR  consumption. 
 113.  More  significant  than  record-  and-  playback  devices,  digital  technology  was  used  in  the  development  of  advanced  satellite  distribution  systems.  Prior  consumer  satellite  systems  were  wholly 


 analog  and  because  of  their  size,  were  impossible  to  deploy  in  urban  areas.  Direct  broadcast  satellite  systems  (  DBS)  provided  an  all-  digital  transmission  of  video  programming,  employing  a  small  satellite 
 dish,  practical  for  both  rural  and  urban  deployment.  The  public  has  adopted  DBS  service  at  one  of  the  fastest  rates  of  any  consumer  good  in  history.  At  the  end  of  1994,  DBS  services  had  approximately 
 600,000  subscribers.  212  By  1995,  there  were  more  than  2.2  million  subscribers,  and  by  2000,  DBS  providers  had  nearly  14.8  million  subscribers.  213  Today,  DBS  is  a  significant  competitor  in  the  market  for 
 the  delivery  of  multichannel  video  programming  distribution  services  (  MVPD),  with  more  than  18  million  subscribers.  214  In  fact,  between  June  2001  and  June  2002,  growth  in  the  number  of  cable 
 subscriptions  leveled  off  to  less  than  one-  half  of  one  percent  (0.4%),  while  DBSs  growth  rate  was  14% 


 210  See  Important  Events  in  VCR  History  at  http://  www.  sit.  wisc.  edu/~  mklathro/  TimIine%  20of%  20Important% 
 20Events.  html  (visited  Feb.  6,  2003). 
 211  Id. 


 212  Kagan  World  Media,  THE  STATE  OF  DBS  2002  (July  2002)  at  4. 
 213  Kagan  World  Media,  ECON.  OF  BASIC  CABLE  NETWORKS  2002  (Sept.  2001)  at  23-  27. 
 214  2002  Video  Competition  Report,  17  FCC  Rcd  at  26975. 
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 for  the  same  time  period.  215  Overall,  from  1994  until  today,  DBS  subscribership  has  grown  by  an  average  of  about  70%  each  year.  216 
 114.  DBS  provides  a  much  higher  channel  capacity  than  most,  if  not  all,  cable  systems  choose  to  provide.  From  its  inception,  DBS  operators  have  been  able  to  transmit  over  200  channels  of  video 
 programming  to  their  subscribers.  The  presence  of  DBS  in  the  market  for  the  delivery  of  subscription  video  programming  has  expanded  the  market,  such  that  now  almost  all  televisions  households  have  access 
 to  subscription  video.  In  addition,  the  competitive  presence  of  DBS  has  forced  cable  television  services  to  expand  channel  capacity  and  service  options. 


 115.  As  a  result  of  the  introduction  of  the  all-  digital  DBS  technology  and  its  widespread  acceptance  by  the  public,  cable  television  operators  began  replacing  much  of  their  original  coaxial  cable 
 infrastructure  with  hybrid  fiber  and  coaxial  cable  (  HFC)  networks.  By  doing  so,  cable  operators  were  able  to  employ  digital  technology  to  transmit  high-  quality  video  signals  to  their  customers.  In  addition, 
 digital  technology  expanded  the  channel  capacity  of  the  networks,  enabling  cable  operators  to  provide  vastly  more  channels  of  video  programming.  Many  cable  operators  began  offering  a  digital  tier  of 
 service.  First  introduced  commercially  in  1996,  digital  cable  does  not  actually  provide  digital  video  to  the  consumer;  rather  it  uses  digital  compression  technology  to  provide  additional  channels  of  basic  and 
 premium  services  for  an  additional  fee.  217  At  year-  end  1996,  there  were  approximately  100,000  digital  video  subscribers.  218  By  year-  end  2001  there  were  approximately  16.7  million  digital  video 
 subscribers.  219  Digital  technology  also  furthered  the  ability  of  cable  operators  to  implement  advanced  two-  way  services.  220 


 116.  Several  digital  record-  and-  playback  technologies  were  also  introduced  in  the  1990s.  Digital  versatile  disc  (  DVD)  players  were  first  introduced  in  the  United  States  in  1997,  and  have 
 quickly  become  popular.  221  The  personal  video  recorder  (  PVR),  introduced  in  1999,  is  a  device 
 215  Id.  26905. 


 216  See  supra  note  212;  see  also  Hughes  Electronics  Corp.,  SEC  Form  10-  K405  for  the  Year  Ended  December  31, 
 2001  at  3-  4;  Hughes  Electronics  Corp.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2002  at  3;  EchoStar  Communications  Corp.,  SEC  Form  10-  K  for  the  Year  Ended  December  31,  2002  at  10. 


 217  See  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections,  THE  CABLE  TV 
 FINANCIAL  DATABOOK  (July  1996)  at  11;  see  also  Paul  Kagan  Assocs.,  Inc.,  Paul  Kagans  10-  Year  Cable  TV  Industry  Projections,  THE  CABLE  TV  FINANCIAL  DATABOOK  (July  1997)  at  10.  In  some  cases,  the  video 


 programming  offered  on  cables  digital  tier  is  offered  at  a  higher  quality  than  standard  analog  video.  In  other  cases,  the  digital  tier  is  used  simply  to  compress  more  analog-  quality  channels  into  the  same  bandwidth. 


 218  1997  DATABOOK,  supra  at  10. 
 219  BROADBAND  DATABOOK,  supra  note  188  at  10. 
 220  The  advanced  broadband  services  discussed  here  include  cable  telephony  and  Internet  Protocol  (  IP) 
 telephony,  Internet  access  through  cable  modems,  digital  video,  video-  on-  demand  (  VOD)  and  near-  video-  on-demand  (  NVOD),  and  interactive  guides/  interactive  programming.  Annual  Assessment  of  the  Status  of 


 Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  16  FCC  Rcd  6005,  6015,  n.  11  (2001)  (  2000  Video  Competition  Report). 


 221  Steven  Schoenherr,  Recording  Technology  History  (Oct.  30,  2002)  at  http://  history.  acusd.  edu/  gen/ 
 recording/  notes.  html  (visited  Feb.  6,  2003). 
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 connected  to  a  television  set,  either  embedded  in  an  STB  or  as  a  stand-  alone  device,  which  uses  a  hard  disk  drive,  software,  and  other  technology  to  digitally  record  and  access  programming.  PVR  technology 
 allows  a  consumer  to  pause,  replay,  rewind,  fast-  forward  and  otherwise  time-  shift  television  programs  similar  to  the  VCR.  222 


 117.  In  addition  to  these  other  significant  technological  advancements  of  the  1980s  and  1990s,  the  Internet  has  spawned  an  entirely  new  way  of  looking  at  media.  The  first  graphical  Interface 
 for  the  Internet  was  proposed  in  1989  (later  to  be  called  the  World  Wide  Web  or  the  Web).  223  In  1992,  there  were  only  50  Web  sites  in  the  world;  a  year  later  there  were  still  no  more  than  150  Web  sites.  224 
 Then,  in  late  1993,  Mosaic  was  launched,  providing  an  easy-  to-  install,  easy-  to-  use  program  for  accessing  the  Web.  225  By  1994,  commercial  Web  sites  proliferated  so  that  by  year-  end,  there  were  as  many  as  3,000 
 Web  sites.  226  A  year  later,  there  were  more  than  25,000  Web  sites  in  use.  227  By  year-  end  2000,  there  were  more  than  30  million  web  sites.  228 


 118.  Today  the  Internet  affects  every  aspect  of  media,  from  video  and  audio,  to  print  and  personal  communications.  229  Whereas  other  forms  of  media  allow  for  only  a  finite  number  of  voices  and 
 editorially-  controlled  viewpoints,  the  Internet  provides  the  forum  for  an  unlimited  number  of  voices,  independently  administered.  Furthermore,  content  on  the  Web  is  multi-  media;  it  can  be  read,  viewed,  and 
 heard  simultaneously.  Since  Web  pages  are  stored  on  Web-  hosting  file  servers,  accessing  Web  content  is  a  highly  individualized  activity,  and  any  individual  with  access  to  a  Web  browser  can  access  all  available 
 Web  content  24-  hours  a  day  throughout  the  world. 
 119.  Virtually  every  major  media  company  has  a  corresponding  Web  site,  today,  and  any  individual  with  access  to  a  Web-  hosting  file  server  can  create  a  Web  site  for  public  access.  As  such,  the 


 222  TiVo  Inc.,  SEC  Form  10-  K405  (Mar.  30,  2000);  ReplayTV  Inc.,  SEC  Form  S-  1/  A  (May  1,  2000).  While  PVRs 
 cannot  play  prerecorded  videocassettes  or  DVDs,  they  make  it  relatively  simple  to  record  broadcast,  cable  or  DBS  television  signals  and  provide  the  user  with  the  same  level  of  control  over  the  playback  of  a  movie  as  home  video 


 provides. 
 223  Prior  to  this  time,  the  Internet  consisted  of  computers  linked  in  a  large-  scale  network  for  the  purpose  of  file 
 sharing  based  on  text-  only  protocols.  Shahrooz  Feizabadi,  History  of  the  World  Wide  Web  at  http://  ei.  cs.  vt.  edu/~  wwwbtb/  book/  chap1/  web_  hist.  html  (visited  Feb.  6,  2003);  Walt  Howe,  A  Brief  History  of  the 


 Internet  (Apr.  2002)  at  http://  www.  walthowe.  com/  navnet/  history.  html  (visited  Feb.  6,  2003). 
 224  Richard  Griffiths,  Chapter  Two:  From  ARPANET  to  World  Wide  Web  at  http://  www.  leidenuniv.  nl/ 
 history/  ivh/  chap2.  htm  (visited  Feb.  6,  2003). 
 225  Id.;  Walt  Howe,  A  Brief  History  of  the  Internet  (Apr.  2002)  at  http://  www.  walthowe.  com/  navnet/  history.  html 
 (visited  Feb.  6,  2003);  Robert  H  Zakon,  Hobbes  Internet  Timeline  v6.0,  2003  at  http://  www.  zakon.  org/  Robert/  internet/  timeline/  (visited  Feb.  6,  2003). 


 226  Supra  note  224. 
 227  Id. 
 228  Id.  While  most  of  the  information  currently  on  the  Web  is  still-  graphics,  real-  time  and  downloadable  video 
 available  over  the  Web  has  become  more  commonplace. 
 229  Fox  Comments  at  iii. 
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 Web  provides  an  unrestrained  forum  for  the  dissemination  and  consumption  of  ideas.  News  and  Information  are  available  on  the  Internet  like  they  have  never  been  available  to  the  public  before.  Internet 
 users  can  view  the  news  source  of  their  own  choosing,  such  as  CNN  or  The  New  York  Times,  or  can  use  a  news  gathering  service  like  Google  News  which  presents  information  culled  from  approximately  4,500 
 news  sources  worldwide.  230  Furthermore,  Internet  users  can  access  content  that  may  have  appeared  in  print  or  on  broadcast  television  at  an  earlier  time,  giving  them  greater  control  over  traditionally  available 
 content. 
 10.  The  Multimedia  Landscape  III    2000 
 120.  Since  the  1960s,  there  has  been  tremendous  growth  in  the  media  market.  231  By  2000,  American  consumers  had  access  to  a  multitude  of  media  outlets,  hundreds  of  channels  of  video 


 programming,  and  enormous  amounts  of  content  not  available  just  twenty,  or  even  ten  years  earlier.  There  were  more  than  12,615  radio  stations  in  2000,  and  1,616  broadcast  television  stations.  232 
 Approximately  100.8  million  homes  had  a  television  in  2000  and  76.2  million  of  those  had  more  than  one  television.  233  There  were  68.5  million  cable  subscribers  in  2000,  approximately  14.8  million  DBS 
 subscribers  and  1.2  million  HSD  subscribers.  234  There  also  were  1,480  daily  newspapers  in  2000  with  a  total  circulation  of  55.8  million  readers.  235  In  addition  to  the  traditional  broadcast  television  stations 
 offered  over-  the-  air  and  via  cable  systems,  there  were  281  nationally-  distributed  non-  broadcast  networks  available  in  2000  and  80  regional  non-  broadcast  networks.  236  Approximately  42.5  million  households 
 subscribed  to  an  Internet  access  provider  in  2000.  237 
 121.  The  number  of  outlets  per  market  also  grew  significantly  between  1980  and  2000.  As  the  chart  below  indicates  the  number  of  radio  outlets  grew  by  142%  from  1960  to  2000  and  the  number  of 


 independent  radio  station  owners  grew  by  74%  in  that  same  time  period.  The  number  of  television  outlets  grew  by  217%  from  1960  to  2000  and  the  number  of  independent  television  station  owners  grew  by 
 150%  in  that  same  time  period.  The  number  of  newspapers  declined  by  9%  from  1960  to  2000  and  the  number  of  newspaper  owners  was  the  same  in  2000  as  it  was  in  1960. 


 230  A  Novel  Approach  to  News,  Google  News  (BETA)  at  http://  www.  google.  com/  help/  about_  news_  search.  html 
 (visited  May  27,  2003).  The  headlines  that  appear  on  Google  news  are  selected  entirely  by  computer  algorithms,  based  on  how  and  where  the  stories  appear  elsewhere  on  the  web.  There  are  no  human  editors  at  Google  selecting 


 or  grouping  the  headlines  and  no  individual  decides  which  stories  get  top  placement. 
 231  NAB  Comments  at  8-  9. 


 232  BCASTING  &  CABLE  YEARBOOK  2002-  2003  at  B-  241,  D-  739. 
 233  Nielsen  Media  Research. 
 234  2002  Video  Competition  Report,  17  FCC  Rcd  at  26911,  Table  1;  see  supra  note  214. 
 235  NAA,  supra  note  197  at  4,  12,  14. 
 236  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  17  FCC 
 Rcd  1244,  1249-  1253  (2002)  (  2001  Video  Competition  Report). 
 237  ECONOMICS  OF  BASIC  CABLE  NETWORKS  2002,  supra  213  at  23-  27;  Veronis  Suhler  Stevenson-  Media  Merchant 
 Bank,  Internet  Households  and  Household  Penetration,  COMMUNICATIONS  INDUSTRY  FORECAST  (July  2002)  at  267. 
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 Selected  Media  Outlet  Counts  for  Ten  Radio  Markets    1960,1980,  2000 
 Radio  Radio  Radio  Total  TV  Total  Newspapers 
 Market  Mkt  Rank  Year  station  s  owner  s  station  s  owner  s  daily  owner  s 


 New  York  NY  1  200  0  148  84  24  22  9  9  198 
 0  128  100  17  15  8  8  196 
 0  74  52  7  7  8  8 
 Kansas  City  MO  29  200  0  40  22  9  7  1  1  198 
 0  36  27  6  6  1  1  196 
 0  18  15  3  3  1  1 
 Birmingham  AL  57  200  0  45  25  9  8  2  2  198 
 0  35  27  7  6  1  1  196 
 0  22  19  4  3  2  1 
 Little  Rock  AR  85  200  0  42  21  13  8  2  2  198 
 0  26  23  6  4  2  2  196 
 0  12  12  3  3  2  2 
 Lancaster  PA  113  200  0  13  11  7  2  2  1  198 
 0  11  7  7  7  2  1  196 
 0  7  5  5  5  2  1 
 Burlington  VT/  141  200  0  37  22  11  7  2  2 
 Plattsburgh  NY  198  0  24  19  10  7  2  2  196 
 0  10  9  2  2  2  2 
 Myrtle  Beach  SC  169  200  0  29  16  6  4  0  0  198 
 0  16  11  4  3  1  1  196 
 0  4  4  1  1  1  1 
 Terre  Haute  IN  197  200  0  24  14  5  5  1  1 
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 198  0  18  13  5  5  2  1 
 196  0  9  7  1  1  2  1 


 Charlottesville  VA  225  200  0  17  8  2  2  1  1  198 
 0  10  7  1  1  1  1  196 
 0  7  4  0  0  1  1 
 Altoona  PA  253  200  0  14  7  6  5  0  0  198 
 0  12  7  5  5  1  1  196 
 0  6  5  3  3  1  1 
 Source:  MOWG  Study  No.  1,  selected  information  from  Tables  1,  2,  and  3. 


 122.  The  number  of  hours  of  news  and  public  interest  programming  has  also  grown  significantly  since  1980.  Whereas  in  1960  and  1980,  there  was  on  average  only  about  one  or  two  hours  of 
 local  news  programming  per-  station,  per-  day  in  the  markets  we  reviewed,  local  news  programming  expanded  to  about  two  to  four  hours  per  station  per  day  by  2003.  238  In  addition,  several  regional  and  local 
 news  networks  were  launched  between  1980  and  2003,  providing  local  news  on  a  24-  hour  basis  in  numerous  markets  throughout  the  country.  239  Although  in  most  markets,  only  a  few  stations  increased  the 
 amount  of  national  news  programming  available  from  1980,  when  national  news  was  aired  for  about  thirty  to  forty  five  minutes  per  station  per  day,  there  were  more  broadcast  stations  airing  national  news  in 
 2003,  and  several  non-  broadcast  news  networks  airing  national  news  programming  on  a  24-  hour  a  day  basis.  240  Public  interest  programming  also  has  proliferated.  Although  television  broadcast  stations  in 
 various  markets  were  airing  about  the  same  amount  of  public  interest  programming  per-  station  in  2003  as  they  were  in  1980,  in  2003,  there  are  more  television  broadcast  stations  per-  market  and  numerous  new 
 non-  broadcast  networks  providing  such  programming.  241 
 11.  The  Current  Competitive  Landscape  and  Developments  Since  2000. 
 123.  Non-  broadcast  television  programming  continue  to  proliferate.  Today,  there  are  more  than  308  satellite-  delivered  national  non-  broadcast  television  networks  available  for  carriage  over  cable,  DBS 


 and  other  multichannel  video  program  distribution  (  MVPD)  systems.  242  In  2002,  the  Commission  also 
 238  Three  City  Study,  supra  note  170. 


 239  Regional  news  networks  available  over  cable  and  DBS  include:  San  Diegos  News  Channel  15,  NorthWest 
 Cable  News,  Ohio  News  Network,  Pittsburgh  Cable  News  Channel;  News  12  Connecticut,  News  12  Long  Island,  News  12,  New  Jersey,  New  England  Cable  News,  Las  Vegas  One  News,  News  8  Austin,  etc. 


 240  E.  g.,  Fox  News,  MSNBC,  and  CNBC. 
 241  E.  g.,  Disney,  Discovery,  History  Channel,  etc. 
 242  2002  Video  Competition  Report,  17  FCC  Rcd  at  26905. 
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 identified  at  least  86  regional  non-  broadcast  networks,  including  31  sports  channels,  and  32  regional  and  local  news  networks.  243  We  are  moving  to  a  system  served  by  literally  hundreds  of  networks  serving  all 
 conceivable  interests.  Programming  in  particular  abundance  are  sports,  entertainment,  and  informational  in  nature.  244  The  four  largest  broadcast  networks  own  both  broadcast  and  cable  channels.  Their  share  of 
 viewership  is  far  greater  than  their  share  of  the  channels  received  by  the  typical  American  household.  245  Of  the  102  channels  received  by  the  average  viewing  home,  the  four  largest  broadcast  networks  have  an 
 ownership  interest  in  approximately  25%  of  those  channels.  246 
 124.  Since  its  inception,  non-  broadcast  programming  has  gained  significantly  in  popularity  as  compared  with  broadcast  programming.  In  2002,  for  the  first  time,  cable  television  collectively  had  more 


 primetime  viewers  on  average  over  the  course  of  the  year  than  broadcast  programming  (48%  share  for  cable  programming  versus  46%  share  for  broadcast  programming).  247  In  June  2002,  cable  networks  for 
 the  very  first  time  collectively  exceeded  a  50%  share  for  the  month  (54%  primetime  share),  while  the  broadcast  networks  collectively  registered  a  38%  primetime  share.  248  The  September  2002  season  premier 
 of  The  Sopranos  on  HBO  was  the  most  watched  original  program  in  HBO  history  and  was  the  weeks  most  watched  program  among  adults  18-  34.  249  The  season  finale  in  December  was  the  top-  rated  program 
 that  night  with  12.5  million  viewers,  besting  the  12.2  million  viewers  for  the  top-  rated  network  broadcast  program.  250  Furthermore,  HBO  had  more  2002  Golden  Globe  nominations  than  any  other  network 
 (broadcast  and  non-  broadcast  alike),  and  went  on  to  win  twice  as  many  awards  as  any  other  network.  251  At  the  2002  Primetime  Emmys,  HBO  won  24  Emmys,  tying  NBC  for  the  most  awards  given  to  a  single 
 network.  252 
 125.  As  television  broadcasters  face  intense  competitive  pressure  from  alternative  video  programming,  they  are  entering  a  new  era  themselves.  Broadcasters  are  currently  experimenting  with, 


 and  beginning  to  commercially  deploy,  digital  and  high-  definition  television  (  DTV  and  HDTV). 


 243  Id.  at  26907-  8. 
 244  CST  Comments  at  3-  4. 
 245  Nielsen  Galaxy  Explorer;  Nielsen  Ratings,  BCASTING  &  CABLE  (Mar.  24,  2003)  at  14;  2002  Video 
 Competition  Report,  17  FCC  Rcd  at  26995-  97;  Who  Owns  What,  Columbia  University  Law  School  at  www.  cjr.  org. 


 246  Opening  Statement  of  David  F.  Poltrack,  Executive  Vice  President,  CBS  Television,  before  the  Forum  on 
 Media  Ownership  Rules,  Columbia  University  Law  School,  New  York,  NY  (Jan.  16,  2003)  (  Poltrack  Statement). 


 247  Mike  Reynolds,  2002:  Cables  Breakout  Nielsen  Year,  MULTICHANNEL  NEWS  (Jan.  6,  2003)  at  3. 
 248  Allison  Romano,  Cable  Breaks  50-  Share  Mark  in  Primetime,  BCASTING  &  CABLE  (July  8,  2002)  at  12. 
 249  AOL  Time  Warner,  Home  Box  Office:  Key  Company  Facts  at  http://  www/  aoltw.  com/  companies/  hbo_ 
 index.  adp  (visited  May  21,  2003). 
 250  Id. 


 251  Id. 
 252  Id. 
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 Commenters  in  this  proceeding  have  said  that  Federal  policy  should  have  as  one  of  its  main  objectives,  the  encouragement  of  digital  conversion  and  expansion  of  transmission  plants.  253  The  Commission 
 anticipates  the  full  transition  of  broadcast  signals  such  that  broadcast  television  signal  distribution  will  be  either  DTV  or  HDTV,  replacing  the  NTSC  analog  standard.  Digital  television  offers  improved  picture 
 quality  over  standard  analog  television,  and  the  ability  for  broadcasters  to  provide  such  additional  enhancements  as  HTDV  (superior  quality  to  analog  television),  multicasting  (the  ability  to  offer  multiple 
 channels  in  a  spectrum  band  that  today  would  allow  only  a  single  transmission  stream),  and  interactivity  (two-  way  communication  abilities  between  the  broadcaster  and  the  consumer).  Cable  operators  and  DBS 
 service  providers  are  also  beginning  to  provide  DTV  and  HDTV  options. 
 126.  While  the  surge  of  media  availability  in  the  last  several  years  has  led  to  an  increase  in  the  quantity  and  quality  of  programming  available,  the  competitiveness  between  different  video  media  has 


 also  led  to  increased  individual  choice.  Todays  media  marketplace  provides  choices  to  the  public  on  an  entirely  new,  personal  level.  In  addition  to  the  Web,  for  example,  video-  on-  demand  (  VOD)  is  the 
 newest  video  technology  being  developed  and  deployed  by  cable  and  DBS  operators.  VOD  services  provide  advertising-  free  material  on  a  program-  by-  program  basis,  similar  to  the  pay-  per-  view  services 
 that  preceded  it.  VOD,  however,  provides  a  much  wider  array  of  programming  and  choice  of  viewing  time  than  its  pay-  per-  view  predecessor.  VOD  also  provides  VCR-  like  pause  and  rewind  capabilities, 
 unlike  pay-  per-  view  which  is  cablecast  from  beginning  to  end,  the  same  to  each  home.  Some  cable  operators  are  opting  to  offer  video-  on-  demand  via  the  subscription  model  (  SVOD).  In  the  SVOD 
 model,  the  subscriber  pays  one  monthly  fee  for  unlimited  access  to  a  finite  library  of  select  programming.  This  model  more  closely  resembles  the  premium  service  (or  pay-  TV)  tier. 


 127.  In  addition,  satellite  radio  became  available  in  2001,  providing  subscribers  over  100  channels  of  commercial-  free,  digital  audio.  254  As  of  April  2003,  there  were  over  500,000  subscribers  to 
 satellite  radio.  255 
 128.  In  short,  there  are  far  more  types  of  media  available  today,  far  more  outlets  per-  type  of  media  today,  and  far  more  news  and  public  interest  programming  options  available  to  the  public  today 


 than  ever  before.  Although  many  of  these  new  outlets  are  subscription-  based  (e.  g.,  non-  broadcast  networks  available  over  cable  and  DBS,  Web  content  available  via  a  subscription  Internet  connection), 
 the  competitive  pressure  placed  upon  free,  over-  the-  air  media  has  led  to  better  quality  and  in  some  cases,  an  increase  in  the  quantity  of  some  types  of  content.  In  the  next  five  to  ten  years,  we  expect  more  free, 
 over-  the-  air  content  to  become  available  as  new  technologies  (i.  e.,  digital  transmission)  are  applied  to  these  traditional  media  (i.  e.,  broadcast  television). 


 V.  LOCAL  AND  NATIONAL  FRAMEWORK 
 129.  We  adopt  herein  limits  both  for  local  radio  and  local  television  station  ownership.  Both  of  these  rules  are  premised  on  well-  established  competition  theory  and  are  intended  to  preserve  a  healthy 


 and  robust  competition  among  broadcasters  in  each  service.  As  explained  below,  however,  because  markets  defined  for  competition  purposes  (i.  e.,  defined  in  terms  of  which  entities  compete  with  each  other 


 253  CST  Comments  at  4. 
 254  XM  Satellite  Radio,  Inc.,  XM  Tops  One-  Half  Million  Subscriber  Mark,  (press  release)  (Apr.  14,  2002);  Sirius 
 Satellite  Radio,  Overview,  at  http://  www.  siriusradio.  com  (visited  May  1,  2003). 
 255  XM  Satellite  Radio,  Inc.,  supra. 
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 in  economic  terms)  are  generally  more  narrow  than  markets  defined  for  diversity  purposes  (i.  e.,  defined  in  terms  of  which  entities  compete  in  the  dissemination  of  ideas),  our  ownership  limits  on  radio  and 
 television  ownership  also  serve  our  diversity  goal.  By  ensuring  that  several  competitors  remain  within  each  of  the  radio  and  television  services,  we  also  ensure  that  a  number  of  independent  outlets  for 
 viewpoint  will  remain  in  every  local  market,  thereby  ensuring  that  our  diversity  goal  will  be  promoted.  Further,  though,  because  local  television  and  radio  ownership  limits  cannot  protect  against  losses  in 
 diversity  that  might  result  from  combinations  of  different  types  of  media  within  a  local  market,  we  adopt  below  a  set  of  specific  cross-  media  limits. 


 130.  Similarly,  by  virtue  of  the  staffs  extensive  information  gathering  efforts  and  the  voluminous  record  assembled  in  this  rulemaking  docket,  we  have  for  the  first  time  substantial  evidence 
 regarding  the  localism  effects  of  our  national  broadcast  ownership  rules.  We  can,  therefore,  with  more  confidence  than  ever,  establish  a  reasonable  limit  on  the  national  station  ownership  reach  of  broadcast 
 networks.  We  continue  to  prohibit  a  combination  between  two  of  the  largest  four  networks  primarily  on  competition  grounds,  but  the  beneficial  effects  of  this  restriction  also  protect  our  interest  in  preserving 
 localism.  In  combination,  our  new  national  broadcast  ownership  reach  cap  and  our  dual  network  prohibition  will  ensure  that  local  television  stations  remain  responsive  to  their  local  communities. 


 131.  In  sum,  the  modified  broadcast  ownership  structure  we  adopt  today  will  serve  our  traditional  goals  of  promoting  competition,  diversity,  and  localism  in  broadcast  services.  The  new  rules 
 are  not  blind  to  the  world  around  them,  but  reflective  of  it;  they  are,  to  borrow  from  our  governing  statute,  necessary  in  the  public  interest. 


 VI.  LOCAL  OWNERSHIP  RULES 
 A.  Local  TV  Multiple  Ownership  Rule 
 132.  The  current  local  TV  ownership  rule  allows  an  entity  to  own  two  television  stations  in  the  same  DMA,  provided:  (1)  the  Grade  B  contours  of  the  stations  do  not  overlap;  or  (2)  (a)  at  least  one  of 


 the  stations  is  not  ranked  among  the  four  highest-  ranked  stations  in  the  DMA,  and  (b)  at  least  eight  independently  owned  and  operating  commercial  or  non-  commercial  full-  power  broadcast  television 
 stations  would  remain  in  the  DMA  after  the  proposed  combination  (  top  four-  ranked/  eight  voices  test).  256  Only  those  stations  whose  Grade  B  signal  contours  overlap  with  the  Grade  B  contour  of  at  least 
 one  of  the  stations  in  the  proposed  combination  are  counted  as  voices  under  the  rule.  257 
 133.  Having  examined  the  competitive  impact  of  other  video  programming  outlets  on  television  broadcast  stations,  we  conclude,  in  light  of  the  myriad  sources  of  competition  to  local  television  broadcast 


 stations,  that  our  current  local  TV  ownership  rule  is  not  necessary  in  the  public  interest  to  promote  competition.  We  also  conclude  from  our  review  of  the  record  that  media  other  than  television  broadcast 
 stations  contribute  to  viewpoint  diversity  in  local  markets.  Because  our  current  local  TV  ownership  rule  is  premised  on  the  notion  that  only  local  TV  stations  contribute  to  viewpoint  diversity  and  does  not 
 account  for  the  contributions  of  other  media,  we  conclude  the  current  rule  is  not  the  best  means  to  promote  our  diversity  goal.  Moreover,  we  conclude  that  retaining  our  current  rule  does  not  promote,  and 
 may  even  hinder,  program  diversity  and  localism.  However,  we  find  that  some  limitations  on  local 


 256  47  C.  F.  R.    73.3555(  b);  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12907-  08    8. 
 257  Local  TV  Ownership  Recon.  Order,  16  FCC  Rcd  at  1072-  73    16-  18. 
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 television  ownership  are  necessary  to  promote  competition.  Accordingly,  pursuant  to  the  directive  of  Section  202(  h),  we  herein  modify  our  local  TV  ownership  rule. 
 134.  Our  modified  local  TV  ownership  rule  will  permit  an  entity  to  have  an  attributable  interest  in  two  television  broadcast  stations  in  markets  with  17  or  fewer  television  stations;  and  up  to  three 
 stations  in  markets  with  18  or  more  television  stations.  To  further  ensure  that  no  single  entity  possesses  excessive  market  power,  however,  we  will  prohibit  combinations  which  would  result  in  a  single  entity 
 acquiring  more  than  one  station  that  is  ranked  among  the  top  four  stations  in  the  market  based  on  audience  share.  As  a  result,  no  combinations  will  be  permitted  in  markets  with  fewer  than  five  television 
 stations.  Because  we  have  determined  that  Nielsen  DMAs  are  the  relevant  geographic  market,  common  ownership  of  stations  in  the  same  market  will  be  subject  to  this  standard  without  regard  to  whether  the 
 affected  stations  have  overlapping  contours,  and  we  eliminate  the  provision  of  our  local  TV  ownership  rule  that  permits  same-  market  combinations  where  there  is  no  Grade  B  contour  overlap.  We  also  modify 
 our  existing  standard  for  waiver  of  the  local  TV  ownership  rule. 
 135.  Background.  The  Commission  adopted  a  rule  prohibiting  common  ownership  of  two  TV  stations  with  intersecting  Grade  B  contours  in  1964.  258  The  rule  was  based  in  part  on  the  Commissions 


 earlier  diversification  of  service  rationale,  which  reflected  the  belief  that  diversity  concerns  were  best  promoted  by  a  multiplicity  of  separately  owned  outlets.  259  In  1996,  Congress  directed  the  Commission  to 
 conduct  a  rulemaking  proceeding  to  determine  whether  to  retain,  modify,  or  eliminate  its  limitations  on  the  number  of  television  stations  that  a  person  or  entity  may  own,  operate,  or  control,  or  have  a 
 cognizable  interest  in,  within  the  same  television  market.  260  The  Commission  revised  the  rule  to  its  current  form  in  1999,  citing  as  reasons  the  growth  in  the  number  and  variety  of  local  media  outlets  and 
 the  efficiencies  and  public  service  benefits  that  can  be  obtained  from  joint  ownership.  261  The  Commission  also  sought  to  facilitate  further  development  of  competition  in  the  video  marketplace  and  to  strengthen 
 the  potential  of  broadcasters  to  serve  the  public  interest.  262 
 136.  In  Sinclair  Broadcast  Group,  Inc.  v.  FCC,  263  the  court  reviewed  the  Commissions  decision  modifying  the  local  TV  ownership  rule.  264  The  court  held  that  there  was  a  rational  relationship 


 between  the  rule  and  our  diversity  and  competition  goals.  The  court  noted  that  choosing  the  number  eight  and  defining  voices  are  quintessentially  matters  of  line  drawing  invoking  the  Commissions  expertise  in 
 projecting  market  results,  and  did  not  decide  the  issue  of  whether  eight  is  the  appropriate  numerical  limit.  The  court  invalidated,  however,  the  Commissions  definition  of  voices  under  the  rule  because  it  did 


 258  1964  Media  Ownership  Report  and  Order,  supra  note  56. 
 259  Genesee  Radio  Corp.,  supra  note  86. 
 260  1996  Act,    202(  c)(  2). 
 261  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12930-  31    57-  58. 
 262  Id.  at  12903    1.  The  Commission  made  relatively  minor  changes  to  the  rule  on  reconsideration.  See  Local  TV 
 Ownership  Recon.  Order,  supra  note  94. 
 263  See  Sinclair,  supra  note  7. 


 264  In  Sinclair,  the  court  reviewed  challenges  to  the  local  TV  ownership  rule  as  well  as  to  grandfathering  provisions 
 related  to  local  marketing  agreements.  Id.  284  F.  3d  at  162. 
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 not  adequately  explain  its  decision  to  include  only  broadcast  television  stations  as  voices.  The  court  pointed  out  that  the  definition  was  inconsistent  with  the  definition  of  voices  for  the  radio/  TV  cross-ownership 
 rule,  265  which  also  considers  major  newspapers  and  cable  television  to  be  voices.  The  court  observed  that  [  o]  n  remand,  the  Commission  conceivably  may  determine  to  adjust  not  only  the  definition 
 of  voices  but  also  the  numerical  limit.  266 
 1.  The  Current  Rule  Cannot  be  Justified  Under  Section  202(  h) 
 137.  Under  Section  202(  h),  we  consider  whether  the  local  TV  ownership  rule  continues  to  be  necessary  in  the  public  interest  as  a  result  of  competition.  Our  Notice  sought  comment  on  this  issue, 


 including  the  following  specific  questions:  (a)  whether  the  rule  presently  serves  its  original  purposes  of  furthering  diversity  and  facilitating  competition  in  the  marketplace;  (b)  whether  the  rule  promotes  other 
 policy  goals  discussed  in  the  Notice;  and  (c)  whether,  if  the  rule  serves  some  of  our  purposes  and  disserves  others,  the  balance  of  its  effects  argues  for  keeping,  revising,  or  eliminating  the  rule.  267 


 138.  Commenters  proposing  repeal  or  relaxation  of  the  rule  believe  that  the  rule  is  not  necessary  in  the  public  interest  to  achieve  its  intended  competition  and  diversity  goals.  268  They  assert 
 that,  to  the  contrary,  the  rule  is  harming  competition  by  preventing  broadcasters  from  achieving  efficiencies  that  will  allow  them  to  compete  more  effectively  with  other  media  outlets,  including  video 
 programming  available  via  cable,  DBS,  home  video,  and  video  rentals,  as  well  as  other  media  such  as  radio,  digital  audio  radio  service  (  DARS),  newspapers  and  the  Internet.  These  commenters  contend 
 that  the  current  rule,  by  focusing  solely  on  competition  among  local  television  broadcast  stations,  fails  to  account  for  todays  competitive  media  marketplace.  269  They  likewise  contend  that  in  light  of  the  broad 
 range  of  media  options  available  to  the  public,  the  rule  is  no  longer  necessary  in  the  public  interest  to  promote  our  diversity  goal.  270  These  commenters  argue  that  if  the  rule  is  relaxed  or  repealed,  single 
 owners  of  multiple  television  broadcast  outlets  will  have  an  equal  or  enhanced  incentive  and  ability  to 
 265  47  C.  F.  R.    73.3555(  c)(  iii,  iv). 
 266  Sinclair,  284  F.  3d  at  162. 
 267  Notice,  17  FCC  Rcd  at  18528    75. 
 268  Alaska  Comments  at  3;  Statement  of  Victor  B.  Miller  IV,  Senior  Managing  Director.  Bear,  Stearns  &  Co.  at  FCC 
 Field  Hearing  on  Media  Ownership  (Feb.  27,  2002)  at  5  (  Bear  Stearns  En  Banc  Statement);  Block  Comments  at  5;  Bonneville  Comments  at  5;  Coalition  Broadcasters  Comments  at  11-  13;  Emmis  Comments  at  14;  Fox  Comments  at 


 3-  5;  FMBC  Comments  at  1-  2;  Gannett  Comments  at  21-  28;  Granite  Comments  at  11-  12;  Gray  Comments  at  16;  NAB  Comments  at  I,  5-  6;  Nexstar  Comments  at  16;  Paxson  Comments  at  4;  Sinclair  Comments  at  20-  21. 


 269  Alaska  Comments  at  4-  5,  Bear  Stearns  En  Banc  Statement  at  1,  5;  Belo  Comments  at  14,  25;  Coalition 
 Broadcasters  Comments  at  4-  6;  Duhamel  Comments  at  5-  6;  Emmis  Comments  at  31-  33;  Fox  Comments  at  3,  6;  Gray  Comments  at  6-  16;  Granite  Comments  at  3-  6,  8-  10;  Hearst-  Argyle  Reply  Comments  at  2-  6;  Media  General  et 


 al.  Comments  at  3-  7;  NAB  Comments  at  8-  14;  Nexstar  Comments  at  13-  18;  Pappas  Comments  at  12-  14;  Paxson  Comments  at  5-  6,  29-  30;  Sinclair  Comments  at  8-  19. 


 270  Alaska  Comments  at  4-  5,  Bear  Stearns  En  Banc  Statement  at  5,  Belo  Comments  at  12-  19;  Coalition  Broadcasters 
 Comments  at  4-  8;  Duhamel  Comments  at  7;  Emmis  Comments  at  25-  30;  Fox  Comments  at  33-  34;  Gray  Comments  at  6-  15;  Granite  Comments  at  10-  11;  Hearst-  Argyle  Reply  Comments  at  8-  9;  Media  General  et  al.  Comments  at  7; 


 NAB  Comments  at  15-  18;  Nexstar  Comments  at  6-  13;  Pappas  Comments  at  12-  15;  Paxson  Comments  at  27-  29;  Sinclair  Comments  at  20-  37. 
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 offer  programming  that  is  diverse  in  terms  of  both  viewpoint  and  program  format.  271  Finally,  these  commenters  contend  that  the  current  rule  does  not  promote  localism.  Rather,  they  contend  that  the  rule  is 
 harming  localism  by  preventing  combinations  that  would  yield  efficiencies  that  would  expand  local  news  offerings  and  other  programming  relevant  to  the  needs  and  interests  of  viewers  in  local  markets.  272 


 139.  Commenters  who  urge  us  to  retain  the  current  rule  assert  that  relaxation  of  the  rule  will  harm  competition,  diversity,  and  localism.  273  These  commenters  contend  that  competition  will  be  harmed 
 because  non-  consolidated  broadcasters  will  face  anticompetitive  behavior  from  broadcasters  who  own  more  than  one  station  within  a  local  market.  274  They  assert  that  there  is  a  clear  connection  between 
 ownership  and  viewpoint  diversity  because  owners  can  and  do  express  viewpoints  through  their  editorial  control  over  what  is  aired.  275  They  urge  us  to  retain  the  current  rule  in  order  to  promote  the  publics  First 
 Amendment  interest  in  a  robust  marketplace  of  ideas,  and  to  protect  the  viewpoint  diversity  that  they  state  is  critical  to  ensuring  an  informed  electorate.  276  They  also  contend  that  further  consolidation  in  local 
 television  markets  will  result  in  less  local  control  over  programming.  277  We  address  each  of  these  arguments  below  in  our  analysis  of  whether  the  current  rule  remains  necessary  in  the  public  interest  as 
 required  by  section  202(  h). 
 a.  Competition 
 140.  We  conclude  that  the  current  local  TV  ownership  rule  is  not  necessary  to  protect  competition.  By  limiting  common  ownership  of  television  stations  in  local  markets  where  at  least  eight 


 independently  owned  TV  stations  would  remain  post-  merger,  the  current  rule  prohibits  mergers  that  would  increase  efficiency  in  small  and  mid-  sized  markets  mergers  that  would  thereby  promote 
 competition.  In  addition,  by  limiting  common  ownership  to  no  more  than  two  television  stations,  the 
 271  Alaska  Comments  at  6;  Bear  Stearns  En  Banc  Statement  at  5;  Belo  Comments  at  22-  24;  Coalition  Broadcasters 
 Comments  at  6-  7;  Duhamel  Comments  at  6-  7;  Fox  Comments  at  30-  32;  Gray  Comments  at  17;  Granite  Comments  at  14;  Hearst-  Argyle  Reply  Comments  at  7-  8;  Media  General  et  al.  Comments  at  2;  NAB  Comments  at  36-  37; 


 Nexstar  Comments  at  10,  13;  Pappas  Comments  at  14;  Sinclair  Comments  at  16-  18,  26-  27. 
 272  Alaska  Comments  at  5-  6;  Bear  Stearns  En  Banc  Statement  at  5;  Belo  Comments  at  12;  Coalition  Broadcasters 
 Comments  at  4-  5;  Fox  Comments  at  35-  41;  Gray  Comments  at  16-  19;  Granite  Comments  at  3-  7;  Media  General  et  al.  Comments  at  5,  7;  NAB  Comments  at  40;  Paxson  Comments  at  28;  Sinclair  Comments  at  30,  54. 


 273  AFL-  CIO  Comments  at  49;  AFTRA  Comments  at  3,  14;  CFA  Comments  at  184;  CWA  Comments  at  ii,  16; 
 Children  Now  Comments  at  11-  12,  18,  23;  Entravision  Comments  at  3-  8;  UCC  Comments  at  39-  41. 
 274  AFL-  CIO  Comments  at  31;  AFTRA  Comments  at  3,  25-  26;  CFA  Comments  at  186-  187.  Entravision  makes  a 
 similar  assertion,  although  it  does  not  take  a  position  on  whether  to  relax  the  local  ownership  rule.  Entravision  Comments  at  6-  10.  Instead,  Entravision  proposes  that  we  address  anticompetitive  conduct  by  establishing  certain 


 other  requirements.  Id. 
 275  AFL-  CIO  Comments  at  15-  25;  AFTRA  Comments  at  11-  14;  CFA  Comments  at  263;  CWA  Comments  at  28-  32; 
 UCC  Comments  at  4-  9. 
 276  AFL-  CIO  Comments  at  3,  5-  9;  AFTRA  Comments  at  11;  CFA  Comments  at  30-  32;  CWA  Comments  at  1-  3; 
 UCC  Comments  at  61-  64. 
 277  AFL-  CIO  Comments  at  51-  53;  AFTRA  Comments  at  10-  12;  CFA  Comments  at  250-  252;  CWA  Comments  at 
 30-  32;  Children  Now  Comments  at  12;  UCC  Comments  at  12-  17. 
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 current  rule  prohibits  efficiency  enhancing  mergers  in  the  largest  markets.  The  current  rule  also  prohibits  mergers  among  the  top  four-  ranked  stations.  278  After  reviewing  all  of  the  record  evidence,  we  conclude 
 that  this  restriction  remains  necessary  to  promote  competition,  so  we  are  retaining  a  prohibition  on  mergers  of  the  top  four-  ranked  stations  in  the  modified  local  TV  ownership  rule  we  are  adopting  today. 
 Todays  decision  benefits  from  numerous  empirical  studies  that  provide  a  wealth  of  competition  information  not  previously  available.  279 


 141.  In  the  Notice,  we  requested  comment  on  the  definition  of  the  product  and  geographic  markets  in  which  broadcast  television  stations  compete.  Based  on  the  record,  we  conclude  that  broadcast 
 television  stations  operate  in  three  product  markets:  a  market  for  delivered  video  programming  (  DVP);  a  video  advertising  market;  and  a  video  program  production  market.  280  Although  each  of  these  markets  is 
 discussed  below,  our  primary  concern  is  promoting  competition  for  viewers.  Therefore,  we  will  focus  on  competition  in  the  DVP  market.  It  is  this  market  that  directly  affects  viewers.  The  advertising  market 
 and  the  program  production  market  are  of  concern  to  the  Commission  only  to  the  extent  that  protecting  competition  in  these  markets  may  add  an  extra  level  of  protection  for  the  public  and  enable  all  television 
 broadcasters  to  compete  fairly  for  advertising  revenue  and  programming.  What  is  critical  to  our  competition  policy  goals,  however,  is  the  assurance  of  a  sufficient  number  of  strong  rivals  actively 
 engaged  in  competition  for  viewing  audiences.  As  long  as  there  are  numerous  rival  firms  in  the  DVP  market,  viewers  interests  will  be  advanced.  We  first  analyze  the  DVP  market. 


 (i)  The  DVP  Market 
 142.  The  evidence  in  the  record  suggests  that  television  viewers  do  not  consider  non-  video  entertainment  alternatives  (e.  g.,  reading  and  listening  to  music)  and  non-  delivered  video  (e.  g., 


 VCRs/  DVDs  and  movie  theaters)  to  be  good  substitutes  for  watching  television.  281  In  defining  the  market,  we  follow  the  DOJ/  FTC  Merger  Guidelines  and  ask  whether  the  availability  of  entertainment 
 alternatives  is  sufficient  to  prevent  a  significant  and  non-  transitory  increase  in  price.  If  they  were  good  substitutes  to  watching  television,  relative  changes  in  prices  or  other  competitive  variables  should  change 


 278  The  top  four-  ranked  station  component  of  this  standard  is  designed  to  ensure  that  the  largest  stations  in  the 
 market  do  not  combine  and  create  potential  competition  concerns.  These  stations  generally  have  a  large  share  of  the  audience  and  advertising  market  in  their  area,  and  requiring  them  to  operate  independently  will  promote 


 competition.  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12933-  34    66. 
 279  See,  e.  g.,  Id.  at  12918    31.  (  We  are  aware  of  no  definitive  empirical  studies  that  quantify  the  extent  to  which 
 the  various  media  are  substitutable  in  local  markets.). 
 280  Fox  Comments,  Exhibit  3,  Bruce  M.  Owen,  Statement  on  Media  Ownership  Rules  (Jan.  2003)  at  1-  2  (  Fox 
 Comments,  Owen  Statement). 
 281  In  defining  the  relevant  product  market  for  merger  analysis,  one  starts  with  the  products  supplied  by  the  merging 
 firms  and  asks  whether  a  monopolist,  supplying  those  products,  would  profitably  impose  a  small  but  significant  and  non-  transitory  price  increase.  If  the  monopolist  would  not  be  able  to  impose  such  a  price  increase,  then  one 


 adds  in  the  next  closest  substitute  to  the  products  of  the  merging  firms  and  repeats  the  experiment.  Gregory  J.  Werden,  The  1982  Merger  Guidelines  and  the  Ascent  of  the  Hypothetical  Monopolist  Paradigm,  at 
 http://  www.  usdoj.  gov/  atr/  hmerger/  11256.  htm  (visited  Mar.  20,  2003).  This  approach  has  been  referred  to  as  the  smallest  market  principle. 
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 household  consumption  of  television.  282  The  record  evidence  suggests,  however,  that,  while  the  price  of  subscribing  to  cable  and  DBS  has  increased  faster  than  the  rate  of  inflation,  these  price  increases  have  not 
 resulted  in  households  dropping  their  subscriptions  to  cable  and  DBS,  283  or  reducing  the  amount  of  time  households  spend  watching  television.  In  fact,  the  amount  of  time  households  spend  watching  DVP  on 
 television  has  remained  unchanged  for  30  years.  284  Thus,  DVP  providers  have  indeed  been  able  to  impose  non-  transitory  price  increases.  This  suggests  that  the  relevant  product  market  is  no  broader  than 
 DVP  and  should  not  include  all  entertainment  activities. 
 143.  For  most  viewers  the  programming  choices  offered  by  local  broadcast  television  stations  and  cable  networks  represent  good  alternatives  for  one  another.  Most  households  subscribe  to  cable  or 


 DBS  and  receive  DVP  from  cable  networks  and  local  broadcast  television  stations.  285  These  viewers  need  only  touch  their  remote  control  to  switch  between  the  programming  offered  by  cable  networks  and  that  of 
 local  broadcast  television  stations.  The  ease  of  switching  from  broadcast  to  cable  networks  for  these  households  provides  strong  incentives  for  cable  networks  and  local  broadcast  television  stations  to 
 provide  programs  that  attract  viewers.  The  owners  of  cable  networks  and  local  broadcast  television  stations  know  that  anything  that  reduces  a  programs  appeal  will  cause  cable  and  DBS  subscribers  to 
 switch  to  programming  offered  by  other  cable  networks  or  broadcast  stations.  286  As  such,  all  the  broadcast  television  stations  and  cable  networks  available  to  a  significant  number  of  cable  subscribers  in  a 


 282  Horizontal  Merger  Guidelines  issued  by  the  U.  S.  Department  of  Justice  and  the  Federal  Trade  Commission,  57 
 Fed.  Reg.  41552  (dated  Apr.  2,  1992,  revised,  Apr.  8,  1997)  (  DOJ/  FTC  Merger  Guidelines).  Section  1.11  of  the  DOJ/  FTC  Merger  Guidelines  states:  In  considering  the  likely  reaction  of  buyers  to  a  price  increase,  the  Agency 


 will  take  into  account  all  relevant  evidence,  including,  but  not  limited  to,  the  following:  (1)  evidence  that  buyers  have  shifted  or  have  considered  shifting  purchases  between  products  in  response  to  relative  changes  in  price  or 
 other  competitive  variables 
 283  Over  the  past  several  years,  despite  the  fact  that  prices  for  MVPD  service,  particularly  cable,  have  increased 
 significantly,  the  percentage  of  households  subscribing  to  such  service  also  has  increased.  See,  2002  Video  Competition  Report,  supra  note  96.  See  also  Reports,  1994-  2001:  1994  Video  Competition  Report,  supra  note  138; 


 Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  11  FCC  Rcd  2060  (1996)  (  1995  Video  Competition  Report);  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the 
 Delivery  of  Video  Programming,  12  FCC  Rcd  4358  (1997)  (  1996  Video  Competition  Report);  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  13  FCC  Rcd  1034  (1998)  (  1997 
 Report);  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video  Programming,  13  FCC  Rcd  24284  (1998)  (  1998  Video  Competition  Report);  and  Annual  Assessment  of  the  Status  of  Competition  in  the 
 Market  for  the  Delivery  of  Video  Programming,  15  FCC  Rcd  978  (2000)  (  1999  Video  Competition  Report);  2000  Video  Competition  Report,  supra  note  220;  2001  Video  Competition  Report,  supra  note  236. 


 284  Adults  spent  46.5  percent  of  their  total  leisure  time  watching  television  in  1970  and  46.1  percent  in  2000. 
 Harold  L.  Vogel,  ENT.  INDUS.  ECON.:  A  GUIDE  FOR  FINANCIAL  ANALYSIS  (5  th  Ed)  at  9.  The  46.1  percent  statistic  includes  time  spent  watching  network  affiliates,  independent  stations,  basic  cable  programs  and  pay  cable  programs. 


 It  does  not  include  non-  delivered  video  such  as  movie  theaters,  video  tapes,  and  video  games. 
 285  Our  most  recent  Annual  Video  Competition  Report  found  that  85.25%  of  all  U.  S.  television  households 
 subscribe  to  an  MVPD.  See  2002  Video  Competition  Report,  17  FCC  Rcd  26901  at  Appendix  B,  Table  B-  1. 
 286  The  analytical  approach  of  the  DOJ/  FTC  Merger  Guidelines  begins  with  a  focus  on  consumers.  Whether  a 
 proposed  merger  or  acquisition  is  anticompetitive  is  determined  in  part  by  asking  what  alternatives  are,  or  would  be,  available  to  customers  in  the  event  that  prices  increase  or  service  deteriorates.  Fox  Comments,  Owen  Statement  at 


 2-  3. 
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 DMA  should  be  included  as  participants  in  the  market  for  DVP. 
 144.  The  programming  quality  delivered  to  the  minority  of  households  that  do  not  subscribe  to  cable  or  DBS  is  protected  by  the  majority  of  households  that  do  subscribe.  Although  non-  subscribing 


 households  have  fewer  program  choices  than  subscribing  households,  broadcasters  cannot  reduce  the  viewer  appeal  of  their  programming  to  non-  subscribing  households,  without  also  reducing  the  viewer 
 appeal  of  their  programming  to  subscribing  households.  Broadcasters  deliver  the  same  programming  to  both  subscribing  and  non-  subscribing  households.  Thus,  the  majority  of  households  that  subscribe  to 
 cable  or  DBS  assure  that  non-  subscribing  households  receive  appealing  programming. 
 145.  Although  viewers  easily  switch  between  the  programming  offered  by  broadcast  television  stations  and  the  programming  offered  by  cable  networks,  broadcast  television  stations  and  cable  networks 


 may  respond  differently  to  changes  in  local  market  concentration.  Therefore,  in  formulating  our  revised  local  broadcast  television  ownership  rules,  we  continue  to  draw  a  distinction  between  television  broadcast 
 stations  and  cable  networks.  Because  cable  networks  typically  offer  national  programming  nationwide,  they  have  incentives  to  respond  to  conditions  in  the  national  market.  It  is  unlikely  that  mergers  between 
 broadcast  television  stations  in  any  local  market  would  alter  the  competitive  strategy  of  a  national  cable  network.  In  contrast,  local  broadcast  television  stations  offer  a  mix  of  national  programming  and  local 
 programming  in  a  geographic  area  typically  no  larger  than  a  DMA.  As  such,  local  broadcast  television  stations  have  incentives  to  respond  to  conditions  in  local  markets.  It  is  the  unilateral  and 
 coordinated  responses  of  local  broadcast  television  stations  to  mergers  between  local  broadcast  television  stations  that  may  result  in  potential  competitive  harms.  Thus,  we  focus  on  ownership  of  television 
 broadcast  stations,  not  cable  networks,  to  promote  competition  in  local  television  markets. 
 (a)  Geographic  Market  for  DVP 
 146.  As  we  evaluate  the  competitive  effects  of  mergers  between  local  broadcast  television  stations,  we  must  define  the  relevant  geographic  market  for  the  DVP  market.  Generally,  cable  systems 


 carry  all  the  broadcast  stations  assigned  to  the  DMA  in  which  they  are  located,  pursuant  to  our  must-carry/  retransmission  consent  requirements.  287  Cable  systems  providing  service  to  the  majority  of 
 households  also  carry  most  major  cable  networks.  As  such,  the  relevant  geographic  market  for  DVP  is  the  DMA  for  most  mergers  between  local  broadcast  television  stations. 


 (b)  Efficiencies  of  Common  Ownership  of  Television  Broadcast  Stations  in  DVP  Markets 
 147.  We  recognize  that  common  ownership  of  stations  may  result  in  consumer  welfare  enhancing  efficiencies.  First,  common  ownership  of  broadcast  television  stations  in  a  local  market  can 
 facilitate  efficiencies  and  cost  savings.  288  Joint  operations  can  eliminate  redundant  studio  and  office  space,  equipment,  and  personnel,  and  increase  opportunities  for  cross-  promotion  and  counter- 


 287  See  47  C.  F.  R.    76.55(  b)-(  e)  (defining  local  noncommercial  educational  television  station,  local  commercial 
 television  station  and  television  market  for  purposes  of  signal  carriage  obligations);  47  C.  F.  R.    76.56  (signal  carriage  obligations). 


 288  Randy  Falco,  President  of  NBC  Television  Network,  argues  that  broadcasters  have  large  sunk  costs  in 
 programming  and  ownership  of  multiple  stations  at  the  local  level  enables  broadcasters  to  amortize  programming  costs  across  more  platforms.  Bear  Stearns  Comments  at  208-  09. 
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 programming.  289  Our  current  rule  hinders  the  realization  of  efficiencies  by  prohibiting  common  ownership  of  television  stations  in  most  DMAs.  To  enhance  the  ability  of  broadcast  television  to  compete 
 with  cable  and  DBS  in  more  DMAs,  we  believe  that  the  potential  efficiencies  and  cost  savings  of  multiple  station  ownership  should  be  available  to  stations  in  a  larger  number  of  DMAs  than  permitted  by  our 
 current  rule.  290 
 148.  Common  ownership  of  broadcast  television  stations  in  a  local  market  may  also  spur  the  transition  to  digital  television.  The  DTV  transition  is  a  government-  mandated  undertaking  designed  to 


 achieve  several  important  goals,  including:  (1)  the  preservation  of  free,  universally  available  local  broadcast  television  in  a  digital  world;  and  (2)  the  promotion  of  spectrum  efficiency  and  the  rapid 
 recovery  of  spectrum  for  other  uses.  291  In  developing  DTV  build-  out  rules  for  broadcast  stations,  the  Commission  has  recognized  the  particular  financial  challenges  faced  by  stations  in  smaller  markets.  292 
 Nevertheless,  many  DTV  construction  costs  do  not  vary  with  market  size  and  thus  it  still  may  be  relatively  more  difficult  for  stations  in  these  markets  to  finance  the  transition  to  DTV.  293 


 149.  We  believe  that  our  modified  rule,  which  permits  the  common  ownership  of  at  least  two  television  stations  in  most  markets,  will  have  a  beneficial  impact  on  the  DTV  transition.  One  study  shows 
 that  stations  that  are  commonly  owned  and  stations  involved  in  joint  operating  arrangements  are  further  along  in  the  DTV  transition.  294  Common  ownership  could  facilitate  cost  savings  by  sharing  DTV 
 equipment  (e.  g.,  towers,  production  equipment)  and  engineering  personnel.  Common  ownership  would  also  allow  the  expertise  gained  in  transitioning  one  station  to  DTV  to  be  transferred  to  other  commonly 
 owned  stations. 
 150.  Our  competition  goal  seeks  to  ensure  that  for  each  television  market,  numerous  strong  rivals  are  actively  engaged  in  competition  for  viewing  audiences.  Although  mergers  among  participants 


 in  the  DVP  market  would  not  affect  the  number  of  delivered  video  program  streams,  they  might  adversely  affect  the  types  or  characteristics  of  the  programming  offered  by  the  merged  entities  to  the  detriment  of 
 viewers.  Audience  share  data,  however,  reveals  that  common  ownership  of  two  broadcast  television 


 289  Sinclair  Comments  at  16,  Exhibit  8  at  30-  31. 
 290  Alaska  Comments  at  3-  4.  Alaska  contends  that  the  current  rule  gives  relief  to  large  market  broadcasters  but 
 denies  the  benefits  of  common  ownership  to  small  market  broadcasters.  See  also,  Granite  Comments  at  14;  Gray  Comments  at  17;  and  Nexstar  Comments  at  20-  22. 


 291  See,  e.  g.,  Advanced  Television  Systems  and  Their  Impact  Upon  the  Existing  Broadcast  Service,  12  FCC  Rcd 
 12809,  12811-  12    5-  6  (1997)  (  Fifth  Report  and  Order). 
 292  See  Review  of  the  Commissions  Rules  and  Policies  Affecting  the  Conversion  to  Digital  Television,  16  FCC  Rcd 
 20594  (2001)  (permitting  stations  in  markets  beyond  the  top  thirty  markets  initially  to  come  on  the  air  with  lower-powered    and  therefore  less  expensive    facilities,  to  operate  at  a  reduced  schedule,  and  to  file  for  extensions  of 


 time  to  construct  based  on  financial  hardship);  Fifth  Report  and  Order,  12  FCC  Rcd  at  12842    78  (adopting  staggered  construction  schedule  to  help  reduce  costs  for  smaller  market  stations  and  permit  them  to  learn  from  the 
 experience  of  stations  in  larger  markets). 
 293  Media  General  et  al.  Comments  at  5. 


 294  Coalition  Broadcasters  Comments,  Appendix  B,  Study  of  DTV  Rollout  by  Smaller  Stations  in  Markets  51-  100. 
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 stations  has  generally  improved  audience  ratings.  295  That  is,  the  evidence  we  have  for  common  ownership  of  two  television  stations  suggests  that  more  viewers  prefer  the  post-  merger  programming.  We 
 therefore  conclude  that  our  current  rule,  which  prohibits  common  ownership  of  broadcast  television  stations  in  most  markets,  is  overly  restrictive.  Because  some  relaxation  of  the  current  rule  to  permit 
 additional  consolidation  in  local  television  markets  would  facilitate  efficiencies  and  likely  result  in  the  delivery  of  programming  preferred  by  viewers,  we  conclude  that  our  current  rule  cannot  be  justified  on 
 grounds  of  competition  in  the  market  for  DVP. 
 (ii)  Video  Advertising  Market 
 151.  We  conclude  that  the  current  rule  is  not  necessary  to  promote  competition  in  the  video  advertising  market.  We  are  concerned  with  competition  in  the  broadcast  television  advertising  market 


 only  to  the  extent  that  it  adds  an  extra  level  of  protection  to  viewers  and  enables  broadcasters  to  compete  for  advertising  revenue.  We  conclude  that  our  local  TV  ownership  rule  restricts  many  broadcasters  to 
 suboptimal  size  and,  therefore,  hinders  their  ability  to  compete  with  other  media  for  advertising  revenue.  That  said,  competitive  broadcast  television  advertising  markets  may  require  a  larger  number  of  owners  of 
 DVP  than  are  necessary  to  protect  competition  in  the  DVP  market.  As  such,  assuring  competition  in  video  advertising  markets  may  provide  the  public  with  an  added  level  of  protection.  A  larger  number  of 
 television  station  owners  in  a  local  television  market  may  also  lower  the  potential  for  the  exercise  of  market  power  by  any  one  broadcaster  and,  therefore,  help  smaller  or  non-  consolidating  broadcasters 
 compete  for  advertising  revenue. 
 152.  We  have  determined  that  broadcast  television  advertising  is  a  relevant  product  market.  Advertisers  differ  in  their  ability  to  substitute  between  alternative  media.  Although  some  advertisers  that 


 use  broadcast  television  stations  may  consider  cable  networks  or  the  advertising  time  sold  by  local  cable  operators  to  be  good  substitutes,  other  advertisers  may  not  consider  these  alternatives  to  be  good 
 substitutes.  296  In  addition,  most  advertisers  that  use  broadcast  television  stations  do  not  consider  radio,  newspapers,  and  other  non-  video  delivery  media  to  be  good  substitutes.  297  We  disagree  with  studies 


 295  Id.,  Attachment  A:  Television  Local  Marketing  Agreement  and  Local  Duopolies:  Do  They  Generate  New 
 Competition  and  Diversity?  Mark  R.  Fratrik,  BIA  Financial  Network  (Jan.  2003).  Fratrik  evaluated  the  performance  of  LMA  or  co-  ownership  operations  involving  LIN  Television  and  Raycom  Media,  and  other  local 


 television  stations  in  seven  markets  and  determined  that  in  all  markets,  these  arrangements  led  to  significant  increases  in  both  audience  share  and  advertising  revenue. 


 296  David  Barrett,  President  and  Chief  Executive  Officer  of  Hearst-  Argyle  Television,  Inc.,  argues  that  over-  the-  air 
 television  stations  have  the  most  popular  programs  and  can  aggregate  the  largest  audience.  When  it  comes  to  attracting  advertisers,  Mr.  Barrett  maintains  that  broadcast  television  stations  have  absolute  advantages  over  niche 


 boutique  cable  network  offerings.  Bear  Stearns  Comments  at  26. 
 297  MOWG  Study  No.  10,  On  the  Substitutability  of  Local  Newspaper,  Radio,  and  Television  Advertising  in  Local 
 Business  Sales  by  Anthony  C.  Bush  (Sept.  2002)  (  MOWG  Study  No.  10).(  finding  weak  substitutability  between  local  television  and  local  radio  and  weak  substitutability  between  local  television  and  local  newspapers);  Fox 


 Comments,  Owen  Statement  at  12  (asserting  that  merger  enforcement  in  the  media  has  tended  to  focus  on  rather  narrow  advertising  markets,  that  DOJ  excludes  television  and  newspaper  advertising  as  alternatives  to  radio  when 
 considering  the  advertising  market  definition  in  radio  station  mergers,  and  that  DOJ  has  similarly  rejected  television  and  radio  advertising  as  alternatives  for  newspaper  advertisers  when  considering  newspaper  mergers);  IPI 
 Comments,  Appendix  A  (finding  no  responsiveness  of  local  cable  television  advertising  rates  to  changes  in  local  broadcast  television  advertising  rates).  The  findings  of  IPIs  study  suggest  that  cable  may  have  market  power  over 
 some  local  advertisers.  IPIs  study  does  not,  however,  address  the  issue  of  whether  consolidation  of  broadcast  (continued.) 
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 suggesting  that  broadcast  television  is  not  a  relevant  product  market.  298  A  critical  failing  of  these  studies  is  the  assumption  that  any  exercise  of  market  power  would  result  in  a  general  and  uniform  price  increase 
 to  all  advertisers.  These  studies  argue  that  a  significant  number  of  advertisers  have  good  substitutes  for  broadcast  television  and  could  defeat  a  general  and  uniform  price  increase.  These  studies  fail  to 
 recognize  that  media  markets  are  characterized  by  repeated  interaction  that  enables  broadcasters  to  identify  advertisers  that  have  good  substitutes  for  broadcast  television  and  those  that  do  not  have  good 
 substitutes  for  broadcast  television.  With  this  information,  the  exercise  of  market  power  in  broadcast  television  markets  would  result  in  targeted  and  non-  uniform  price  increases  to  those  advertisers  that  do 
 not  have  good  substitutes  for  broadcast  television,  without  raising  prices  for  those  advertisers  that  do  have  good  substitutes  for  broadcast  television.  299 


 153.  Our  experience  suggests,  however,  that  common  ownership  of  two  local  broadcast  television  stations  has  produced  efficiencies  without  facilitating  the  exercise  of  market  power  in  the 
 broadcast  television  advertising  market.  Two  studies  in  the  record  evaluate  the  impact  of  consolidation  on  advertising  prices.  One  study  indicates  that  local  broadcast  advertising  prices  are  not  significantly 
 higher  for  stations  owned  or  operated  by  single  entity.  300  Another  study  examines  market  structure  in  the  Columbus,  Ohio,  DMA  following  a  broadcast  television  local  marketing  agreement  (  LMA)  301 
 combination  in  the  market  and  concludes  that  the  LMA  is  unlikely  to  result  in  any  competitive  harm  to  local  advertisers.  302  The  data  for  these  studies  were  based  on  the  common  operation  of  two  broadcast 
 (Continued  from  previous  page)  television  stations  in  a  local  market  could  have  market  power.  See  also  Bear  Stearns  Comments  at  88-  89  (Jeff 
 Smulyan,  Chairman,  Emmis  Corporation  asserts  that  the  audience  most  targeted  by  advertisers  (18  to  34  year-  olds  and  18  to  49-  year  olds)  are  not  reading  daily  newspapers  anymore,  which  gives  broadcast  television  an  advantage). 


 298  Crandall  contends  that  his  results  suggest  that  television  broadcast  is  not  its  own  product  market.  Sinclair 
 Comments,  Exhibit  1,  The  Economic  Impact  of  Providing  Service  to  Multiple  Local  Broadcast  Stations  Within  a  Single  Geographic  Market,  Robert  W.  Crandall,  at  23  (  Sinclair  Comments,  Crandall  Statement).  Baumann  and 


 McAnneny  contend  that  the  relevant  product  market  is  broader  than  broadcast  television  advertising  and  includes  cable  television,  radio,  newspaper,  outdoor,  and  direct  mail.  Sinclair  Comments,  Exhibit  8,  Analysis  of  the 
 Competitive  Effects  of  an  LMA  between  WTTE-  TB  and  WSYX-  TV  in  Columbus,  Ohio,  Michael  G.  Baumann  and  Joseph  W.  McAnneny  (Aug.  28,  1997)  at  20  (  Sinclair  Comments,  Baumann/  McAnneny  Statement). 


 299  Sinclair  Comments,  Baumann/  McAnneny  Statement  at  28-  30.  Baumann  and  McAnneny  maintain  that  price 
 discrimination  is  unlikely  because:  (1)  broadcasters  would  have  to  make  educated  guesses  to  identify  price-insensitive  advertisers,  (2)  advertisers  that  consider  broadcast  television  an  essential  outlet  have  an  incentive  to 


 disguise  their  preferences,  and  (3)  advertisers  could  use  media  buyers  and  advertising  agency  representatives  that  are  able  to  compare  rates  and  resist  attempts  to  charge  greatly  disparate  rates  for  similar  spots.  Id.  Baumann  and 
 McAnneny  do  not  explain  how  hiring  an  advertising  agency  prevents  price  discrimination.  We  are  not  persuaded.  Broadcasters  make  repeated  sales,  have  a  keen  understanding  of  the  price-  sensitivities  of  advertisers,  and  can 
 identify  advertisers  that  consider  television  an  essential  buy.  We  conclude  that  a  broadcaster  with  market  power  could  raise  prices  to  these  advertisers. 


 300  Sinclair  Comments,  Crandall  Statement  at  27.  Using  data  from  Sinclair,  Crandall  performs  an  econometric 
 analysis  of  58  stations  in  38  DMAs. 
 301  An  LMA  or  a  time  brokerage  agreement  is  a  type  of  contract  that  generally  involves  the  sale  by  a  licensee  of 
 discrete  blocks  of  time  to  a  broker  that  then  supplies  the  programming  to  fill  that  time  and  sells  the  commercial  spot  advertisements  that  support  the  programming.  See  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12958   


 126;  47  C.  F.  R.    73.3555,  Note  2(  j)  (2002). 
 302  Sinclair  Comments,  Baumann/  McAnneny  Statement  at  2. 
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 television  stations  in  the  same  market.  In  light  of  this  evidence,  and  evidence  cited  above  that  the  current  rule  prohibits  some  consumer  welfare  enhancing  combinations,  we  conclude  that  the  current  rule  is  overly 
 restrictive  and  not  necessary  to  protect  competition  in  the  broadcast  television  advertising  market. 
 (iii)  Video  Program  Production  Market 
 154.  We  conclude  that  the  current  rule  is  not  needed  to  protect  competition  in  the  video  program  production  market.  Broadcast  television  stations,  along  with  TV  networks,  cable  networks, 


 program  syndicators,  and  cable  and  DBS  operators  purchase  or  barter  for  video  programming.  The  channel  capacity  of  todays  cable  operators  and  DBS  operators  provides  many  more  opportunities  for 
 sellers  of  existing  and  new  video  programming,  compared  with  20  years  ago.  303  Many  of  the  programs  sold  today  are  specifically  targeted  to  the  niche  audiences  available  on  cable  networks.  In  addition,  many 
 video  programs  initially  sold  to  TV  networks  migrate  to  cable  networks,  and  a  few  programs  initially  sold  to  cable  networks  migrate  to  local  broadcast  television  stations.  Same-  market  combinations  are  only  of 
 concern  to  the  few  program  syndicators  that  sell  their  programming  directly  to  individual  local  television  stations.  These  program  syndicators  would  not  consider  sales  to  group  owners  of  television  stations  in 
 multiple  markets,  TV  networks,  and  cable  networks  to  be  good  substitutes  for  the  sale  of  programming  to  individual  stations.  These  program  syndicators  play  one  television  broadcast  station  against  another  in 
 the  same  market  to  sell  their  programming.  By  precluding  common  ownership  of  broadcast  television  stations  in  most  markets,  our  current  rule  provides  for  more  owners  of  television  broadcast  stations  in 
 most  markets  than  are  necessary  to  assure  that  program  syndicators  receive  a  fair  price  for  their  programming.  304  We  conclude,  therefore,  that  the  current  rule  is  not  necessary  to  protect  competition  in 
 the  video  program  production  market. 
 b.  Localism 
 155.  The  adoption  of  the  local  TV  ownership  rule  was  not  predicated  on  promoting  localism.  To  the  contrary,  the  Commission  has  previously  recognized  that  relaxation  of  the  rule  was  likely  to 


 promote  localism.  Specifically,  we  relaxed  the  local  TV  ownership  rule  in  1999  on  grounds  that  local  ownership  combinations  were  likely  to  yield  efficiencies  that  can  in  turn  lead  to  cost  savings,  which  can 
 lead  to  programming  and  other  service  benefits  that  enhance  the  public  interest.  305  The  primary  evidence  of  programming  and  service  benefits  was  anecdotal  evidence  of  increases  in  the  amount  of  local  news 
 and  public  affairs  programming  aired  by  stations  participating  in  LMAs.  306 
 156.  The  Notice  requested  comment  on  whether  and  how  the  local  TV  ownership  rule  affects  localism.  307  We  asked  whether  the  rule  affects  the  quantity  or  quality  of  local  news  and  other 


 programming  of  local  interest  produced  and  aired  by  local  stations,  and  whether  it  affects  the  local 


 303  See  supra    106-  128. 
 304  The  current  rule  ensures  that  there  are  at  least  eight  independent  owners  in  all  markets  with  eight  or  more 
 stations. 
 305  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12920    34. 


 306  Id.  at  12921-  22    36,  n.  68.  Most  of  the  record  evidence  of  the  potential  benefits  was  anecdotal  and  was 
 presented  by  broadcasters  based  on  their  own  experiences  with  LMAs. 
 307  Notice,  17  FCC  Rcd  at  18535    95. 
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 selection  of  news  content  that  is  aired.  308  We  sought  empirical  data  on  the  impact  that  common  ownership  and  operation  has  had  on  the  production  of  local  programming  by  stations  involved  in  such 
 combinations  or  arrangements,  and  data  on  the  quality  of  such  programming.  309  We  also  sought  comment  on  the  costs  of  producing  local  news  and  public  affairs  programming,  and  the  relationship  of  our  local  TV 
 ownership  rule  to  the  viability  of  such  programming.  310  Below,  we  analyze  the  relationship  of  the  current  rule  to  our  policy  goal  of  promoting  localism,  and  examine  whether  modification  of  the  rule  will  advance 
 this  policy  goal.  We  conclude  that  our  current  local  TV  ownership  rule  poses  a  potential  threat  to  local  programming,  and  that  modification  of  the  rule  is  likely  to  result  in  efficiencies  that  will  better  enable 
 local  television  stations  to  acquire  content  desired  by  their  local  audiences. 
 (i)  Local  Programming  Quantity  and  Quality 
 157.  Commenters  advocating  relaxation  of  the  local  TV  ownership  rule  contend  that  if  the  current  rule  has  any  relationship  to  localism,  it  is  to  hinder  the  achievement  of  this  policy  goal.  311 


 According  to  these  commenters,  the  current  financial  position  of  many  television  broadcasters  and  the  high  cost  of  producing  local  news  and  public  affairs  programming  threatens  existing  local  programming 
 and  precludes  development  of  new  programming.  312  These  commenters  contend  that  the  current  rule  prohibits  combinations  that  would  result  in  efficiencies  which  would  facilitate  production  of  more  local 
 news  and  public  affairs  programming,  or  at  least  protect  current  local  news  operations.  313  In  support  of  these  arguments,  commenters  provide  persuasive  anecdotal  and  empirical  evidence  of  how  LMA  and 
 duopoly  combinations  have  improved  local  coverage,  314  and  some  evidence  of  the  rising  costs  of  local  news  operations.  315 


 158.  On  the  other  hand,  commenters  opposing  modification  of  the  rule  assert  that  concentration 
 308  Id. 
 309  Id.  at  18535    95-  96. 
 310  Id.  at  18535    97. 
 311  Sinclair  Comments  at  29-  31;  Media  General  et  al.  Comments  at  5;  Duhamel  Comments  at  5-  6.  Several 
 commenters  state  that  our  localism  policy  is  unrelated  to  ownership  rules.  They  contend  that  localism  is  an  obligation  of  all  broadcast  licensees  that  is  enforced  through  our  licensing  and  license  renewal  processes.  See 


 Nexstar  Comments  at  18-  20;  Gray  Comments  at  16;  Sinclair  Comments  at  30-  31. 
 312  Alaska  Comments  at  6;  Belo  Comments  at  25;  Coalition  Broadcasters  Comments  at  4-  7;  Granite  Comments  at  6-7; 
 Gray  Comments  at  16-  18;  NAB  Comments  at  75-  77. 
 313  Alaska  Comments  at  5-  6;  Coalition  Broadcasters  Comments  at  4;  Duhamel  Comments  at  6;  Granite  Comments  at 
 7;  Gray  Comments  at  15-  16;  Hearst-  Argyle  Comments  at  8-  9;  Media  General,  et  al.  Comments  at  5;  NAB  Comments  at  78. 


 314  Belo  Comments  at  22-  24;  Coalition  Broadcasters  Comments  at  16-  33;  Fox  Comments,  Economic  Study  B,  Effect 
 of  Common  Ownership  or  Operation  on  Television  News  Carriage,  Quantity  and  Quality  (  Fox  News  Study);  Nexstar  Comments  at  2-  6. 


 315  NAB  Comments,  Attachment  D,  Newsroom  Budgets  in  Midsize  and  Small  Markets,  prepared  for  NAB  by  Smith 
 Geiger,  LLC  (  NAB  Newsroom  Costs  Study);  NAB  Comments,  Attachment  C,  The  Declining  Financial  Position  of  Television  Stations  in  Small  and  Medium  Markets  (  NAB  Comments,  Small  to  Medium  Markets  Statement). 
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 within  local  markets  impedes  localism,  as  evidenced  by  sharing  of  news  resources  and  one  case  of  reduced  local  news  offerings  following  the  establishment  of  a  same-  market  television  combination.  Some 
 of  these  commenters  anticipate  that  modification  of  the  local  television  ownership  rule  will  lead  to  television  programming  that  is  less  responsive  to  local  needs  based  on  their  observations  of  how  radio 
 consolidation  has  affected  local  programming.  316  In  support  of  their  contentions,  these  commenters  provide  examples  of  how  combinations  have  harmed  local  news  and  public  affairs  programming.  317  The 
 few  examples  provided,  however  especially  those  that  are  borrowed  from  the  newspaper  or  radio  contexts  do  not  persuade  us  that  local  combinations  of  television  stations  will  harm  localism. 


 (a)  Empirical  Evidence 
 159.  An  empirical  study  of  the  effects  of  common  ownership  or  operation  on  local  news  quantity  and  quality  provides  some  evidence  that  stations  that  are  commonly  owned  or  operated  are  more 


 likely  to  offer  local  news  than  independently  owned  stations.  The  study  submitted  by  Fox  (  News  Study)  examined  the  news  offerings  of  all  full-  power  commercial  television  broadcast  stations, 
 comparing  the  quantity  and  quality  of  local  news  offerings  of  stations  that  are  part  of  a  commonly  owned/  operated  pair  with  those  of  other  stations.  318  The  News  Study  found  that  stations  that  are  part  of  a 
 commonly  owned  local  station  group  or  LMA  are  significantly  more  likely  to  carry  local  news  than  other  stations,  even  controlling  for  other  factors.  The  study  also  found  that  the  total  minutes  of  local  news 
 carried  by  commonly  owned  or  operated  stations  is  similar  to  the  total  minutes  of  local  news  carried  by  other  stations,  as  is  the  quality  of  the  news  programming  as  measured  by  the  number  of  news  awards  the 
 stations  receive.  The  study  considered  whether  stations  that  compete  with  same-  market  combinations  increase  or  reduce  the  amount  of  local  news  they  air  in  response  to  the  presence  of  the  same-  market 
 combination,  and  found  that  the  presence  of  a  combination  had  no  statistically  significant  effect  on  the  amount  or  quality  of  news  programming  available  in  the  DMA,  after  controlling  for  other  factors.  319 


 (b)  Anecdotal  Evidence 
 160.  Broadcasters  provide  persuasive  anecdotal  evidence  in  support  of  their  claims  that  same-market  combinations  have  resulted  in  efficiencies  that  produce  public  interest  benefits.  Belo  states  that  its 


 acquisition  of  a  second  station  in  the  Seattle,  Washington,  DMA  has  resulted  in  an  extra  hour  of  news  programming,  320  and  has  allowed  Belo  to  devote  more  resources  to  public  affairs  programming.  321  Belos 


 316  AFL-  CIO  Comments  at  27-  30;  AFTRA  Comments  at  12-  14,  33-  35;  CFA  Comments  at  250-  260;  CWA 
 Comments  at  29,  32,  40-  42;  UCC  Comments  at  16,  51-  52. 
 317  Although  they  offered  anecdotal  evidence,  commenters  who  urge  us  to  retain  the  current  rule  did  not  provide 
 empirical  data  concerning  the  effects  of  same-  market  local  TV  combinations  on  local  news  and  public  affairs  programming.  PEJ  provided  an  empirical  study  that  analyzed  the  effects  on  local  news  of  the  following  factors: 


 size  of  a  station  group  (i.  e.,  across  all  markets),  network  affiliation,  cross-  ownership  of  other  media,  or  ownership  by  an  entity  with  corporate  headquarters  in  the  market.  Thus,  the  study  did  not  analyze  the  effects  on  local  news 
 of  common  ownership  of  more  than  one  television  station  in  a  market. 
 318  Fox  News  Study  at  3. 


 319  Id.  at  2. 
 320  Belo  Comments  at  22-  23.  The  stations  share  news  staff  but  have  separate  news  producers. 
 321  Id. 
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 second  station  in  Spokane,  Washington,  recently  began  airing  local  news,  322  and  a  recently  acquired  second  station  in  Tucson,  Arizona,  will  soon  begin  to  air  a  local  newscast.  323  Nexstar  states  that  local 
 news  and  public  affairs  programming  has  increased  as  a  result  of  its  LMAs  in  various  markets,  324  including,  for  example,  tripling  the  news  coverage  in  Bloomington,  Illinois,  from  one  crew  to  three 
 crews;  325  starting  the  markets  only  9:  00  PM  newscast;  326  reinstating  local  sports  programming;  327  and  producing  and  airing  a  new  local  public  affairs  program.  328 


 161.  Coalition  Broadcasters  point  to  similar  public  interest  benefits  resulting  from  their  same-market  combinations.  329  At  one  station  that  is  part  of  an  LMA,  efficiencies  allowed  for  an  increase  in  the 
 number  of  employees  devoted  to  producing  news  and  the  expansion  of  the  stations  local  news  from  six  hours  per  week  in  1994  to  19.5  hours  per  week  today.  330  Another  station  did  not  offer  any  regular  local 
 news  or  sports  coverage  and  provided  little  other  local  program  service  prior  to  entering  into  an  LMA,  which  later  became  a  duopoly.  331  Today,  the  station  broadcasts  approximately  120  local  university  sports 
 events  annually,  60-  second  news  briefs  twice  daily,  five  minute  news  briefs  during  university  games,  and  a  rebroadcast  of  the  news  of  its  LMA  partner  at  a  different  hour.  332  The  station  also  has  aired  21  locally-produced 
 evening  specials  over  the  past  two  years.  333  Operating  independently,  the  local  programming  offerings  of  two  UHF  stations  in  Cleveland,  Ohio,  were  scant    one  hour  of  local  news  on  one  of  the 
 stations,  and  no  local  news  on  the  other.  334  The  stations  then  entered  into  an  LMA  and  later  became  a  duopoly.  335  Today,  one  station  airs  7.5  hours  of  local  news  coverage  every  weekday,  and  the  other  offers 


 322  Id.  at  23.  Although  the  news  is  co-  produced  with  its  duopoly  pair,  the  station  airs  its  news  at  a  different  time  and 
 has  its  own  anchor  and  news  producer.  Id. 
 323  Id. 


 324  Nexstar  Comments  at  Appendix  A  (describing  public  interest  benefits  resulting  from  combinations  in  nine 
 markets). 
 325  Id.  at  A-  1. 


 326  Id.  (describing  changes  resulting  from  an  LMA  in  the  Peoria-  Bloomington,  Illinois  DMA). 
 327  Id.  (describing  changes  resulting  from  an  LMA  in  the  Joplin,  Missouri-  Pittsburg,  Kansas  DMA). 
 328  Id.  at  A-  2  (describing  changes  resulting  from  an  LMA  in  the  Wilkes  Barre-  Scranton,  Pennsylvania  DMA). 
 329  Coalition  Broadcasters  Comments  at  16-  34  (describing  public  interest  benefits  resulting  from  seven 
 combinations). 
 330  Id.  at  16  (describing  an  LMA  in  the  Fort  Myers-  Naples,  Florida  DMA). 


 331  Id.  at  18  (describing  a  combination  in  the  Honolulu,  Hawaii  DMA). 
 332  Id  at  18-  20. 
 333  Id. 
 334  Id.  at  21. 
 335  Id. 
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 one  hour  of  news  per  day,  as  well  as  news  breaks.  336  Fox  reports  that  the  1999  relaxation  of  the  local  TV  ownership  rule  allowed  it  to  create  nine  combinations,  which  are  airing  an  average  of  6%  more  local  news 
 than  before  Fox  acquired  these  stations.  337 
 162.  In  support  of  their  contention  that  relaxation  of  the  local  TV  ownership  rule  has  adversely  affected  localism,  AFL-  CIO  and  AFTRA  state  that  examples  of  the  loss  of  local  newscasts  .  .  .  as  a  result 


 of  media  consolidation  abound  nationwide  but  provide  only  three  examples,  two  of  which  concern  radio  combinations.  338  Specifically,  they  state  that  Sinclair  has  announced  plans  to  cease  local  production  of 
 weather  reports  at  its  two  television  broadcast  stations  in  the  Dayton,  Ohio,  DMA  which  now  will  air  weather  reports  generated  at  Sinclairs  Baltimore,  Maryland,  headquarters.  339  As  these  commenters 
 recognize,  Sinclair  stations  that  are  not  part  of  combinations  also  will  receive  weather  reports  from  corporate  headquarters,  so  this  evidence  does  not  demonstrate  that  consolidation  within  local  markets 
 decreases  local  origination  of  weather  reports  or  otherwise  reduces  local  programming.  340  Rather,  production  of  programming  at  a  national  headquarters  appears  to  be  motivated  by  the  ability  to  achieve 
 efficiencies  unrelated  to  the  number  of  stations  Sinclair  owns  within  a  particular  local  market.  341  AFL-CIO  and  AFTRA  also  state  that  when  Viacom  acquired  a  second  all-  news  radio  station  in  Chicago,  it  shut 
 down  one  of  the  stations,  eliminating  a  source  of  local  news.  342  Viacom  refutes  this  claim,  asserting  that  the  station  was  not  shut  down  but  that  its  format  was  changed  from  all  news  to  sports/  talk  in  order  to 
 meet  the  desires  of  local  audiences.  343  We  do  not  agree  that  a  change  in  format  is  the  same  as  shutting  down  a  station.  We  also  do  not  agree  that  a  single  example  of  a  radio  stations  format  change  can  be 
 extrapolated  into  a  general  statement  about  the  effects  of  our  existing  local  TV  rule,  or  a  predictive  statement  about  the  likely  result  of  modifying  the  rule. 


 336  Id.  Both  stations  have  access  to  significantly  improved  resources  and  facilities  for  news  production.  Prior  to  the 
 combination,  the  station  offering  news  had  seven  videographers,  25  other  staff,  and  a  single  news  truck.  Today,  the  stations  boast  a  combined  news  division  of  19  videographers,  73  other  staff,  four  news  trucks,  sixteen  cars,  a 


 helicopter,  six  ENG  microwaves  and  five  receive  sites.  Id.  at  21-  34  (describing  similar  public  interest  benefits  resulting  from  combinations  in  several  other  markets);  See  also  Statement  of  Edward  Munson,  Vice  President  and 
 General  Manager  of  WAVY(  TV)  and  WVBT(  TV)  at  FCC  Field  Hearing  on  Media  Ownership,  Feb.  27,  2002  (  LIN  En  Banc  Statement)  (describing  similar  public  interest  benefits  resulting  from  a  combination  in  the  Richmond, 
 Virginia  DMA). 
 337  Fox  Comments,  News  Programming  Exhibit  1  at  3-  4.  Fox  states  that  in  each  case,  it  has  owned  the  second 
 station  for  16  months  or  less.  Id. 
 338  AFL-  CIO  Comments  at  47-  49;  AFTRA  Comments    32-  40. 


 339  AFL-  CIO  Comments  at  48;  AFTRA  Comments    32-  40. 
 340  Sinclair  Reply  Comments  at  12  (as  evidenced  by  its  use  of  NewsCentral  in  markets  in  which  it  owns  only  one 
 station,  Sinclairs  NewsCentral  initiative  has  nothing  to  do  with  duopoly). 
 341  Sinclair  states  that  its  NewsCentral  initiative,  pursuant  to  which  it  produces  news  from  a  central  location,  is 
 intended  to  allow  Sinclair  to  produce  and  broadcast  news  in  a  more  efficient  manner  than  is  currently  the  case,  and  is  not  relevant  to  the  instant  proceeding.  Id.  at  6. 


 342  AFL-  CIO  Comments  at  48-  49;  AFTRA  Comments    32-  40. 
 343  Viacom  Reply  Comments  at  5-  6. 
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 163.  UCC  believes  that  the  increased  common  ownership  of  stations  in  the  same  market  has  reduced  the  amount  of  local  programming  because  co-  owned  stations  consolidate  staff  and  resources  that 
 produce  local  information.  344  UCC  complains  that,  as  a  result  of  the  1999  relaxation  of  the  local  TV  ownership  rule,  there  are  now  at  least  75  commonly  owned  station  pairs  and  20  station  pairs  that  are  part 
 of  LMAs.  345  UCC  provides  examples  of  two  markets  where  commonly  owned  stations  share  resources,  346  and  one  market  where  a  combination  that  once  shared  news  resources  ceased  to  produce  local  news 
 entirely,  relying  on  news  produced  by  another  station  in  the  market.  347  The  effects  of  same-  market  combinations  on  news  production  in  just  three  markets  are  not  a  sufficient  basis  for  a  conclusion  about  the 
 effects  of  some  95  same-  market  combinations  on  localism.  Moreover,  although  the  examples  provided  show  that  the  subject  stations  no  longer  produce  news  independently,  this  does  not  necessarily  translate 
 into  less  local  news.  348  The  subject  stations  may  now  offer  the  same  news  at  different  times,  which  might  actually  expand  the  amount  of  news  available  to  viewers  in  that  market,  if  viewers  previously 
 unable  to  watch  news  programming  can  watch  the  news  at  a  different  time.  349  By  combining  resources,  the  subject  stations  may  also  be  offering  more  coverage  of  local  events  than  before.  UCCs  anecdotal 
 evidence  does  not  address  these  factors. 
 (c)  Conclusion 
 164.  On  balance,  evidence  presented  by  commenters  concerning  the  amount  and  quality  of  local  news  and  public  affairs  programming  suggests  that  owners/  operators  of  same-  market  combinations 


 have  the  ability  and  incentive  to  offer  more  programming  responsive  to  the  needs  and  interests  of  their  communities  and  that  in  many  cases,  that  is  what  they  do.  Thus,  modifications  to  the  rule  that  will  allow 
 for  greater  common  ownership  are  likely  to  advance  our  localism  goal. 
 (ii)  Effect  of  Local  Market  Consolidation  on  Local  Control  Over  Content 
 165.  Without  linking  their  conclusions  to  a  specific  rule,  AFL-  CIO  and  AFTRA  contend  that  media  consolidation  generally  reduces  local  control  over  content  and  places  greater  control  in  the  hands 


 of  the  corporate  headquarters  of  the  entity  that  owns  a  given  outlet.  350  They  further  state  that  by  reducing 
 344  UCC  Comments  at  39-  40. 
 345  Id. 
 346  Id.  at  40  (discussing  the  combined  operations  of  two  stations  owned  by  Viacom  in  New  York,  New  York  and 
 two  stations  owned  by  Fox  in  Los  Angeles,  California). 
 347  Id.  (describing  a  Detroit,  Michigan  combination  owned  by  Viacom  that  now  obtains  news  from  a  competitor). 


 348  The  production  of  local  news  by  more  owners  relates  to  viewpoint  diversity,  not  localism. 
 349  According  to  Belo,  broadcasters  owning  or  operating  same-  market  combinations  have  strong  economic 
 incentives  to  add  news  programming  to  commonly  owned  stations.  At  a  minimum,  such  broadcasters  would  repurpose  newscasts  at  staggered  times  to  increase  audience  share,  thereby  bringing  local  audiences  more  viewing 


 opportunities.  Belo  Comments  at  24-  25.  Coalition  Broadcasters  assert  that  even  the  limited  consolidation  achieved  through  existing  LMAs  and  duopolies  has  enabled  in-  market  stations  to  offer  beneficial  services  such  as 
 local  news  and  public  affairs  programming  and  other  innovative  services.  See  Coalition  Broadcasters  Comments  at  6-  7. 


 350  AFL-  CIO  Comments  at  51-  53;  AFTRA  Comments    46-  51. 
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 the  number  of  available  employers  at  the  local  level,  consolidation  makes  news  professionals  less  likely  to  risk  alienating  their  employers  by  challenging  their  demands.  351  In  support  of  this,  AFL-  CIO  and  AFTRA 
 cite  their  own  experience  in  contract  negotiations,  which  they  contend  are  conducted  by  corporate,  not  local  station  representatives.  They  do  not,  however,  provide  any  examples  of  negotiations,  nor  do  they 
 offer  a  comparison  between  negotiations  with  employers  that  own  more  than  one  station  in  a  market  and  those  that  own  single  stations.  352  They  state  that  because  of  a  directive  from  a  Disney  CEO,  the  ABC 
 network  cancelled  a  story  on  Disneys  hiring  policies.  353  However,  this  example  does  not  pertain  to  programming  decisions  of  local  stations,  but  to  the  programming  decision  of  a  national  broadcast 
 network.  Such  evidence  may  be  relevant  to  whether  there  is  a  tie  between  ownership  and  the  presentation  of  viewpoints,  but  does  not  establish  a  connection  between  local  market  structure  and  local  control  over 
 content.  Indeed,  we  have  no  record  evidence  linking  relaxation  of  our  local  ownership  rule  to  a  reduction  in  local  control  over  content.  354  We  also  have  no  means  of  measuring  the  extent  to  which  news 
 professionals  fear  of  retribution  by  their  employers  is  reducing  the  ability  of  television  broadcast  stations  to  offer  news  focused  on  the  needs  and  interests  of  their  local  communities,  nor  can  we  connect  such 
 concerns  to  our  local  ownership  rules. 
 (iii)  News  Programming  Costs  and  Viability  of  Local  News  Operations 
 166.  Several  commenters  contend  that  the  rising  cost  of  producing  news  and  public  affairs  programming  is  forcing  broadcasters  to  reduce  news  production  and  that  relaxation  of  the  local  TV 


 ownership  rule  would  allow  broadcasters  to  invest  in  new  local  news  and  public  affairs  programming,  or  at  least  to  maintain  existing  programming.  355  Gray  provides  four  examples  of  stations  in  smaller  markets 
 that  have  shut  down  or  significantly  scaled  back  their  news  operations  due  to  financial  concerns.  356 
 167.  NAB  filed  a  study  conducted  by  Smith  Geiger,  LLC  (  Smith  Geiger)  examining  the  cost  of  the  startup  and  operating  costs  of  local  news  production  for  stations  in  small  (ranked  101-  210)  and 


 mid-  sized  (ranked  51-  100)  markets.  357  The  study  provides  an  average  operating  budget  and  the  average 
 351  AFL-  CIO  Comments  at  53;  AFTRA  Comments    52.  They  also  cite  a  recent  study  showing  that  41%  of  300 
 reporters  surveyed  said  that  they  had  intentionally  avoided  newsworthy  stories  to  benefit  the  corporate  interests  of  their  news  organizations.  AFL-  CIO  Comments  at  52;  AFTRA  Comments    50  (citing  Pew  Research  Center  for 


 People  and  the  Press  Survey  (Apr.  30,  2002)).  Again,  such  comments  and  findings  help  to  establish  a  connection  between  viewpoint  diversity  and  ownership,  but  they  do  not  tell  us  whether  the  local  TV  ownership  rule  is  in  any 
 way  linked  to  journalists  reporting  decisions.  Commenters  do  not  contend,  nor  does  the  cited  survey  find,  that  such  results  are  any  more  or  less  likely  in  when  there  is  greater  local  market  concentration. 


 352  AFL-  CIO  Comments  at  51-  52;  AFTRA  Comments    47. 
 353  AFL-  CIO  Comments  at  52;  AFTRA  Comments    48. 
 354  Nexstar  asserts  that,  contrary  to  the  unsubstantiated  claims  of  some  commenters,  they  actively  mandate  a  local 
 community  focus  for  their  stations.  Nexstar  Reply  Comments  at  6. 
 355  Gray  Comments  at  17-  19;  Duhamel  Comments  at  5-  6;  Granite  Comments  at  6-  7,  11-  12;  NAB  Comments  at  75- 
 78;  Nexstar  Reply  Comments  at  11-  12. 
 356  Gray  Comments  at  18-  19.  Similarly,  Granite  contends  that  local  news  is  not  so  local  anymore  because 
 financial  pressures  have  forced  broadcasters  to  take  cost-  cutting  measures  such  as  filling  local  newscasts  with  regional  and  national  feeds.  Granite  Comments  at  7. 


 357  NAB  Newsroom  Costs  Study,  supra  note  315. 
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 startup  costs  for  a  small  market  station  and  for  a  mid-  size  market  station,  intended  to  reflect  newsrooms  that  are  neither  heavily  invested  nor  financially  starved.  358  The  study  finds  that  although  equipment 
 prices  are  dropping  rapidly,  rising  demand  for  qualified  personnel  is  increasing  the  amount  stations  must  spend  on  salary  and  benefits.  359  Smith  Geiger  concludes  that  a  startup  news  operation  would  not  break 
 even  until  year  13  in  a  small  market  and  year  14  in  a  mid-  sized  market.  360  The  study  concludes  that  in  this  climate,  if  a  local  station  were  to  cease  news  operations,  it  is  difficult  to  imagine  another  entity 
 stepping  in  to  take  its  place.  361  Smith  Geiger  notes  that  although  news  operations  earn  a  profit,  362  they  require  the  parent  company  or  station  to  carry  a  significant  cost  load  and  deal  with  other  intangibles  such 
 as  personnel  management,  liability,  and  community  goodwill.  363  Smith  Geiger  concludes  that  this  may  lead  local  stations  to  exit  the  local  news  business  in  favor  of  lower  cost  alternatives,  such  as  acquired 
 programming,  which  it  estimates  will  earn  a  higher  profit  in  both  small  and  mid-  sized  markets.  364  Smith  Geiger  ultimately  concludes  that  the  continuing  profitability  of  a  local  television  news  operation  is  now 
 highly  uncertain.  365  Many  commenters  agree.  366  NAB  submitted  an  additional  study  which  compares  the  average  cost  of  producing  news  by  affiliates  of  Big  Four  networks  (i.  e.,  ABC,  CBS,  Fox,  and  NBC) 
 in  markets  of  various  sizes.  367  These  data  show  that  the  average  news  expense  of  affiliate  stations  has  increased  by  as  much  as  104%  between  1993  and  2001.  368 


 168.  Smith  Geiger  does  not  provide  detailed  information  on  how  it  gathered  its  data,  how  many  stations  were  sampled,  or  how  the  stations  were  selected.  The  study  data  may  have  been  gathered  from 
 hundreds  of  stations  or  a  mere  handful.  However,  NABs  other  study  concerning  the  costs  of  producing  news,  which  describes  its  methodology  and  surveys  a  broad  range  of  stations,  supports  the  conclusion  that 
 news  costs  are  rising.  Moreover,  there  is  no  contrary  evidence  in  the  record  to  suggest  that  the  cost  of  producing  news  and  public  affairs  programming  is  decreasing.  We  also  recognize  that  certain  factors, 


 358  To  determine  the  costs,  Smith  Geiger  states  that  it  polled  multiple  stations  in  each  market  range,  but  it  does  not 
 specify  how  many  stations  were  polled,  how  the  stations  were  selected,  or  its  polling  methodology.  Id.  at  2. 
 359  Id. 


 360  Id.  at  6,  11. 
 361  Id.  at  15. 
 362  Smith  Geiger  finds  that  existing  news  operations  in  mid-  sized  markets  earn  a  40%  profit  margin,  and  that  news 
 operations  in  small  markets  earn  a  30%  profit  margin.  Id.  at  13. 
 363  Id. 


 364  Id.  at  13-  15. 
 365  Id.  at  2. 
 366  Alaska  Comments  at  5-  6;  Bear  Stearns  Comments  at  5;  Gray  Comments  at  16-  19;  Granite  Comments  at  12-  14; 
 NAB  Comments  at  75-  78. 
 367  NAB  Comments,  Small  to  Medium  Markets  Statement,  supra  note  315. 


 368  Id.  Specifically,  the  study  shows  that  between  1993  and  2001,  the  average  increase  for  stations  in  markets  51-  75 
 was  71%;  in  markets  76-  100,  104%;  in  markets  101-  125,  58%;  in  markets  126-  150,  56%;  and  in  markets  151-  175,  82%. 
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 such  as  declines  in  network  compensation  369  and  the  costs  of  transitioning  to  DTV,  370  are  likely  to  place  some  broadcasters  under  financial  pressures  which  could  cause  them  to  choose  a  less  expensive  option 
 than  producing  their  own  local  programming. 
 169.  Conclusion.  The  current  local  TV  ownership  rule  is  not  necessary  in  the  public  interest  to  promote  localism.  More  likely,  the  current  rule  is  hindering  our  efforts  to  promote  localism.  Anecdotal 


 and  empirical  evidence  in  the  record  demonstrates  post-  combination  increases  in  the  amount  of  local  news  and  public  affairs  programming  offered  by  commonly  owned  stations.  Moreover,  rising  news 
 production  costs  and  other  factors  may  cause  broadcasters  to  turn  to  less  costly  programming  options.  Having  found  that  there  is  a  positive  correlation  between  same-  market  combinations  and  the  offering  of 
 local  news,  we  agree  with  NAB  and  others  who  contend  that  modifying  the  local  TV  rule  is  likely  to  yield  efficiencies  that  will  allow  broadcasters  to  invest  in  new  local  news  and  public  affairs  programming,  or  at 
 least  to  maintain  existing  local  programming. 
 c.  Diversity 
 170.  Section  202(  h)  requires  that  we  consider  whether  the  local  TV  ownership  rule  is  necessary  in  the  public  interest  to  promote  our  diversity  goal.  Our  current  rule  measures  viewpoint  diversity  largely 


 through  its  voice  test,  which  ensures  that  all  television  markets  have  at  least  eight  independent  broadcast  television  voices.  The  Sinclair  court  remanded  the  Commissions  decision  in  the  Local  TV  Ownership 
 Report  and  Order  on  grounds  that  we  failed  to  adequately  explain  why  only  television  broadcast  stations  are  relevant  to  our  diversity  analysis  for  purposes  of  our  local  TV  rule,  when  several  other  kinds  of  media 
 were  deemed  relevant  to  our  diversity  analysis  for  purposes  of  other  rules.  Accordingly,  we  also  sought  comment  on  whether  additional  media  should  be  considered  in  evaluating  diversity  in  local  television 
 markets.  The  Notice  also  sought  comment  on  the  extent  to  which  local  television  stations  express  viewpoints,  and  whether  there  is  a  connection  between  ownership  and  viewpoint. 


 171.  As  discussed  in  the  Policy  Goals  Section,  we  find  that,  as  we  have  previously  held,  multiple  media  owners  are  more  likely  to  present  divergent  viewpoints.  371  Upon  review  of  the  record  in 
 this  proceeding  as  well  as  our  own  analysis  of  local  media  markets,  we  find  that  media  other  than  television  broadcast  stations  contribute  to  viewpoint  diversity  in  local  markets.  The  data  in  the  record 
 indicate  that  the  majority  of  markets  have  an  abundance  of  viewpoint  diversity.  We  conclude  therefore  that  our  existing  local  TV  ownership  rule  is  not  necessary  to  achieve  our  diversity  goal.  In  order  to 
 promote  viewpoint  diversity,  we  will  rely  on  a  combination  of  our  cross  media  limits,  discussed  below  at  Section  VI.  D.,  as  well  as  revised  local  television  and  local  radio  ownership  caps. 


 172.  Although  our  local  TV  ownership  rule  was  not  intended  to  promote  program  diversity,  our  Notice  also  sought  comment  on  the  relationship  between  our  local  TV  ownership  rule  and  program 
 diversity.  We  also  conclude  that  the  current  rule  is  not  necessary  to  promote  program  diversity. 


 369  Alaska  Comments  at  5-  6;  Granite  Comments  at  12;  NAB  Comments  at  74. 
 370  Alaska  Comments  at  5-  6;  Bear  Stearns  En  Banc  Statement  at  3;  Gray  Comments  at  18;  Granite  Comments  at  12; 
 NAB  Comments  at  72-  75.  See  also    148-  149,  supra. 
 371  See  Policy  Goals,  Section  III,  supra. 
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 (i)  Viewpoint  Diversity 
 173.  Proponents  of  relaxing  the  rule  contend  that  owners  of  television  stations  do  not  present  their  own  viewpoints,  372  that  each  television  station  presents  multiple  viewpoints,  373  that  a  single  owner  of 


 more  than  one  television  station  in  a  market  has  greater  economic  incentives  to  present  a  broader  diversity  of  viewpoints  in  order  to  attract  more  viewers,  374  and  that  under  the  current  rule,  television  stations  avoid 
 presenting  extreme  views  in  order  to  avoid  alienating  viewers.  375  Several  commenters  contend  that  the  current  rule  actually  poses  a  threat  to  viewpoint  diversity.  376  Duhamel  asserts  that  in  todays  economic 
 climate,  if  broadcasters  cannot  consolidate  within  local  markets,  stations  will  go  dark,  resulting  in  greatest  possible  harm  to  diversity.  377 


 174.  We  recognize  that  a  single  media  owner  may  elect  to  present  a  range  of  different  perspectives  on  a  particular  political  or  social  issue.  It  may  also  be  accurate  that,  as  several  commenters 
 contend,  a  single  owner  of  multiple  media  outlets  in  a  local  market  may  have  a  greater  incentive  to  appeal  to  more  viewers  by  presenting  more  perspectives  than  do  multiple  owners  of  single  outlets.  Even  if  a 
 single  owner  of  multiple  television  stations  in  the  same  market  has  an  enhanced  ability  and  incentive  to  present  a  broader  range  of  viewpoints,  that  single  owner  still  retains  ultimate  control  over  programming 
 content,  who  is  hired  to  make  programming  decisions,  what  news  stories  are  covered,  and  how  they  are  covered.  378  We  conclude  that  we  cannot  rely  exclusively  on  the  economic  incentives  that  may  or  may 
 not  be  created  by  ownership  of  multiple  television  stations  to  ensure  viewpoint  diversity.  However,  as  we  discuss  further  below,  because  we  find  that  other  media  contribute  to  viewpoint  diversity  in  local  markets, 
 we  conclude  that  our  existing  local  TV  ownership  rule  is  not  necessary  to  achieve  our  diversity  goal. 
 175.  Contribution  of  Other  Media  to  Viewpoint  Diversity  in  Local  Markets.  The  local  television  ownership  rule  has  traditionally  focused  only  on  the  contribution  of  television  broadcast 


 stations  to  diversity  in  local  markets.  In  the  1998  Biennial  Review  proceeding,  the  Commission  sought 
 372  Belo  Comments  at  14-  16,  17-  19;  Duhamel  Comments  at  7;  Granite  Comments  at  10-  11;  Sinclair  Comments  at 
 50-  52,  Exhibit  24;  Belo  Reply  Comments  at  3-  5. 
 373  Granite  contends  that  every  station  presents  multiple  viewpoints,  citing,  among  other  things,  political 
 broadcasting  requirements  that  ensure  that  stations  serve  as  a  megaphone  for  all  candidates,  not  just  those  with  whom  the  broadcaster  agrees.  Granite  Comments  at  10-  11.  See  also  Statement  of  Jay  Ireland,  President,  NBC 


 Stations  at  FCC  Field  Hearing  on  Media  Ownership  (Feb.  27,  2003)  at  4  (  NBC  En  Banc  Statement). 
 374  Fox  Comments  at  51-  52  (a  single  owner  of  multiple  outlets  has  a  greater  incentive  to  provide  viewpoint  diversity 
 than  would  multiple  owners);  NAB  Comments  at  32-  35;  Nexstar  Comments  at  8-  9  (viewpoint  diversity  will  not  be  reduced  but  increased,  as  demonstrated  by  the  maintenance  of  separate  news  staffs  and  different  news  content  by 


 LMA  combinations  operated  by  Nexstar  and  Quorum);  Paxson  Comments  at  7-  8;  28  (market  forces  will  promote  diversity  goals);  Sinclair  Comments  at  26-  28,  Exhibit  16  (common  ownership  or  operation  has  increased  viewpoint 
 diversity  in  some  cases,  as  evidenced  by  certain  Sinclair  duopolies/  LMAs). 
 375  Granite  Comments  at  10-  11;  Belo  Comments  at  14-  16. 


 376  Duhamel  Comments  at  7.  See  also  Coalition  Broadcasters  at  6  (combinations  promote  diversity  by  ensuring  the 
 viability  of  local  broadcasters  that  might  otherwise  go  dark). 
 377  Duhamel  Comments  at  7. 


 378  UCC  Comments  at  3-  4.  See  also  CWA  Comments  at  28-  32,  42-  45. 
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 comment  on  media  substitutability,  but  was  unable  to  conclude  from  the  record  the  extent  to  which  other  media  serve  as  readily  available  substitutes  for  broadcast  television.  Lacking  adequate  factual 
 information  concerning  the  contribution  of  other  media  to  competition  and  diversity  in  local  markets,  the  Commission  established  a  voice  test  that  included  only  full  power  television  broadcast  stations. 


 176.  The  Notice  sought  comment  on  whether,  and  if  so  how,  to  apply  a  voice  test  as  part  of  our  local  television  ownership  rule.  The  Notice  asked  whether  additional  media  such  as  radio  stations,  daily 
 newspapers,  cable  systems,  DBS,  and  DARS  should  count  towards  any  voice  test  adopted  as  part  of  a  local  TV  ownership  rule.  379  Stated  differently,  the  Notice  sought  comment  on  what  media  contribute  to 
 viewpoint  diversity  in  local  markets.  Based  on  the  evidence  in  the  record,  including  our  own  evaluation  of  the  media  marketplace,  we  find  that  media  outlets  other  than  television  stations  contribute  significantly 
 to  viewpoint  diversity  in  local  markets,  and  that  our  current  rule  fails  to  account  for  this  diversity. 
 177.  All  of  the  commenters  proposing  modification  or  elimination  of  the  local  TV  ownership  rule  argue  that  there  is  today  an  abundance  of  viewpoint  diversity,  and  that  even  if  the  local  TV 


 ownership  rule  is  relaxed  or  eliminated,  the  market  will  ensure  continued  availability  of  viewpoint  and  other  types  of  diversity.  380  These  commenters  contend  that,  given  current  levels  of  diversity  in  local 
 markets,  the  Commission  cannot  justify  its  current  local  TV  ownership  rule  on  diversity  grounds.  381  Commenters  further  assert  that  the  current  rule  inappropriately  and  incorrectly  focuses  only  on  television 
 voices,  when  other  media  voices  clearly  contribute  to  diversity  in  local  markets.  382  Commenters  also  state  that  programming  other  than  local  news  may  contribute  to  viewpoint  diversity,  and  that  such 
 programming  should  be  considered  in  measuring  viewpoint  diversity.  383 


 379  Notice,  17  FCC  Rcd  at  18528-  29    77. 
 380  Nexstar  Comments  at  6-  13;  Paxson  Comments  at  28  (asserting  that  the  market  and  public  demand  has  produced 
 a  great  diversity  of  voices,  and  there  is  no  incentive  for  large  station  group  owners  to  descend  upon  communities  and  extinguish  the  diversity,  nor  any  evidence  of  an  ability  or  intention  to  do  so);  Gray  Reply  Comments  at  4-  5; 


 Paxson  Reply  Comments  at  3;  NBC  En  Banc  Statement  at  4. 
 381  Alaska  Comments  at  4-  5;  Belo  Comments  at  21-  22;  Duhamel  Comments  at  6-  7;  Fox  Comments  at  44-  47; 
 Granite  Comments  at  10-  11;  Gray  Comments  at  14-  15;  NAB  Comments  at  35-  39,  44;  Nexstar  Comments  at  8-  9;  Paxson  Comments  at  27-  30;  Sinclair  Comments  at  22-  25. 


 382  Alaska  Comments  at  4-  5;  Belo  Comments  at  19-  22  (daily  newspapers,  news/  talk  radio  stations,  cable  news  and 
 public  affairs  programming,  weekly  newspapers  and  magazines,  and  Internet  sources  contribute  to  viewpoint  diversity  even  more  than  television  stations);  Emmis  Comments  at  26-  30;  Fox  Comments  at  6-  10,  50;  Gray 


 Comments  at  14-  15  (viewpoint  diversity  is  guaranteed  by  availability  of  news  and  information  from  numerous  radio  and  television  stations,  hundreds  of  video  programming  services,  MVPDs,  daily  and  weekly  newspapers,  thousands 
 of  periodicals,  millions  of  web  sites,  and  wireless  data  services);  NAB  Comments  at  32;  Pappas  Comments  at  15;  Paxson  Comments  at  27-  28;  Sinclair  Comments  at  25-  28.  Gray  counts  low  power  television  (  LPTV)  stations 
 among  the  voices  contributing  to  diversity  in  markets  served  by  its  stations.  Gray  Comments  at  10-  13.  See  also  IPI  Comments  at  19-  20,  24-  27  (urging  us  to  consider  the  role  of  LPTV  stations  because  LPTV  stations  may  serve  as 
 substitutes  for  other  local  media  for  certain  consumers  and  advertisers);  Louisville  Communications  Reply  Comments  at  2-  6;  at  2.  See  Letter  from  Howard  M.  Liberman,  Drinker  Biddle  &  Reath,  counsel  for  Nexstar,  to 
 Marlene  H.  Dortch,  Secretary,  FCC  (May  16,  2003)  at  2-  3  (  Nexstar  May  16,  2003  Ex  Parte). 
 383  Fox  Comments  at  50-  51.  See  also  Sinclair  Comments  at  21,  34-  38  (if  viewpoint  diversity  means  something 
 more  than  local  news,  the  Commission  also  should  factor  in  all  programming  that  contributes  to  an  awareness  of  political  and  social  issues,  including  national  news,  non-  traditional  news,  and  certain  entertainment  programming); 


 (continued.) 
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 178.  We  agree  that  television  broadcast  stations  are  not  the  only  media  outlets  contributing  to  viewpoint  diversity  in  local  markets.  The  market  for  viewpoint  and  the  expression  of  ideas  is,  therefore, 
 much  broader  than  the  economic  markets,  defined  above,  in  which  broadcast  stations  compete.  In  particular,  in  focusing  on  the  delivered  video  market  alone,  we  would  ignore  countless  other  sources  of 
 news  and  information  available  to  the  public.  384  As  a  corollary,  however,  limits  imposed  on  television  station  combinations  designed  to  protect  competition  in  local  delivered  video  markets  necessarily  also 
 protect  diversity;  indeed  they  are  more  protective  of  competition  in  the  broader  marketplace  of  ideas  given  the  difference  in  market  definition. 


 179.  We  do  not,  therefore,  necessarily  disagree  with  those  who  maintain  that  a  local  television  ownership  cap  can  help  to  protect  the  publics  First  Amendment  interest  in  a  robust  marketplace  of 
 ideas.  385  We  disagree,  however,  to  the  extent  that  they  advocate  a  diversity-  based  rule  that  looks  to  broadcast-  only  television  voices.  386  Accepting  this  narrowly-  defined  view  would  result  in  a  rule  that  is 
 overly  restrictive  both  for  competition  and  diversity  purposes,  because  it  would  fail  to  include  other  participants  in  some  relevant  product  markets  and  in  the  marketplace  of  ideas.  Such  an  approach  cannot 
 be  squared  with  our  statutory  mandate  under  section  202(  h)  or  our  desire  to  minimize  the  impact  of  our  rules  on  the  rights  of  speakers  to  disseminate  messages. 


 180.  Accordingly,  by  setting  our  local  television  ownership  caps  only  so  high  as  necessary  to  protect  competition  in  the  delivered  video  market,  we  will  achieve  necessary  protection  for  diversity 
 purposes  without  unduly  limiting  speech.  As  set  forth  above,  our  current  rule  is  not  necessary  to  protect  competition  and,  indeed,  may  be  harming  competition  in  the  delivered  video  market.  It  likewise  cannot 
 be  justified  on  diversity  grounds  as  it  is  overly  restrictive.  Our  modifications  to  the  rule,  discussed  below,  remedy  that  failing. 


 (ii)  Program  Diversity 
 181.  The  local  TV  ownership  rule  has  not  traditionally  been  justified  on  program  diversity  grounds.  However,  the  Notice  sought  comment  on  whether  common  ownership  of  multiple  stations 


 promotes  program  diversity,  and  if  so,  how  this  affects  the  need  for  the  current  local  TV  ownership  rule.  Commenters  supporting  relaxation  or  elimination  of  the  local  TV  ownership  rule  assert  that  a  single 
 owner  of  multiple  television  stations  has  an  enhanced  incentive  and  ability  to  offer  more  diverse  (Continued  from  previous  page) 
 but  see  NAB  Comments  at  39-  40  (most  television  and  radio  programming  is  entertainment-  oriented  and  does  present  viewpoints). 


 384  See  MOWG  Study  No.  8,  Consumer  Survey  on  Media  Usage  by  Nielsen  Media  Research  (Sept.  2002)  (  MOWG 
 Study  No.  8). 
 385  AFL-  CIO  Comments  at  3-  4;  CFA  Comments  at  54-  55;  UCC  Comments  at  2-  3;  Children  Now  Comments  at  24- 
 28. 
 386  Several  commenters  assert  that  evaluating  broadcast-  only  voices  is  appropriate  because  other  media  are  not 
 effective  substitutes  for  television.  CFA  Comments  at  176-  77;  CWA  Comments  at  8-  13;  UCC  Comments  at  29-  35;  Children  Now  Comments  at  9-  12.  Specifically,  they  contend  that  television  broadcast  stations  remain  the  publics 


 primary  source  of  local  news  and  public  affairs  programming,  and  that  other  media  contribute  little  or  nothing  to  viewpoint  diversity  in  local  markets.  See  UCC  Comments  at  29-  35;  Children  Now  Comments;  IPI  Comments  at  22. 
 They  also  contend  that  free  over-  the-  air  television  is  the  only  source  of  any  video  programming  for  a  significant  portion  of  the  U.  S.  population.  UCC  Comments  at  29,  32;  Children  Now  Comments  at  9;  Smith  Comments  at  3;  IPI 
 Comments  at  23-  24. 
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 programming.  387  Entravision,  which  does  not  take  a  position  on  whether  the  rule  should  be  modified,  agrees  that  same-  market  combinations  give  owners  an  incentive  to  increase  program  diversity  by  reaching 
 out  to  minority/  niche  audiences,  but  is  concerned  that  entities  owning  more  than  one  station  in  a  market  will  engage  in  anticompetitive  conduct  that  will  endanger  smaller  broadcasters  already  serving  niche 
 audiences.  388  Entravision  predicts  that  ultimately,  abuse  of  market  power  by  consolidated  broadcasters  may  drive  smaller  broadcasters  out  of  business,  resulting  in  a  mere  substitution  of  programming  for 
 minority/  niche  audiences,  rather  than  actually  increasing  program  diversity.  389  Children  Now  asserts  the  diversity  of  childrens  programming  will  be  harmed  by  an  increase  in  same-  market  combinations,  because 
 local  broadcasters  will  repurpose  childrens  programming,  resulting  in  less  original  programming  for  children.  390  Children  Now  urges  us  to  retain  the  local  TV  ownership  rule  to  ensure  that  a  single  owner  of 
 multiple  television  stations  in  a  market  does  not  offer  the  exact  same  programming  to  children  as  a  means  of  meeting  our  childrens  programming  requirements.  391  Alternatively,  Children  Now  urges  us  to  clarify 
 that  the  use  of  same  programming  on  multiple  commonly  owned  stations  in  the  same  market  does  not  satisfy  our  childrens  programming  requirements.  392 


 182.  We  find  that  modification  of  the  current  local  TV  ownership  rule  may  enhance  program  diversity.  As  we  explained  in  our  discussion  of  policy  goals  (Section  III(  A)(  2),  supra),  program  diversity 
 is  best  achieved  by  reliance  on  competition  among  delivery  systems  rather  than  by  government  regulation.  Our  local  TV  ownership  rule  will  ensure  robust  competition  in  local  DVP  markets.  As  long 


 387  Duhamel  Comments  at  7  (an  owner  with  two  or  more  stations  has  a  greater  incentive  to  diversify  its 
 programming  to  attract  new  demographics);  Entravision  Comments  at  5-  6  (local  duopolies  have  found  that  it  is  more  profitable  not  to  duplicate  formats,  but  to  reprogram  one  station  to  target  underserved  audiences);  Fox 


 Comments  at  51-  52;  NAB  Comments  at  36-  37;  Nexstar  Comments  at  11-  12;  Paxson  Comments  at  13-  14;  Paxson  Reply  Comments  at  5.  Coalition  Broadcasters  filed  a  study  comparing  the  pre-  and  post-  combination  advertising 
 revenue  and  audience  shares  of  their  stations  in  LMAs  and  duopolies.  Coalition  Broadcasters  Comments  at  7,  Attachment  A.  The  study  concludes  that  the  combinations  result  in  an  average  audience  share  increase  of  3.2  points 
 and  an  average  advertising  revenue  increase  of  250.7%.  Id.  Coalition  Broadcasters  believe  that,  by  strengthening  their  appeal  to  their  local  communities  and  becoming  more  financially  viable,  these  stations  are  increasing  diversity 
 within  their  respective  markets.  Id. 
 388  Entravision  Comments  at  5-  6. 


 389  Id. 
 390  Children  Now  Comments  at  13-  17.  See  also  UCC  Comments  at  28  (contending  that  newspaper-  broadcast 
 cross-  ownership  will  result  in  re-  purposing  of  local  news);  AFL-  CIO  at  49-  50;  AFTRA  Comments    42-  43  (asserting  that  media  concentration  in  general  causes  media  outlets  to  obtain  and  repurpose  material  from 


 competitors). 
 391  Children  Now  Comments  at  16-  17;  Big  Media,  Little  Kids:  Media  Consolidation  and  Childrens  Television 
 Programming,  A  Report  by  Children  Now  (May  21,  2003)  at  2,  5-  6,  9  (  Children  Now  Report)  (finding  that,  in  the  Los  Angeles,  California  DMA,  that  the  number  of  hours  of  childrens  programming  aired  by  television  broadcast 


 stations  decreased  by  more  than  50%  between  1998  and  2003,  and  that  the  largest  decreases  in  programming  hours  occurred  at  commonly  owned  stations);  but  see,  Letter  from  John  C.  Quale,  Skadden,  Arps,  Slate,  Meagher  &  Flom, 
 counsel  for  Fox,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  28,  2003)  (  Fox  May  28,  2003  Ex  Parte)  (disputing  findings  in  the  Children  Now  Report  with  respect  to  television  station  combinations  in  the  Los  Angeles  DMA  and 
 urging  the  Commission  not  to  rely  on  such  findings). 
 392  Children  Now  Report  at  9. 
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 as  these  markets  remain  competitive,  we  expect  program  diversity  to  be  achieved  through  media  companies  responses  to  consumer  preferences.  Nothing  in  the  record  seriously  calls  that  conclusion  into 
 question. 
 183.  We  share  the  concern  of  Children  Now  that  the  diversity  of  childrens  educational  and  informational  programming  could  be  reduced  if  commonly  owned  stations  in  the  same  market  air  the 


 same  childrens  programming.  A  primary  purpose  of  the  Childrens  Television  Act  of  1990  was  to  increase  the  amount  of  educational  and  informational  programming  available  to  children.  393  It  would  be 
 inconsistent  with  this  Congressional  objective  to  permit  commonly  owned  stations  in  a  market  to  rely  on  the  same  programming  to  meet  the  obligations  set  forth  in  Section  73.671  of  our  rules.  394  We  therefore 
 clarify  that  where  two  or  more  stations  in  a  market  are  commonly  owned  and  air  the  same  childrens  educational  and  informational  program,  only  one  of  the  stations  may  count  the  program  toward  the  three-hour 
 processing  guideline  set  forth  in  Section  73.671.  395 
 184.  Commenters  supporting  retention  of  the  current  local  TV  ownership  rule  focus  primarily  on  the  importance  of  the  rule  to  viewpoint  diversity,  not  other  forms  of  diversity.  For  example,  CFA 


 urges  the  Commission  not  to  focus  on  protecting  the  diversity  of  entertainment  programming,  but  on  the  diversity  of  news  and  information  programming,  which  it  ties  to  the  number  of  owners,  not  to  types  of 
 programming.  396  Although  our  modifications  to  the  local  TV  ownership  rule  may  result  in  increased  program  diversity,  we  are  not  prioritizing  program  diversity  over  viewpoint  diversity.  Rather,  we  are 
 revising  our  entire  local  television  ownership  framework  to  reflect  the  contribution  of  other  media  to  competition  and  viewpoint  diversity  in  local  television  markets.  As  an  added  benefit,  todays  changes  to 
 the  local  TV  ownership  rule  will  allow  market  forces  to  yield  greater  program  diversity. 
 2.  Modification  of  the  Local  Television  Ownership  Rule 
 185.  Based  on  our  section  202(  h)  determination  that  the  current  local  TV  rule  is  no  longer  necessary  in  the  public  interest  to  promote  competition  and  diversity,  as  well  as  our  finding  that  the 


 393  Childrens  Television  Act  of  1990,  Pub.  L.  No.  101-  437,  104  Stat.  996-  1000,  codified  at  47  U.  S.  C.    303a, 
 303b,  394.  The  Childrens  Television  Act  of  1990  and  our  related  rules  are  premised  on  the  notion  that  market  forces  are  insufficient  to  ensure  adequate  levels  of  childrens  programming.  See  S.  Rep.  No.  227,  101st  Cong.,  1  st 


 Sess.  at  9  (1989);  Policies  and  Rules  Concerning  Childrens  Programming,  11  FCC  Rcd  10660,  10676    34  (1995). 


 394  See  47  C.  F.  R.  73.761. 
 395  Under  the  Section  73.671  processing  guidelines,  a  broadcaster  can  receive  staff-  level  approval  of  its  renewal 
 application  by  airing  at  least  three  hours  per  week  of  programming  that  satisfies  the  criteria  of  programming  specifically  designed  to  serve  the  educational  and  informational  needs  of  children  (  core  programming).  47 


 C.  F.  R.    73.671  Note  2.  Alternatively,  a  broadcaster  can  receive  staff-  level  renewal  by  showing  that  it  has  aired  a  package  of  different  types  of  educational  and  informational  programming  that,  while  containing  somewhat  less 
 than  three  hours  per  week  of  core  programming,  demonstrates  a  level  of  commitment  to  educating  and  informing  children  that  is  at  least  equivalent  to  airing  three  hours  per  week  of  core  programming.  In  this  regard,  specials, 
 PSAs,  short-  form  programs,  and  regularly  scheduled  non-  weekly  programs  with  a  significant  purpose  of  educating  and  informing  children  can  count  toward  the  three-  hour  processing  guideline.  Licensees  not  meeting  these  criteria 
 will  have  their  license  renewal  applications  referred  to  the  Commission. 
 396  CFA  Comments  at  176  (asserting  that  the  debate  over  media  ownership  is  about  news  and  information  for 
 citizens  as  listeners  and  speakers,  not  about  entertainment  outlets.). 
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 current  rule  may  hinder  achievement  of  our  localism  policy  goal,  we  must  either  eliminate  or  modify  our  local  TV  ownership  restrictions.  As  we  will  explain  further  below,  we  conclude  that  elimination  of  the 
 rule  would  result  in  harm  to  competition  in  local  DVP  markets,  thereby  harming  the  public  interest.  Elimination  of  the  rule  also  would  adversely  affect  competition  in  the  advertising  and  program  production 
 markets.  Accordingly,  we  modify  the  rule. 
 186.  Our  modified  local  TV  ownership  rule  will  allow  ownership  combinations  that  satisfy  a  two-  part  test:  a  numerical  outlet  cap  and  a  top  four-  ranked  standard.  Our  outlet  cap  will  allow  common 


 ownership  of  no  more  than  two  television  stations  in  markets  with  17  or  fewer  television  stations;  and  up  to  three  stations  in  markets  with  18  or  more  television  stations.  In  counting  television  stations  for 
 purposes  of  this  outlet  cap,  we  will  include  all  full-  power  397  commercial  and  noncommercial  398  television  broadcast  stations  assigned  by  Nielsen  to  a  given  DMA.  399  Our  top  four-  ranked  standard  will  prohibit 
 combinations  which  would  result  in  a  single  entity  owning  more  than  one  station  that  is  ranked  among  the  top  four  stations  in  the  market  based  on  audience  share.  Hence,  same-  market  combinations  will  not  be 
 permitted  in  markets  with  fewer  than  five  television  stations.  For  purposes  of  applying  our  top  four-ranked  standard,  a  stations  rank  will  be  determined  using  the  stations  most  recent  all-  day  audience 
 share,  as  measured  by  Nielsen  or  by  any  comparable  professional  and  accepted  rating  service,  at  the  time  an  application  for  transfer  or  assignment  of  license  is  filed,  the  same  method  as  under  our  current  rule. 


 187.  The  contour  overlap  provision  of  the  rule  will  be  eliminated,  and  the  modified  rule  will  be  applied  without  regard  to  Grade  B  contour  overlap  among  stations.  Thus,  if  two  stations  in  a  market  do 
 not  have  overlapping  contours,  they  still  cannot  be  combined  unless  there  are  five  or  more  stations  in  the 
 397  For  purposes  of  counting  the  television  broadcast  stations  in  the  market,  we  will  include  only  full  power 
 authorizations.  Thus,  contrary  to  the  suggestions  of  some  commenters,  we  will  not  include  Class  A  TV,  LPTV  stations  or  TV  translators.  See  IPI  Comments  at  19-  20,  24-  27;  Louisville  Reply  Comments  at  2-  6;  at  2;  Nexstar 


 May  16,  2003  Ex  Parte  at  2.  LPTV  stations  typically  reach  only  a  small  portion  of  any  given  DMA,  even  in  the  few  cases  where  they  are  carried  by  cable  systems.  Thus,  the  stations  do  not  compete  with  DVP  market  participants  on  a 
 DMA-  wide  basis,  which  we  have  held  is  the  relevant  geographic  market.  We  also  will  exclude  from  our  count  any  non-  operational  or  dark  stations.  Newly  constructed  television  stations  that  have  commenced  broadcast  operations 
 pursuant  to  program  test  authority  also  will  be  included  in  the  DMA  count.  Television  satellite  stations  will  be  excluded  from  our  count  of  full  power  television  stations  in  the  DMA  where  the  satellite  and  parent  stations  are  both 
 assigned  by  Nielsen  to  the  same  DMA.  A  satellite  station  assigned  to  DMA  different  from  that  of  its  parent,  however,  will  be  included  in  the  TV  station  count  for  that  DMA.  DTV  stations  will  be  included  in  our  count  only  if 
 they  are  operating  and  are  not  paired  with  an  analog  station  in  the  market. 
 398  Our  current  local  TV  multiple  ownership  rule  does  not  restrict  the  number  of  noncommercial  television  stations 
 that  can  be  owned  by  one  entity.  Consistent  with  past  practice,  our  modified  rule  also  will  not  affect  ownership  of  noncommercial  television  stations.  Our  decision  to  include  noncommercial  television  stations  in  the  TV  station 


 count  also  is  consistent  with  our  past  practice  and  with  the  fact  that  noncommercial  stations  compete  for  viewers  in  local  markets.  See  47  C.  F.  R.    73.3555(  b)(  2)(  ii)  (including  noncommercial  stations  in  the  count  for  purposes  of  the 
 eight-  voice  test  under  current  local  TV  rule). 
 399  There  are  a  few  instances  in  which  a  stations  community  of  license  is  physically  located  in  one  DMA,  but  the 
 station  is  assigned  by  Nielsen  to  a  different  DMA.  We  clarify  that  for  purposes  of  our  local  TV  ownership  rule,  a  station  will  be  considered  to  be  within  a  given  DMA  if  it  is  assigned  to  that  DMA  by  Nielsen,  even  if  that 


 stations  community  of  license  is  physically  located  outside  the  DMA.  In  addition,  we  recognize  that  certain  geographic  areas  (specifically,  Puerto  Rico,  Guam,  and  the  U.  S.  Virgin  Islands)  are  not  assigned  a  DMA  by  Nielsen. 
 For  purposes  of  our  local  TV  ownership  rule,  Puerto  Rico,  Guam,  and  the  U.  S.  Virgin  Islands  each  will  be  considered  a  single  market. 
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 market  and  at  least  one  station  in  the  combination  is  not  among  the  top  four.  We  have  determined  that,  because  of  mandatory  carriage  requirements,  the  DMA    not  the  area  within  a  particular  stations  Grade  B 
 contour  is  the  geographic  market  in  which  DVP  providers  compete.  Therefore,  permitting  station  combinations  solely  on  grounds  that  they  do  not  have  overlapping  contours  would  be  inconsistent  with 
 our  market  definition.  As  we  explained  above,  the  majority  of  viewers  including  those  who  reside  in  geographically  large  DMAs  have  access  to  television  broadcast  stations  that  they  could  not  view  over-the- 
 air  because  they  can  view  the  stations  via  cable.  Increasingly,  local  stations  also  are  available  via  DBS.  To  avoid  imposing  an  unfair  hardship  on  parties  that  currently  own  combinations  that  do  not 
 comply  with  the  modified  rule,  we  will  grandfather  existing  combinations,  as  discussed  further  below.  In  addition,  because  our  assumption  regarding  DMA-  wide  carriage  is  not  universally  true,  and  in  recognition 
 of  the  signal  propagation  limitations  of  UHF  signals,  we  adopt  herein  a  waiver  standard  that  will  permit  common  ownership  of  stations  where  a  waiver  applicant  can  show  that  the  stations  have  no  Grade  B 
 overlap  and  that  the  stations  are  not  carried  by  any  MVPD  to  the  same  geographic  area. 
 188.  The  public  is  best  served  when  numerous  rivals  compete  for  viewing  audiences.  In  the  DVP  market,  rivals  profit  by  attracting  new  audiences  and  by  attracting  existing  audiences  away  from 


 competitors  programs.  The  additional  incentives  facing  competitive  rivals  are  more  likely  to  improve  program  quality  and  create  programming  preferred  by  existing  viewers.  400  Below,  we  discuss  how  our 
 analysis  of  competition  in  local  DVP  markets  supports  the  modified  rule. 
 a.  Evaluating  Potential  Competitive  Harms  Within  Local  DVP  Markets. 
 189.  Consistent  with  our  competition  policy  goal,  our  local  television  ownership  rule  seeks  to  preserve  a  healthy  level  of  competition  in  the  market  for  DVP.  The  state  of  competition  in  this  market 


 affects  the  quality  and  diversity  of  programming  content  and  therefore  the  overall  welfare  of  DVP  viewers.  In  formulating  our  local  TV  multiple  ownership  rule,  we  must  assess  the  nature  of  this 
 competition  and  weigh  the  potential  benefits  and  anticompetitive  harms  that  may  arise  from  the  increase  in  market  concentration  that  results  from  a  single  firm  owning  multiple  broadcast  stations  in  a  market. 


 190.  There  are  two  potential  competitive  harms  that  may  be  caused  by  a  single  firm  owning  multiple  television  stations  in  a  market.  First,  ownership  of  multiple  stations  may  result  in  unilateral 
 effects,  i.  e.,  the  firm  acquiring  multiple  licenses  may  find  it  profitable  to  alter  its  competitive  behavior  unilaterally  to  the  detriment  of  viewers.  An  example  of  such  an  effect  would  be  the  decision  to  cancel 
 local  news  programming  on  one  of  the  commonly-  owned  channels.  Second,  the  acquisition  of  multiple  licenses  in  a  local  market  by  a  single  firm  may  lead  to  coordinated  effects.  That  is,  the  increase  in 
 concentration  may  induce  a  joint  change  in  competitive  behavior  of  all  the  market  participants  in  a  manner  that  harms  viewers. 


 191.  We  recognize  the  importance  of  competition  from  cable  networks  in  the  market  for  DVP.  Indeed,  viewing  of  cable  network  programming  now  accounts  for  approximately  half  of  all  television 


 400  For  a  discussion  of  program  provision  under  different  market  structures,  see,  Peter  Steiner,  Program  Patterns 
 and  Preferences  and  the  Workability  of  Competition  in  Radio  Broadcasting,  66(  2)  Q.  J.  ECON  194-  223  (1952);  MOWG  Study  No.  6,  A  Theory  of  Broadcast  Media  Concentration  and  Commercial  Advertising  by  Brendan  C. 


 Cunningham  and  Peter  J.  Alexander  (Sept.  2002)  at  3-  5  (  MOWG  Study  No.  6);  and  Sinclair  Comments,  Baumann/  McAnneny  Statement  at  2-  6. 
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 viewership.  401  Nevertheless,  in  formulating  our  revised  ownership  rules,  we  continue  to  draw  a  distinction  between  television  broadcast  stations  and  non-  broadcast  DVP  outlets.  This  is  because 
 television  broadcast  stations  and  cable  programming  networks  have  different  incentives  to  react  to  a  change  in  local  market  concentration,  which  suggest  differing  levels  of  unilateral  and  coordinated  effects. 
 In  particular,  cable  networks  are  almost  exclusively  offering  national  or  broadly  defined  regional  programming.  Therefore,  the  profit-  maximizing  decisions  of  a  national  cable  programmer  reflect 
 conditions  in  the  national  market.  It  is  improbable  that  a  change  in  concentration  in  any  single  local  market  would  affect  the  competitive  strategy  of  a  national  cable  network.  In  contrast,  we  need  to  consider 
 the  possible  competitive  responses  from  other  DVP  outlets  in  local  markets,  which  are  almost  exclusively  television  broadcast  stations.  Because  of  the  differing  footprints  of  cable  networks  and  television 
 broadcast  stations,  any  possible  competitive  harms  are  more  likely  to  arise  from  changes  in  the  behavior  of  stations.  Thus,  our  rules  to  promote  local  television  competition  are  focused  on  ownership  of 
 television  broadcast  stations. 
 b.  Welfare  Enhancing  Mergers  in  Local  Delivered  Video  Markets. 
 192.  The  standard  approach  to  evaluating  the  competitive  harms  of  an  increase  in  horizontal  market  concentration  is  outlined  in  the  DOJ/  FTC  Merger  Guidelines.  The  DOJ/  FTC  Merger  Guidelines 


 recognize  the  HHI  level  of  1800  as  the  maximum  level  of  moderate  concentration.  402  We  choose  this  threshold  rather  than  the  lower  limit  of  1000  because  we  recognize  the  competitive  pressures  exerted  by 
 the  cable  networks.  The  1800  threshold  corresponds  to  having  six  equal-  sized  competitors  in  a  given  market.  The  DOJ/  FTC  Merger  Guidelines  however,  are  written  not  for  a  specific  industry,  but  rather  as 
 guidelines  intended  for  application  across  all  industries.  Our  rules  are  formulated  for  a  specific  market  the  delivery  of  video  programming  and  are  based  on  an  extensive  record  on  the  extent  of  competition  in 
 this  market  and  the  effect  of  our  current  local  TV  ownership  rule.  This  record  allows  us  to  craft  a  more  finely-  tuned  rule  for  this  industry. 


 193.  First,  the  nature  of  the  DVP  market  is  such  that  there  is  constant  product  innovation  with  new  program  choices  each  season.  In  such  a  market,  a  firms  market  share  is  more  fluid  and  subject  to 
 change  than  in  other  industries.  Hence  a  firms  capacity  to  deliver  programming  can  be  as  important  a  factor  in  measuring  the  competitive  structure  of  the  market  as  is  its  current  market  share.  Second,  as  each 
 broadcast  station  requires  a  license,  the  number  of  licenses  that  a  firm  controls  in  a  market  is  the  measure  of  its  capacity  to  deliver  programming.  Therefore,  as  a  starting  point,  a  simple  application  of  the 
 DOJ/  FTC  Merger  Guidelines  six-  firm  threshold  suggests  that,  a  single  firm  holding  three  licenses  in  a  market  with  18  or  more  licenses,  or  a  firm  holding  two  licenses  in  a  market  with  12  or  more  licenses, 
 would  not  raise  competitive  concerns.  However,  as  explained  below,  given  the  structure  of  the  DVP  market,  a  strict,  overly  simplistic  application  of  the  DOJ/  FTC  Merger  Guidelines  would  potentially 
 prohibit  some  welfare  enhancing  mergers  and  allow  some  anticompetitive  mergers. 
 194.  Ownership  of  multiple  stations  can  lead  to  significant  efficiencies.  The  record  demonstrates,  for  example,  that  same-  market  combinations  have  resulted  in  an  increase  in  viewership  of 


 the  lower-  ranked  of  the  two  stations  in  the  combination,  evidencing  a  welfare  enhancing  effect  for 


 401  In  June  2002,  cable  networks  for  the  first  time  collectively  exceeded  a  50%  share  for  the  month  (54%  primetime 
 share),  while  the  broadcast  networks  collectively  registered  a  38%  primetime  share.  See  Romano,  supra  note  248  at  12. 


 402  DOJ/  FTC  Merger  Guidelines    1.51. 
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 consumers.  403  The  possibility  of  welfare  enhancing  mergers  has  long  been  recognized  in  economics  and  antitrust  literature.  For  example,  the  work  of  McAfee  and  Williams  demonstrates  that  strict  application  of 
 the  DOJ/  FTC  Merger  Guidelines  would  disallow  some  welfare  enhancing  mergers.  404  McAfee  and  Williams  present  a  model  in  which,  after  a  merger  of  independently  owned  production  facilities,  the 
 merged  firm  will  run  the  two  facilities  to  jointly  maximize  its  profits.  McAfee  and  Williams  find  that  mergers  that  do  not  create  a  new  largest  firm  are  welfare  enhancing.  A  similar  conclusion  is  found  in  the 
 work  of  Froeb,  Werden,  and  Tardiff  (  Froeb  et  al.).  405  In  their  research,  which  considers  mergers  in  the  context  of  competition  by  firms  producing  differentiated  products,  Froeb  et  al.  find  that  mergers  among 
 smaller  firms  tend  to  be  welfare  enhancing,  and  that  mergers  that  do  not  create  a  significant  increase  in  the  market  share  of  the  largest  firm  pose  little  risk  of  competitive  harm.  By  contrast,  the  research  of 
 Froeb  et  al.  demonstrates  that  a  merger  of  the  second  and  third  largest  firms,  which  would  significantly  overtake  the  largest  firm  in  size,  would  create  welfare  harms. 


 195.  These  results  are  particularly  relevant  to  competition  within  local  markets  for  DVP.  Each  broadcast  station  tends  to  deliver  a  differentiated  product,  and  we  have  evidence  of  efficiencies  from  the 
 ownership  of  multiple  stations  in  a  market.  Moreover,  in  local  markets,  there  is  a  general  separation  between  the  audience  shares  of  the  top  four-  ranked  stations  and  the  audience  shares  of  other  stations  in 
 the  market.  406  A  review  of  the  audience  shares  of  stations  in  every  market  with  five  or  more  commercial  television  stations  (i.  e.,  120  markets)  indicates  that  in  two-  thirds  of  the  markets,  the  fourth-  ranked  station 
 was  at  least  two  percentage  points  ahead  of  the  fifth-  ranked  station.  407  Two  percentage  points  represents  a  significant  difference  in  audience  share  because  for  a  station  to  jump  from,  for  example,  an  eight  share  to 
 a  ten  share,  it  would  have  to  increase  its  audience  share  by  25%.  Thus,  although  the  audience  share  rank  of  the  top  four-  ranked  stations  is  subject  to  change  and  the  top  four  sometimes  swap  positions  with  each 
 other,  a  cushion  of  audience  share  percentage  points  separates  the  top  four  and  the  remaining  stations,  providing  some  stability  among  the  top  four-  ranked  firms  in  the  market.  Nationally,  the  Big  Four 
 networks  each  garner  a  season  to  date  prime  time  audience  share  of  between  ten  and  13  percent,  while  the 


 403  Coalition  Broadcasters  Comments  at  Attachment  A;  Owen  Media  Ownership  Statement.  Of  course  the 
 opportunity  cost  of  viewership  is  that  time  could  be  spent  on  some  other  activity,  thus  an  increase  in  viewership  demonstrates  an  increase  in  the  publics  overall  value  of  the  programming. 


 404  R.  Preston  McAfee  and  Michael  Williams,  Horizontal  Mergers  and  Antitrust  Policy,  XL  J.  INDUS.  ECON  181-  87 
 (June  1992). 
 405  Luke  M.  Froeb,  Gregory  J.  Werden  and  Timothy  J.  Tardiff,  The  Demsetz  Postulate  and  the  Effect  of  Mergers  in 
 Differentiated  Product  Industries,  Working  Paper  EAG  93-  5  Economic  Analysis  Group,  Antitrust  Division,  U.  S.  Department  of  Justice  (Aug.  1993).  See  also  Gregory  Werden  and  Luke  M.  Froeb,  The  Effects  of  Mergers  in 


 Differentiated  Products  Industries:  Logit  Demand  and  Merger  Policy,  10(  2)  J.  L.  ECON  ORG.  407-  16  (1994). 
 406  See  BIA  Media  Access  Database  (Mar.  18,  2003). 


 407  IPI  contends  that  the  use  of  audience  share  rank  as  a  metric  in  evaluating  local  ownership  is  problematic 
 because  ranks  vary  from  quarter  to  quarter.  IPI  Comments  at  19.  In  support  of  this,  IPI  cites  data  showing  that,  over  an  18-  month  period,  three  different  stations  occupied  the  fourth-  ranked  position  in  the  Los  Angeles,  California 


 DMA.  Id.  As  we  explain  above,  our  review  of  BIA  data  in  over  120  DMAs  shows  that  in  over  two-  thirds  of  these  markets,  at  least  two  percentage  points  separate  the  fourth  and  fifth  ranked  stations.  In  light  of  this  evidence 
 gathered  from  our  review  of  a  broad  range  of  DMAs,  we  do  not  agree  that  data  from  a  single  DMA  should  dictate  whether  we  rely  on  audience  share  rank  as  a  metric  for  purposes  of  our  local  TV  ownership  rule. 
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 fifth  and  sixth  ranked  networks  each  earn  a  four  percent  share.  408  While  there  is  variation  in  audience  shares  within  local  markets,  these  national  audience  statistics  are  generally  reflected  in  the  local  market 
 station  rankings.  The  gap  between  the  fourth-  ranked  national  network  and  the  fifth-  ranked  national  network  represents  a  60%  drop  in  audience  share  (from  a  ten  share  to  a  four  share),  a  significant 
 breakpoint  upon  which  we  base  our  rule. 
 196.  Other  persuasive  evidence  of  a  separation  between  top  four-  ranked  stations  and  other  stations  includes  a  study  comparing  audience  shares  of  stations  in  ten  markets  of  various  sizes.  409  The 


 study  finds  that  the  top  four-  ranked  stations  control  a  combined  total  of  at  least  75%  of  each  markets  audience  share.  410  Mergers  of  stations  owned  by  any  of  these  top  four  firms  would  thus  often  result  in  a 
 single  firm  with  a  significantly  larger  market  share  than  the  others.  Our  analysis  of  the  top  four  local  stations  is  related  to  our  analysis  of  the  four  leading  broadcast  networks  in  connection  with  the  dual 
 network  rule.  There  we  conclude  that  Big  Four  networks  continue  to  comprise  a  strategic  group  within  the  national  television  advertising  market.  That  is  due  largely  to  those  networks  continued  ability  to 
 attract  mass  audiences.  It  is  this  network  programming  that  explains  a  significant  portion  of  continued  market  leadership  of  the  top  four  local  stations  in  virtually  all  local  markets.  Thus  the  continued  need  for 
 the  Dual  Network  rule  to  protect  competition  at  the  network  level  also  supports  our  decision  to  separate  ownership  of  local  stations  carrying  the  programming  of  Big  Four  networks.  411 


 197.  Permitting  mergers  among  top  four-  ranked  stations  also  would  generally  lead  to  large  increases  in  the  HHI.  Although  we  believe  that  mechanical  application  of  the  DOJ/  FTC  Merger 
 Guidelines  may  provide  misleading  answers  to  competitive  issues  in  the  context  of  local  broadcast 


 408  Nielsen  Ratings,  BROADCASTING  &  CABLE  (May  26,  2003)  at  11. 
 409  See  UCC  Comments  in  MM  Docket  No.  01-  235  at  Attachment  3.  UCC  conducted  a  study  of  ten  local  television 
 markets  of  various  sizes.  The  UCC  study  found  that  in  all  markets,  including  the  two  largest  television  markets  (New  York,  New  York  and  Los  Angeles,  California),  the  top  four-  ranked  television  stations  control  more  than  75 


 percent  of  the  market,  measured  by  viewership  over  the  twelve-  month  period.  In  four  of  the  markets,  the  top  four  stations  had  more  than  90  percent  of  the  market,  and  in  three  markets,  the  top  four  stations  had  100  percent  of  the 
 market.  Id. 
 410  Id. 


 411  The  local  television  ownership  rule  is  consistent  with  a  key  aspect  of  our  national  television  ownership  rule  in 
 recognizing  competitive  disparities  among  stations.  Our  national  television  ownership  cap  recognizes  competitive  disparities  between  stations  through  use  of  the  UHF  discount,  while  our  local  television  ownership  cap  recognizes 


 competitive  disparities  between  stations  by  prohibiting  mergers  of  the  top  four-  ranked  stations  in  a  market.  The  national  ownership  rule  is  an  audience  reach  limitation,  so  it  makes  sense  to  adjust  that  limitation  based  on  the 
 diminished  coverage  of  UHF  stations.  The  local  ownership  rule,  on  the  other  hand,  places  a  limitation  on  the  number  of  stations  that  one  entity  may  own  in  a  market.  Thus,  that  rule  limits  mergers  of  the  top  four-  ranked 
 stations  in  a  market.  Furthermore,  in  the  local  television  ownership  rule,  we  take  account  of  a  stations  UHF  status  in  considering  certain  waiver  requests,  as  discussed  further  below.  Finally,  we  note  that  the  top-  four  merger 
 restriction  in  our  local  television  ownership  rule  and  the  UHF  discount  in  our  national  television  ownership  rule,  while  analogous,  are  not  identical  and  do  not  serve  exactly  the  same  purpose.  The  UHF  discount  is  premised,  in 
 part,  on  promoting  the  development  of  new  and  emerging  networks.  This  rationale  does  not  apply  in  the  local  television  ownership  context  because  ownership  of  multiple  stations  in  a  market  does  not  promote  development  of 
 new  networks.  The  top-  four  limitation  in  the  local  television  ownership  rule,  in  contrast,  is  premised  on  competition  theory,  which  is  not  the  basis  for  the  national  television  ownership  rule. 
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 transactions,  as  a  general  matter,  sufficiently  large  HHIs  establish  a  prima  facie  case  in  antitrust  suits.  412  Commenters  who  urge  us  to  permit  more  same-  market  combinations  focus  primarily  on  the  efficiencies 
 and  public  interest  benefits  associated  with  a  financially  strong  station  merging  with  a  financially  weak  station.  413  Such  mergers  are  unlikely  to  create  or  enhance  market  power  or  to  facilitate  its  exercise.  In 
 contrast,  no  commenter  discussed  the  efficiencies  and  public  interest  benefits  associated  with  a  merger  between  two  financially  strong  stations.  Nothing  in  the  record  indicates  that  such  mergers  will  produce 
 efficiencies  that  translate  into  benefits  for  the  viewing  public.  To  the  contrary,  such  mergers  are  likely  to  create  or  enhance  market  power  or  to  facilitate  its  exercise.  Therefore,  by  allowing  firms  to  own  multiple 
 stations,  but  prohibiting  combinations  among  the  top  four-  ranked  stations,  we  enable  the  market  to  realize  efficiency  gains  and  improve  the  quality  of  product  in  the  video  programming  market  while  mitigating  the 
 risk  of  harmful  coordinated  or  unilateral  competitive  harms. 
 198.  One  reason  that  combinations  involving  top  four-  ranked  stations  are  less  likely  to  yield  public  interest  benefits  such  as  new  or  expanded  local  news  programming  is  that  such  stations  generally 


 are  already  originating  local  news.  Some  commenters  contend  that  the  Commission  has  never  demonstrated  that  top  four-  ranked  stations  are  generally  the  markets  news  providers.  Yet  the  data 
 provided  by  some  of  these  very  commenters  confirms  that  this  is  the  case.  In  support  of  its  contention  that  the  Commission  should  eliminate  the  top  four-  ranked  restriction,  Fox  submitted  an  empirical  study 
 that  compares  the  local  news  offerings  of  top  four-  ranked  stations  and  other  stations  in  the  210  DMAs.  414  The  Fox  Top  Four  Study  finds  that  668  stations  ranked  among  the  top  four  offer  local  news.  415  We  have 
 determined  that,  because  there  are  less  than  four  stations  in  some  markets,  the  total  number  of  top  four-ranked  stations  is  779.  Therefore,  fully  85%  of  top  four-  ranked  stations  offer  local  news.  Fox  also  found 
 that  164  stations  ranked  outside  the  top  four  offer  some  local  news,  although  this  includes  stations  that  do  not  originate  their  own  news  programming.  416  We  have  determined  that  there  are  854  stations  not  ranked 
 among  the  top  four.  Thus,  even  including  stations  that  are  re-  broadcasting  the  local  news  of  another  station,  Foxs  data  show  that  only  19%  of  stations  outside  the  top  four  offer  local  news.  Because  top 
 four-  ranked  stations  already  provide  local  news  programming,  a  combination  involving  more  than  one  top  four-  ranked  station  is  less  likely  to  result  in  a  new  or  enhanced  local  news  offering  than  would  a 
 combination  involving  only  one  top  four-  ranked  station. 
 199.  We  also  have  determined  that  same-  market  combinations  yield  efficiencies  that  may  expedite  a  stations  transition  to  DTV.  However,  combinations  involving  more  than  one  top  four-  ranked 


 station  also  are  less  likely  to  provide  public  interest  benefits  in  the  form  of  new  DTV  service.  The 
 412  FTC  v.  Heinz,  246  F.  3d  708,  716  (D.  C.  Cir.  2001). 
 413  NAB  proposes  a  local  television  ownership  rule  that  would  provide  needed  financial  relief  for  lower-  rated 
 stations  (which  are  particularly  struggling  financially).  NAB  Comments  at  70.  Coalition  Broadcasters  provide  examples  of  joint  operations  involving  at  least  one  weak  station,  with  little,  or  no,  local  news,  and  argue  that  these 


 combinations  make  it  possible  for  those  struggling  stations  to  survive.  Coalition  Broadcasters  at  15    33,  and  Attachment  A  at  1.  Nexstar  argues  that  without  joint  operation,  many  stations  in  small  and  mid-  sized  markets  will 
 not  survive.  Nexstar  May  16,  2003  Ex  Parte  at  1. 
 414  Fox  Comments,  Economic  Study  A,  News  and  Public  Affairs  Programming  Offered  by  the  Four  Top-  Ranked 
 Versus  Lower-  Ranked  Television  Stations  (  Fox  Top  Four  Study). 
 415  Id.  at  8-  14. 


 416  Id. 
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 financial  position  of  top  four-  ranked  stations  makes  the  transition  to  DTV  more  affordable  for  these  stations.  417  Top  four-  ranked  stations  also  are  more  likely  to  have  made  the  transition  to  DTV  than  other 
 stations.  418  We  therefore  conclude  that  it  is  less  likely  that  allowing  same-  market  combinations  involving  more  than  one  top  four-  ranked  station  will  expedite  the  provision  of  DTV  service  to  the  public. 


 200.  Permitting  combinations  among  the  top  four  would  reduce  incentives  to  improve  programming  that  appeals  to  mass  audiences.  The  strongest  rival  to  a  top  four-  ranked  station  is  another 
 top  four-  ranked  station.  Because  top  four-  ranked  stations  typically  offer  programming  designed  to  attract  mass  audiences,  as  opposed  to  niche  audiences,  a  new  popular  program  offered  by  one  top  four-  ranked 
 station  will  have  a  substantial  negative  impact  on  the  audience  shares  of  the  other  top  four-  ranked  stations.  The  enormous  potential  gains  associated  with  new  popular  programs  provide  strong  incentives 
 for  top  four-  ranked  stations  to  develop  programming  that  is  more  appealing  to  viewers  than  the  programming  of  their  closest  rivals.  The  large  number  of  viewers  looking  for  new  programs  with  mass 
 audience  appeal  are  the  direct  beneficiaries  of  this  rivalry.  When  formerly  strong  rivals  merge,  they  have  incentives  to  coordinate  their  programming  to  minimize  competition  between  the  merged  stations.  Such 
 mergers  harm  viewers. 
 201.  Our  decision  to  allow  common  ownership  of  two  television  stations  in  markets  with  fewer  than  twelve  television  stations  will  result  in  levels  of  concentration  above  our  1800  HHI  benchmark  in 


 markets  with  fewer  than  12  television  stations.  We  permit  this  additional  concentration  because  the  economics  of  local  broadcast  stations  justify  graduated  increases  in  market  concentration  as  markets  get 
 smaller.  419  The  record  demonstrates  that  owners  of  television  stations  in  small  and  mid-  sized  markets  are  experiencing  greater  competitive  difficulty  than  stations  in  larger  markets.  In  particular,  NAB  submitted 
 financial  data  comparing  the  average  2002  gross  revenues  of  commercial  stations  across  all  DMAs.  The  data  demonstrate  that  there  are  fewer  stations  in  smaller  DMAs,  but  as  the  average  number  of  stations 


 417  NAB  submitted  data  comparing  the  average  cash  flow  and  pre-  tax  profits  of  Big  Four  affiliates  and  other 
 stations.  See  Letter  from  Jack  N.  Goodman,  Senior  Vice  President  and  General  Counsel,  NAB,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Apr.  30,  2003)  at  2,  Chart  1  (  NAB  Apr.  30,  2003  Ex  Parte).  These  data  show  that,  for 


 example,  in  2001,  Big  Four  affiliates  in  the  largest  markets  (i.  e.,  DMAs  1-  25)  had  an  average  cash  flow  of  $27,410,975,  as  compared  to  just  $8,013,317  for  stations  not  affiliated  with  one  of  the  four  major  networks.  Id. 
 The  average  pre-  tax  profit  of  a  Big  Four  affiliate  that  year  was  $20,356,967,  as  compared  to  only  $2,807,447  for  other  stations  in  the  largest  markets.  Id.  Because  most  stations  affiliated  with  the  Big  Four  networks  also  are  top 
 four-  ranked  stations,  we  find  this  data  probative  of  the  differences  in  the  financial  positions  of  top  four-  ranked  stations  and  other  stations. 


 418  As  of  May  21,  2003,  903  commercial  DTV  stations  were  on  the  air  pursuant  to  a  license,  program  test 
 authority  or  special  temporary  authority.  Of  these  stations,  approximately  60%  were  paired  with  analog  stations  that  were  ranked  among  the  top  four  in  terms  of  audience  share  as  of  the  most  recent  sweeps  period.  See  BIA 


 Media  Access  Database  (Mar.  18,  2003). 
 419  For  purposes  of  applying  our  cross  media  limits,  which  are  diversity  based,  we  found  that  markets  with  nine  or 
 more  television  stations  have  a  sufficiently  large  number  of  media  outlets  that  viewpoint  diversity  will  be  protected  by  our  caps  on  local  television  and  local  radio  ownership.  Measuring  the  extent  of  diversity  in  a  market 


 is  a  separate  question  from  measuring  the  extent  of  competition  among  a  particular  class  of  outlets,  such  as  local  television  stations.  Thus,  a  market  with  ten  television  stations  can  be  characterized  as  large  from  a  viewpoint 
 diversity  standpoint  because  of  the  substantial  number  of  media  outlets  available  in  such  markets,  but  small  to  mid-  sized  when  considering  solely  competition  in  the  delivered  video  market  (which  excludes  outlets  such  as 
 radio,  newspaper,  and  the  Internet). 
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 declines,  the  reduction  in  the  number  of  stations  is  outpaced  by  the  decline  in  average  gross  revenue.  420  Thus,  small  market  stations  are  competing  for  disproportionately  smaller  revenues  than  stations  in  large 
 markets.  421  NAB  also  submitted  data  comparing  the  average  pre-  tax  profits  of  Big  Four  network  affiliates  in  DMAs  of  various  sizes.  422  These  data  show  that  affiliates  in  the  largest  markets  (i.  e.,  the  top  25  DMAs) 
 had  an  average  pre-  tax  profit  of  $20,356,967  in  2001,  423  as  compared  with  an  average  pre-  tax  profit  of  just  $1,269,239  among  affiliates  ranked  highest  in  audience  share  in  the  smallest  markets  (i.  e.,  DMAs 
 151-  175).  424  The  lowest  ranked  affiliates  in  the  smallest  markets  showed  negative  average  pre-  tax  profits  at  -$  92,917.  425  We  find  these  data  probative  of  the  different  economics  of  station  ownership  depending 
 on  market  size.  The  data  confirm  that  the  ability  of  local  stations  to  compete  successfully  in  the  delivered  video  market  is  meaningfully  (and  negatively)  affected  in  mid-  sized  and  smaller  markets. 


 202.  Moreover,  Congress  and  the  Commission  previously  have  allowed  greater  concentration  of  broadcast  properties  in  smaller  markets  than  in  larger  markets  precisely  because  the  fixed  costs  of  the 
 broadcasting  business  are  spread  over  fewer  potential  viewers.  In  1992,  the  FCC  allowed  one  firm  to  own  a  larger  percentage  of  the  total  radio  outlets  in  smaller  markets.  426  In  1996,  Congress's  local  radio  caps 
 were  built  on  this  same  principle.  In  the  largest  markets,  it  required  six  independent  station  owners,  but  in  the  smallest  markets,  it  permitted  just  two  firms  to  own  all  the  radio  stations.  The  limits  we  adopt  today 
 for  local  television  ownership  replicate  this  graduated  tradeoff  between  optimal  competition  in  the  delivered  video  market  (six  station  owners)  and  recognition  of  the  challenging  nature  of  broadcast 
 economics  in  small  to  mid-  sized  markets. 
 203.  The  above  discussion  illustrates  why  we  must  avoid  an  oversimplified  application  of  the  DOJ/  FTC  Merger  Guidelines.  In  particular,  the  analysis  suggests  that  anticompetitive  harms  may  result 


 from  allowing  the  largest  firms  to  merge,  and  that  we  might  lose  welfare  enhancing  efficiency  gains  by  disallowing  mergers  between  stations  with  large  audience  shares  and  stations  with  small  audience  shares. 
 To  allow  the  market  to  realize  these  efficiency  gains  and  prevent  potential  harms  from  undue  increases  in  concentration,  we  therefore  allow  combinations  of  two  stations  provided  they  are  not  both  among  the  top 
 four-  ranked  broadcast  stations  in  the  local  market.  In  markets  with  at  least  18  television  stations,  we  further  allow  a  firm  to  own  up  to  three  stations  (thus  ensuring  a  minimum  of  six  owners)  provided  that 
 only  one  of  them  is  ranked  among  the  top  four. 


 420  NAB  Apr.  30,  2003  Ex  Parte  at  2,  Chart  1. 
 421  Id. 
 422  Id.,  NAB  Comments,  Small  to  Medium  Markets  Statement. 
 423  NAB  Apr.  30,  2003  Ex  Parte  at  1,  3. 
 424  NAB  Comments,  Small  to  Medium  Markets  Statement,  Table  6. 
 425  Id. 
 426  See  1992  Radio  Ownership  Order,  7  FCC  Rcd  at  2777  (finding  that  competitive  realities  are  substantially 
 different  in  markets  of  different  sizes). 
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 3.  Other  Issues 
 a.  Alternate  Proposals 
 (i)  Proposals  to  Retain  the  Existing  Rule  in  its  Current  Form  or  With  Minor  Modifications 


 204.  A  number  of  commenters  urge  us  to  retain  the  existing  rule,  or  make  minor  modifications.  427  Children  Now  proposes  that  the  Commission  modify  the  existing  rule  by  prohibiting 
 common  ownership  of  television  stations  with  overlapping  Grade  B  contours  in  the  same  market,  as  it  did  prior  to  its  1999  revisions  to  the  rule.  428  AWRT,  AFL-  CIO,  and  AFTRA  urge  the  Commission  to  retain 
 the  existing  rule,  but  to  count  only  those  voices  that  actually  provide  local  programming.  429  Children  Now  and  UCC  state  that  if  the  Commission  chooses  to  revise  the  current  rule  by  expanding  the  types  of 
 media  voices  that  are  considered  for  purposes  of  the  local  television  ownership  rule,  it  should  raise  the  threshold  voice  count  required  to  form  a  same-  market  combination.  430  As  we  explained  above,  we  have 
 determined  that  retaining  our  current  rule  does  not  comport  with  our  statutory  mandate  under  section  202(  h)  on  competition,  diversity,  or  localism  grounds.  For  the  same  reasons,  we  disagree  with 
 commenters  who  contend  that  an  equally  restrictive  or  more  restrictive  ownership  rule  is  necessary  in  the  public  interest.  Although  our  modified  rule  does  not  rely  upon  a  voice  test,  it  calculates  the  number  of 
 stations  one  can  own  in  a  market  based,  in  part,  on  the  number  of  stations  within  that  market.  However,  our  decision  to  count  only  broadcast  television  stations  is  based  on  the  likely  responses  of  participants 
 in  the  DVP  market  to  changes  in  local  market  concentration,  and  is  aimed  at  achieving  competition  in  local  markets. 


 205.  Smith  proposes  that  if  we  relax  the  rule,  we  should  prohibit  common  ownership  of  more  than  one  station  affiliated  with  a  top  four  network.  431  Our  revised  rule  prohibits  common  ownership  of 
 stations  that  are  among  the  top  four  in  terms  of  audience  share.  Although  such  stations  are  often  affiliated  with  top  four  networks,  we  conclude  that  audience  share  rank  is  a  more  accurate  measure  of  market  power 
 than  network  affiliation.  Therefore,  we  do  not  adopt  Smiths  proposal  to  prohibit  common  ownership  of  more  than  one  station  affiliated  with  a  top  four  network. 


 206.  CFA  asserts  that  while  the  Commission  has  ample  justification  for  retaining  the  current  rule,  if  it  chooses  to  revise  the  rule,  it  should  apply  an  HHI-  adjusted  voice  count  to  local  TV 
 ownership.  432  Under  CFAs  proposal,  the  Commission  would  calculate  the  market  shares  of  television 


 427  These  include  AFL-  CIO,  AFTRA,  AWRT,  CFA,  Children  Now,  CWA,  Smith,  Stapleton,  and  UCC.  AFL-  CIO 
 Comments  at  ii,  47;  AFTRA  Comments    31;  CFA  Comments  at  9,  284;  Children  Now  Comments  at  ii,  3;  CWA  Comments  at  3,  46;  Smith  Comments  at  3;  Stapleton  Comments  at  15-  16;  UCC  Comments. 


 428  Children  Now  Comments  at  3. 
 429  AWRT  Comments  at  8,  AFL-  CIO  Comments  at  56. 
 430  Children  Now  Comments  at  3;  UCC  Comments  at  46. 
 431  Smith  Comments  at  3.  Smith  states  that  prohibiting  combinations  of  Big  Four  network  affiliates  would  help 
 preserve  existing  independent  sources  of  local  news. 
 432  CFA  Comments  at  284-  85. 
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 broadcast  stations  in  the  relevant  geographic  market,  which  would  be  either  the  DMA  or  a  weighted  average  DMA,  calculated  to  account  for  the  fact  that  certain  stations  do  not  have  cable  carriage 
 throughout  the  market.  433  CFA  proposes  that  the  Commission  define  highly  concentrated  markets  as  those  with  fewer  than  six  equal-  sized  voices  or  a  four-  firm  concentration  ratio  above  60%.  434  Moderately 
 concentrated  markets  would  be  those  with  between  six  and  ten  equal-  sized  voices  or  a  four-  firm  concentration  ratio  of  40-  60%.  435  CFA  urges  us  to  prohibit  any  combination  that  would  result  in  a  highly 
 concentrated  market.  436  Where  a  combination  would  result  in  moderate  concentration,  CFA  proposes  that  we  permit  the  combination  only  if  we  find  that  the  merger  will  serve  the  public  interest  and  if  the  owner 
 of  the  merging  stations  agrees  to  retain  separate  news  and  editorial  departments  in  different  subsidiaries  of  the  merged  entity.  437 


 207.  Our  modified  local  TV  ownership  rule  will  ensure  that  there  are  at  least  six  firms  in  significant  number  of  markets  (i.  e.,  all  markets  with  12  or  more  television  stations),  much  like  CFAs 
 proposal.  CFAs  proposal  does  not,  however,  adequately  address  record  evidence  of  differences  in  the  economics  of  broadcast  stations  in  smaller  markets.  Much  like  the  strict  application  of  the  DOJ/  FTC 
 Merger  Guidelines  discussed  earlier,  CFAs  proposed  test  would  prohibit  certain  mergers  that  will  result  in  welfare  enhancing  efficiencies.  Accordingly,  we  decline  to  adopt  CFAs  proposal.  With  regard  to 
 CFAs  waiver  proposal,  we  do  not  agree  that  conditioning  assignments/  transfers  on  retention  of  separate  news  departments  within  separate  subsidiaries  of  a  merged  entity  is  necessary  to  advance  our  diversity, 
 competition  or  localism  goals.  Requiring  compliance  with  our  rules,  rather  than  conducting  case-  by-  case  evaluations  or  imposing  merger  conditions,  is  a  more  effective  way  to  achieve  these  goals. 


 208.  Entravision  does  not  take  a  position  on  whether  the  rule  should  be  relaxed,  but  proposes  that  if  the  rule  is  relaxed,  the  Commission  should  require  periodic  certification  by  owners  of  same-  market 
 combinations  that  they  are  not  engaged  in  certain  types  of  anticompetitive  conduct  that  would  adversely  affect  smaller  broadcasters  in  their  markets.  438  We  do  not  agree  with  Entravision  that  modifying  the  local 
 TV  ownership  rule  will  increase  the  likelihood  of  anticompetitive  conduct  by  broadcasters  that  own  more  than  one  station  in  a  market,  or  that  a  certification  requirement  is  necessary  to  protect  against  such 
 conduct.  Certainly,  if  broadcasters  engage  in  anticompetitive  conduct  that  is  illegal  under  antitrust  statutes,  remedies  are  available  pursuant  to  those  statutes.  In  addition,  an  antitrust  law  violation  by  a 
 licensee  would  be  considered  as  part  of  our  character  qualifications  review  in  connection  with  any  renewal,  assignment,  or  transfer  of  a  license. 


 433  Id.  at  166-  167,  284-  85,  289.  CFA  does  not  specify  whether  market  shares  are  to  be  calculated  based  on  audience 
 share  or  advertising  revenue  share. 
 434  Id.  at  286. 


 435  Id. 
 436  Id. 
 437  Id.  at  284-  85.  Combinations  resulting  in  moderately  concentrated  markets  also  would  be  subject  to  a  de  minimis 
 exception  under  which  market  participants  could  acquire  small  firms  (i.  e.,  those  with  a  market  share  of  less  than  2%).  Id.  at  288. 


 438  Entravision  Comments  at  8-  10.  Entravision  makes  the  same  proposals  with  regard  to  relaxation  of  cross-ownership 
 rules.  Id.  These  certifications  would  be  required  in  connection  with  license  renewals,  applications  for  assignment  or  transfer  of  control  of  a  license,  and  at  license  mid-  term  when  stations  EEO  compliance  is  reviewed. 
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 (ii)  Proposals  to  Eliminate  or  Substantially  Modify  the  Rule 
 209.  Several  commenters  propose  that  we  eliminate  the  current  rule  or  substantially  modify  the  rule  in  order  to  permit  more  same-  market  combinations.  439  Among  these  are  a  proposal  to  allow  common 


 ownership  of  two  television  stations  in  all  markets  with  four  or  more  stations,  a  proposal  to  eliminate  the  top  four-  ranked  standard,  a  proposal  to  eliminate  the  voice  test  provision  of  the  rule  but  to  retain  the  top 
 four-  ranked  restriction,  NABs  proposed  10/  10  standard,  and  Hearst-  Argyles  AMI  proposal.  Below,  we  discuss  these  proposals. 


 210.  We  do  not  agree  with  several  commenters  who  propose  that  we  eliminate  all  local  television  ownership  restrictions.  440  As  we  explained  above,  the  public  is  best  served  when  numerous 
 rivals  compete  for  viewing  audiences.  In  the  DVP  market,  rivals  profit  by  attracting  new  audiences  and  by  attracting  existing  audiences  away  from  competitors  programs.  Monopolists,  on  the  other  hand,  profit 
 only  by  attracting  new  audiences;  they  do  not  profit  by  attracting  existing  audiences  away  from  their  other  programs.  The  additional  incentives  facing  competitive  rivals  are  more  likely  to  improve  program  quality 
 and  create  programming  preferred  by  viewers.  441  Most  commenters  proposing  elimination  of  the  rule  believe  that  antitrust  authorities  will  protect  against  any  public  interest  harms  that  may  result  from 
 combined  ownership  of  multiple  television  stations  in  a  market.  As  we  explain  at  Section  III(  B)  above,  we  do  not  agree  with  commenters  who  urge  us  to  eliminate  our  rules  and  defer  all  competition  concerns  to 
 the  antitrust  authorities. 
 211.  We  conclude  that,  as  compared  to  the  modified  rule,  the  rule  modification  proposals  advanced  by  commenters  are  more  likely  to  result  in  anomalies  and  inconsistencies,  or  will  otherwise  fail 


 to  serve  our  policy  goals.  For  example,  by  proposing  that  we  permit  common  ownership  of  two  television  stations  in  all  markets  with  four  or  more  stations,  Nexstar  attempts  to  account  for  the  differing  economics 
 of  stations  in  small  markets.  442  However,  unlike  our  modified  rule,  the  Nexstar  proposal  does  not  protect  against  combinations  of  the  market  participants  with  the  largest  audience  shares,  combinations  that  are 
 more  likely  to  cause  competitive  harms.  It  also  permits  extremely  high  concentration  levels  in  the  very  smallest  markets  there  could  be  as  few  as  two  competitors  in  markets  with  four  television  stations.  We 
 find  that  the  levels  of  concentration  permitted  by  the  Nexstar  proposal  are  likely  to  result  in  harm  to  competition  in  local  DVP  markets. 


 212.  Similar  competitive  harms  would  result  if  we  adopted  proposals  to  eliminate  or  modify  the  top  four-  ranked  standard.  443  Emmis  claims  that  the  top  four-  ranked  standard  cannot  be  justified  on 


 439  See  generally,  Alaska  Comments;  Belo  Comments;  Duhamel  Comments;  Emmis  Comments;  Fox  Comments; 
 Granite  Comments;  Gray  Comments;  Hearst-  Argyle  Reply  Comments;  Media  General  et  al.  Comments;  Paxson  Comments;  Sinclair  Comments;  Westwind  Reply  Comments. 


 440  See  Alaska  Comments  at  2,  6-  7;  Fox  Comments  at  2-  3,  6,  33-  34,  58-  59;  Gray  Comments  at  6,  19;  Media  General 
 et  al.  Comments  at  2,  8;  Sinclair  Comments  at  i-  iii,  8-  9,  60. 
 441  For  a  discussion  of  program  provision  under  different  market  structures,  see,  Steiner,  supra  note  400;  MOWG 
 Study  No.  6  at  3-  5;  Sinclair  Comments,  Baumann/  McAnneny  Statement  at  2-  6. 
 442  Nexstar  Comments  at  15,  21. 


 443  See  Emmis  Comments  at  23-  33;  Fox  Comments  at  50;  Sinclair  Comments  at  41-  46;  Letter  from  Howard  M. 
 Liberman,  Drinker  Biddle  &  Reath,  counsel  for  Nexstar,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  29,  2003)  (  Nexstar  May  29,  2003  Ex  Parte);  Letter  from  Gary  R.  Chapman,  President,  LIN  Television  Corporation,  Paul  H. 


 (continued.) 
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 diversity  or  competition  grounds.  444  Several  commenters  agree.  445  We  are  not  relying  on  the  top  four-ranked  provision  of  our  modified  local  TV  ownership  rule  to  promote  diversity,  although  we  recognize 
 that  because  the  marketplace  for  ideas  is  broader  than  the  DVP  market,  rules  intended  to  promote  competition  also  will  promote  diversity.  We  disagree  with  commenters  claims  that  the  top  four-  ranked 
 standard  is  not  justified  on  competition  grounds.  At  the  time  of  our  last  review  of  the  local  TV  ownership  rule,  we  lacked  sufficient  record  data  concerning  competitors  to  local  television  stations.  446  In  the  instant 
 proceeding,  we  face  no  such  shortage  of  evidence  concerning  which  media  compete  with  local  TV.  Having  determined  that  television  competes  with  all  providers  of  DVP,  we  have  crafted  a  rule  that 
 appropriately  takes  account  of  competition  from  other  sources  of  DVP,  and  will  ensure  competition  in  local  DVP  markets.  We  do  not  agree  that  elimination  of  our  top  four-  ranked  standard,  use  of  a  top  three-ranked 
 standard,  447  or  use  of  a  tiered  system  that  would  ban  mergers  among  top  four-  ranked  stations  only  in  the  largest  markets  and  permit  certain  top  four-  ranked  combinations  in  smaller  markets,  448  would  serve 
 the  public  interest.  As  discussed  above,  top  four-  ranked  combinations  are  likely  to  harm  competition  in  the  DVP  market,  449  and  are  less  likely  to  produce  offsetting  public  interest  benefits.  450 


 213.  We  believe  that  a  more  targeted  approach  to  account  for  possible  harms  of  application  of  the  top  four-  ranked  restriction  is  to  establish  a  waiver  standard  tailored  to  the  top  four-  ranked  restriction. 
 This  approach  will  preserve  competition  in  the  DVP  market  while  accommodating  those  instances  where 
 (Continued  from  previous  page)  McTear,  President  &  CEO,  Raycom  Media,  Inc.,  Bernard  E.  Waterman,  President  &  Director  Waterman 
 Broadcasting  Corporation,  and  Lara  Kunkler,  President  and  General  Manager,  Montclair  Communications,  Inc.,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  15,  2003);  Letter  from  Robert  A.  Beizer,  Vice  President  of  Law  & 
 Development,  Gray  Television,  Inc.,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  29,  2003)  (  Gray  May  29,  2003  Ex  Parte);  Letter  from  Jack  N.  Goodman,  Senior  Vice  President  and  General  Counsel,  NAB,  to  Marlene  H.  Dortch, 
 Secretary,  FCC  (May  22,  2003)  (  NAB  May  22,  2003  Ex  Parte)  (proposing  a  tiered  approach  which  would  prohibit  top  four-  ranked  combinations  in  DMAs  1-  25,  top  three-  ranked  combinations  in  markets  26-  75,  and  top 
 two-  ranked  combinations  in  markets  76-  210);  Duopoly  Relief  Needed    4  th  Ranked  Stations  Significantly  Trail  3  rd  Ranked  Stations,  Bear  Stearns  (May  29,  2003)  (proposing  a  top  three-  ranked  standard)  (  Bear  Stearns  May  29,  2003 
 Ex  Parte). 
 444  Emmis  Comments  at  23-  33.  Emmis  states  that  it  has  a  temporary  waiver  authorizing  its  ownership  of  two 
 television  stations  in  the  Honolulu,  Hawaii  DMA.  Emmis  Comments  at  2.  The  top  four-  ranked  standard  prohibits  Emmis  permanent  ownership  of  this  combination. 


 445  Fox  Top  Four  Study,  supra  note  414  (asserting  that  the  top  four  restriction  incorrectly  seeks  to  promote  diversity 
 based  on  an  unsupported  assumption  that  top  four-  ranked  stations  are  more  likely  to  offer  local  news,  although  numerous  stations  that  are  not  among  the  top  four-  ranked  actually  air  local  news);  Sinclair  Comments  at  41-  46, 


 Exhibits  22-  23  (asserting  that  if  the  intent  of  local  TV  rule  is  to  prevent  combinations  involving  stations  that  offer  local  news,  the  should  do  so  explicitly  because  there  is  no  empirical  basis  for  view  that  only  top  four  offer  local 
 news).  See  also  note  443,  supra. 
 446  Emmis  Comments  at  31-  32. 


 447  Bear  Stearns  May  29,  2003  Ex  Parte. 
 448  NAB  May  22,  2003  Ex  Parte. 
 449  See  supra    195-  200. 
 450  See  supra    198-  199. 
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 application  of  the  top  four-  ranked  restriction  would  harm  the  public  interest.  We  discuss  modifications  to  our  current  waiver  standard  in  a  separate  section  below. 
 214.  Belo  takes  a  nearly  opposite  approach,  proposing  that  we  permit  same-  market  combinations  provided  that  they  satisfy  our  top  four-  ranked  standard,  but  eliminate  our  voice  test.  451  We 
 agree  that,  as  it  is  used  in  our  modified  rule,  a  top  four-  ranked  prohibition  is  an  appropriate  means  of  protecting  against  combinations  that  would  have  an  enhanced  ability  or  incentive  to  engage  in 
 anticompetitive  conduct. 
 215.  NAB  proposes  that  we  permit  combinations  where  at  least  one  of  the  stations  has  had,  on  average  over  the  course  of  a  year,  an  all  day  audience  share  of  ten  or  less  (the  10/  10  proposal).  452  NAB 


 asserts  that  the  audience  share  data  used  for  this  calculation  should  include  viewing  of  out-  of-  market  broadcast  stations  and  cable  networks,  to  account  for  competition  from  these  sources.  453  NAB  proposes 
 that  we  treat  the  10/  10  standard  as  a  presumption,  and  urges  us  to  consider  proposed  combinations  that  do  not  meet  this  standard  (including  same-  market  combinations  of  three  stations)  on  a  case-  by-  case  basis, 
 considering  factors  which  we  discuss  further  below  along  with  other  waiver  proposals.  454  NAB  asserts  that  its  proposed  test  would  be  easy  for  applicants  to  use  and  for  the  Commission  to  apply,  would  provide 
 needed  financial  relief  for  struggling  stations  in  small  and  medium  markets  and  those  that  are  lower-  rated,  and,  by  prohibiting  combinations  of  leading  stations,  would  effectuate  our  diversity  and  competition 
 goals.  455  According  to  NAB,  a  ten  viewing  share  effectively  separates  market  leading  stations  from  non-leading  stations  on  a  consistent  basis  across  DMAs  of  varying  size.  456  NAB  urges  the  Commission  to 
 allow  broadcasters  to  transfer  combinations  created  pursuant  to  the  10/  10  standard  even  if  one  or  both  stations  has  increased  its  viewing  share  above  the  ten  threshold  at  the  time  of  such  transfer.  457  NAB 
 asserts  that  requiring  licensees  to  find  separate  purchasers  will  be  disruptive  and  will  tend  to  discourage  investment  in  broadcast  stations.  Of  the  commenters  who  support  the  10/  10  proposal,  some  support  the 
 proposal  as  advanced  by  NAB;  others  support  it  with  modifications;  others  suggest  it  be  used  only  as  a  safe  harbor,  allowing  for  many  other  types  of  combinations.  458 


 451  Belo  Comments  at  ii-  iii. 
 452  NAB  Comments  at  79. 
 453  Id. 
 454  Id. 
 455  Id.  at  79-  81. 
 456  Id.  81-  82.  NAB  further  asserts  that  the  proposal  will  advance  our  localism  goal  by  preserving  struggling  stations 
 and  by  enhancing  stations  financial  viability,  which  will  enable  them  to  continue  or  initiate  local  news  programming.  Id.  at  82-  83. 


 457  Id.  at  83-  84. 
 458  Coalition  Broadcasters  Comments  at  11-  12;  Desmond  Reply  Comments  at  8;  Duhamel  Comments  at  2;  Gray 
 Reply  Comments  at  6-  7;  Hearst-  Argyle  Reply  Comments  at  10-  11;  Pappas  Comments  at  13-  15;  Paxson  Comments  at  30-  31;  Westwind  Reply  Comments  at  3.  Coalition  Broadcasters  suggest  modifying  the  proposal  to  establish  a 


 threshold  share  as  high  as  15  instead  of  ten  for  combinations  in  smaller  markets.  Coalition  Broadcasters  Comments  at  11-  12.  Desmond  urges  us  to  adopt  the  proposal  but  to  rely  on  audience  share  data  that  does  not  include  out-  of-market 
 or  non-  broadcast  viewing.  Desmond  Reply  Comments  at  8.  Gray  and  Paxson  support  the  10/  10  proposal  as  (continued.) 
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 216.  Although  it  supports  the  10/  10  proposal,  Hearst-  Argyle  asserts  that  the  most  important  deficiency  of  the  proposal  is  that  there  is  little  record  support  for  NABs  contention  that  ten  is  an  ideal 
 cut-  off  point  between  leading  stations  and  others.  Similarly,  UCC  states  that  in  many  markets,  ten  is  the  average  share  for  any  given  broadcast  station,  and  is  not  a  dividing  line  between  leading  and 
 struggling  stations.  459  UCC  contends  that  NAB  has  not  shown  that  all,  or  even  most,  stations  with  a  viewing  share  under  ten  are  struggling  to  achieve  financial  viability.  460  UCC  asserts  that,  to  the  contrary, 
 10/  10  will  permit  common  ownership  of  top-  ranked  stations  in  many  markets.  461 
 217.  The  record  in  this  proceeding  supports  a  rule  that  will  allow  financially  weak  stations  to  combine  with  each  other  or  with  stronger  stations  in  order  to  realize  efficiencies.  We  have  identified 


 several  benefits  of  such  combinations.  The  10/  10  proposal,  however,  would  permit  mergers  between  financially  strong  stations,  including  top  four-  ranked  stations,  in  a  significant  number  of  markets.  Neither 
 the  record  nor  standard  competitive  analysis  justifies  a  rule  that  will  permit  such  mergers.  Our  analysis  suggests  that  combinations  among  the  top  four  rated  broadcast  stations  would  create  welfare  harms.  We 
 also  agree  with  commenters  who  contend  that  the  proposal  does  not  adequately  justify  the  use  of  ten  as  a  threshold.  The  record  demonstrates  that  in  many  markets  ten  is  the  average  share  for  any  given  station, 
 sometimes  even  the  very  highest  rated  stations,  in  the  market.  In  addition,  the  proposal  provides  no  clear  rationale  to  justify  why,  for  example,  a  combination  involving  two  stations  with  respective  audience 
 shares  of  25  and  9  should  be  permitted,  although  a  combination  involving  two  stations  with  respective  audience  shares  of  12  and  11  should  be  prohibited.  For  these  reasons,  we  reject  the  10/  10  approach. 


 218.  Hearst-  Argyle  advances  an  alternative  proposal.  462  Hearst-  Argyles  proposal  would  permit  common  ownership  of  any  number  of  television  stations  in  the  same  market  provided  that  the 
 stations  combined  audience  share  does  not  exceed  30%.  463  Combinations  that  would  result  in  an  audience  share  above  30%  would  be  subject  to  an  Audience  Market  Index  (  AMI)  cap  that  is  calculated 
 in  a  manner  similar  to  an  HHI,  but  uses  audience  share  data  rather  than  advertising  share  data.  464  If  a  combination  would  result  in  AMI  below  1000,  the  combination  would  be  permitted,  regardless  of  the 
 increase  in  concentration.  465  A  combination  resulting  in  an  AMI  between  1000  and  1800  would  be  (Continued  from  previous  page) 
 an  alternative  to  eliminating  the  current  local  TV  rule.  Gray  Reply  Comments  at  6-  7;  Paxson  Comments  at  30-  31.  Sinclair  opposes  the  proposal  but  suggests  that  it  could  serve  instead  as  a  safe  harbor.  Sinclair  Reply  Comments  at 
 5. 
 459  UCC  Comments  at  20-  21,  Exhibit  1. 


 460  UCC  further  contends  that  NAB  has  not  shown  that  allowing  such  combinations  will  benefit  the  public.  UCC 
 Comments  at  21,  23.  UCC  asserts  that,  to  the  contrary,  such  combinations  will  result  in  significant  harm  to  diversity  in  local  markets.  Id.  at  17-  20. 


 461  UCC  Comments  at  18,  Exhibit  1.  As  an  example,  UCC  states  that  only  one  station  in  the  San  Francisco, 
 California  DMA  has  had  an  average  viewing  share  of  ten  or  more  in  the  past  four  Nielsen  books,  which  means  that,  under  10/  10,  a  single  entity  could  combine  the  top  two-  ranked  stations  in  the  market.  Id.  Similarly,  in  the 


 Washington,  D.  C.  DMA,  three  of  the  four  top  rated  stations  have  average  viewing  shares  below  or  near  10.  Id. 
 462  Hearst-  Argyle  Reply  Comments  at  13-  19. 


 463  Id.  at  14. 
 464  Id.  at  14-  16. 
 465  Id.  at  16. 
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 permitted  if  the  increase  in  AMI  is  less  than  100  points,  and  a  combination  resulting  in  an  AMI  above  1800  would  be  permitted  only  if  it  increases  AMI  by  less  than  50  points.  466  Hearst-  Argyle  asserts  that  by 
 using  an  audience  share  metric,  its  proposal  objectively  measures  and  protects  both  diversity  and  competition.  467  Hearst-  Argyle  contends  that  its  proposal  also  is  likely  to  survive  judicial  scrutiny  because 
 its  30%  hard  cap  and  AMI  analysis  are  both  based  on  antitrust  law  and  analysis.  468  In  addition,  Hearst-Argyle  contends  that  its  proposal  avoids  several  pitfalls  of  the  NAB  10/  10  proposal. 


 219.  We  do  not  agree  with  Hearst-  Argyle  that  simply  because  courts  have  accepted  presumptions  of  30%  market  share  as  demonstrating  market  power  in  the  context  of  the  antitrust  statutes, 
 we  should  establish  a  presumption  that  30%  is  an  appropriate  audience  share  limit.  The  Hearst-  Argyle  proposal  does  not  place  specific  limits  on  the  number  of  broadcast  television  stations  an  entity  could  own 
 in  a  local  market.  An  entity  could  acquire  any  combination  of  stations  in  a  local  market  as  long  as  its  audience  share  is  30  percent  or  less,  and  the  AMI  cap  is  satisfied.  In  many  markets,  this  approach  would 
 permit  an  entity  to  own  four,  five,  six  or  more  stations.  We  do  not  believe  that  consolidation  in  a  market  of  a  large  number  of  stations  with  low  audience  share  is  in  the  public  interest.  Although  an  individual 
 station  may  currently  have  a  small  audience  share  in  the  DVP  market,  each  stations  audience  share  has  the  potential  to  change  over  time.  The  number  of  stations  a  firm  owns  is  a  measure  of  its  capacity  to 
 deliver  programming.  This  capacity  can  be  as  important  a  factor  in  measuring  the  competitive  structure  of  the  market  as  is  its  current  audience  share.  Moreover,  much  like  the  10/  10  proposal,  the  AMI  test  will 
 frequently  result  in  common  ownership  of  stations  ranked  among  the  top  four  in  the  market.  It  will  also  permit  common  ownership  of  three  stations  in  many  more  markets  than  will  our  modified  rule    including 
 some  very  small  markets.  As  shown  by  one  of  Hearst-  Argyles  own  examples,  under  certain  circumstances,  the  AMI  test  would  even  permit  common  ownership  of  three  of  the  top  four-  ranked 
 stations  in  a  market  with  just  five  full-  power  television  stations.  469  Because  of  the  anticompetitive  harms  that  would  result  from  combinations  allowed  by  the  AMI  test,  we  will  not  adopt  Hearst-  Argyles  AMI 
 proposal. 
 220.  NAB  proposes  an  alternative  that  would  combine  the  30%  audience  share  cap  of  the  AMI  test  with  a  ban  on  common  ownership  of  more  than  three  stations  in  any  market,  and  a  ban  on  common 


 ownership  of  more  than  two  top  four-  ranked  stations  in  the  same  market.  470  For  similar  reasons,  we  do  not  accept  this  proposal.  As  discussed  herein:  (1)  a  ban  on  combinations  among  the  top  four-  ranked 
 stations  is  necessary  to  promote  competition;  (2)  a  30%  share  cap  would  permit  combinations  that  undermine  that  goal;  and  (3)  ownership  of  three  television  stations  in  markets  with  fewer  than  18  stations 
 would  harm  competition  by  consolidating  capacity  in  the  hands  of  too  few  owners.  Our  modified  rule  better  effectuates  our  goal  of  promoting  competition  in  local  DVP  markets. 


 466  Id.  at  16-  17. 
 467  Id.  at  17-  18.  Hearst-  Argyle  notes  that  because  all  viewable  channels  are  included  in  its  analysis,  its  proposal 
 reflects  competition  from  viewing  of  cable  channels. 
 468  Id.  at  18.  Specifically,  Hearst-  Argyle  states  that  its  30%  cap  derives  from  Supreme  Court  precedent  (citing  U.  S. 
 vs.  Philadelphia  National  Bank,  374  U.  S.  321,  364  (1963))  and  notes  that  its  AMI  analysis  is  similar  to  DOJ  antitrust  analysis  using  the  DOJ/  FTC  Merger  Guidelines. 


 469  Id.,  Appendix  at  1. 
 470  Letter  from  Edward  O.  Fritts,  President  and  CEO,  NAB,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  28,  2003). 
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 b.  Waiver  Standard 
 221.  In  our  Local  TV  Ownership  Report  and  Order,  we  established  a  waiver  standard  for  purposes  of  our  local  TV  ownership  rule.  The  standard  permits  a  waiver  of  the  current  rule  where  a 


 proposed  combination  involves  at  least  one  station  that  is  failed,  failing,  or  unbuilt.  We  define  a  failed  station  as  one  that  has  been  dark  for  at  least  four  months  or  is  involved  in  court-  supervised  involuntary 
 bankruptcy  or  involuntary  insolvency  proceedings.  471  Our  failing  station  standard  provides  that  we  will  presume  a  waiver  is  in  the  public  interest  if  the  applicant  satisfies  each  of  the  following  criteria:  (1)  one 
 of  the  merging  stations  has  had  low  all-  day  audience  share  (i.  e.,  4%  or  lower);  (2)  the  financial  condition  of  one  of  the  merging  stations  is  poor;  472  and  (3)  the  merger  will  produce  public  interest  benefits.  473  Our 
 unbuilt  station  waiver  standard  presumes  a  waiver  is  in  the  public  interest  if  an  applicant  meets  each  of  the  following  criteria:  (1)  the  combination  will  result  in  the  construction  of  an  authorized  but  as  yet 
 unbuilt  station;  and  (2)  the  permittee  has  made  reasonable  efforts  to  construct,  and  has  been  unable  to  do  so.  474  For  each  type  of  waiver,  we  also  require  that  the  waiver  applicant  demonstrate  that  the  in-  market 
 buyer  is  the  only  reasonably  available  entity  willing  and  able  to  operate  the  subject  station,  and  that  selling  the  station  to  an  out-  of-  market  buyer  would  result  in  an  artificially  depressed  price  for  the 
 station.  475  Any  combination  formed  as  a  result  of  a  failed,  failing,  or  unbuilt  station  waiver  may  be  transferred  together  only  if  the  combination  meets  our  local  TV  ownership  rules  or  one  of  our  three 
 waiver  standards  at  the  time  of  transfer.  476 
 222.  Our  rationale  for  adopting  these  waiver  criteria  was  that  failed,  failing  and  unbuilt  stations  could  not  contribute  to  competition  or  diversity  in  local  markets,  and  that  the  public  interest  benefits  of 


 activating  a  dark  or  unbuilt  station,  or  preventing  a  failing  station  from  going  dark,  outweighed  any  potential  harm  to  competition  or  diversity.  477  Most  commenters  addressing  the  waiver  standard  urge  us  to 
 relax  or  eliminate  the  standard.  NAB  urges  the  Commission  to  evaluate,  on  a  case-  by-  case  basis, 


 471  47  C.  F.  R.    73.3555,  Note  7  (1). 
 472  We  have  stated  that  a  waiver  is  more  likely  to  be  granted  where  one  or  both  of  the  stations  has  had  negative  cash 
 flow  for  the  previous  three  years.  The  applicant  must  submit  data,  such  as  detailed  income  statements  and  balance  sheets,  to  demonstrate  this.  Commission  staff  evaluate  the  reasonableness  of  the  applicant's  showing  by  comparing 


 data  regarding  the  station's  expenses  to  industry  averages. 
 473  For  purposes  of  this  criterion,  we  also  stated  that  at  the  end  of  the  stations'  license  terms,  the  owner  of  the 
 merged  stations  must  certify  to  the  Commission  that  the  public  interest  benefits  of  the  merger  are  being  fulfilled,  including  a  specific,  factual  showing  of  the  program-  related  benefits  that  have  accrued  to  the  public.  Cost  savings  or 


 other  efficiencies,  standing  alone,  will  not  constitute  a  sufficient  showing.  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12939    81. 


 474  Id.  at  12941    86. 
 475  47  C.  F.  R.    73.3555,  Note  7.  One  way  to  satisfy  this  criterion  is  to  provide  an  affidavit  from  an  independent 
 broker  affirming  that  active  and  serious  efforts  have  been  made  to  sell  the  station,  and  that  no  reasonable  offer  from  an  entity  outside  the  market  has  been  received.  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at 


 12941    86. 
 476  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12938-  41    77,  81,  86. 


 477  Id.  at  12941    85. 
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 combinations  that  do  not  meet  its  proposed  local  TV  ownership  rule.  478  For  purposes  of  this  case-  by-  case  evaluation,  NAB  proposes  that  the  Commission  expand  its  current  waiver  standard  to  include 
 consideration  of  waivers  that  will  facilitate  a  stations  DTV  transition  or  maintain  existing  local  news  operations.  479  Paxson  agrees.  480  Pappas  and  NAB  urge  us  to  eliminate  the  requirement  that  the  applicant 
 demonstrate  that  there  are  no  available  out-  of-  market  buyers  for  a  subject  station.  481  Coalition  Broadcasters  assert  that  the  current  failing  station  standard  is  too  stringent  to  provide  meaningful  relief, 
 and  does  not  reflect  market  realities.  482  Coalition  Broadcasters  propose  that  we  eliminate  the  current  waiver  standard  and  evaluate  waivers  on  a  case-  by-  case  basis,  considering  factors  such  as  the  financial 
 position  of  the  station,  penetration  levels  of  other  local  media,  levels  of  competition  in  local  markets,  and  whether  a  combination  will  promote  innovation.  483  Media  General  et  al.  urge  us  to  allow  transfer  of 
 combinations  created  pursuant  to  a  waiver,  even  if  the  combination  does  not  satisfy  our  local  TV  ownership  rule  or  waiver  standards  at  the  time  of  transfer.  484  They  assert  that  such  transferability  would 
 encourage  investment  in  failed,  failing,  or  unbuilt  stations.  485 
 223.  UCC  opposes  relaxation  of  the  current  waiver  standard,  asserting  that  the  relaxation  proposals  advanced  by  NAB  and  others  will  allow  for  many  more  combinations,  thereby  dramatically 


 reducing  viewpoint  diversity  in  local  markets.  486  UCC  contends  that  a  waiver  standard  connected  to  the  DTV  transition  would  only  delay  the  DTV  transition  because  it  would  give  broadcasters  an  incentive  to 
 stall  transitioning  stations  in  order  to  qualify  for  a  waiver.  487  CFA  supports  the  adoption  of  a  new  case-by-  case  waiver  standard  that  would  allow  applicants  that  do  not  meet  its  proposed  local  TV  ownership 
 restriction  to  obtain  waivers  if  the  Commission  finds  that  the  combination  serves  the  public  interest  and  if  the  new  owner  will  preserve  functionally  separate  news  and  editorial  departments  within  separate 


 478  NAB  Comments  at  79-  80.  See  also  Gray  Comments  at  ii  (urging  Commission  to  establish  a  flexible  waiver 
 standard  should  it  retain  any  local  TV  ownership  restrictions). 
 479  NAB  Comments  at  79-  81;  Pappas  Comments  at  14-  15. 


 480  Paxson  Comments  at  31.  See  also  Gray  May  29,  2003  Ex  Parte  (urging  us  to  consider  case-  by-  case  waiver 
 requests  for  combinations  in  small  and  medium  markets). 
 481  Pappas  Comments  at  14-  15;  NAB  Comments  at  80  n.  148. 


 482  Coalition  Broadcasters  Comments  at  12-  14.  See  also  Alaska  Comments  at  2-  3.  Coalition  Broadcasters  contend 
 that  the  failing  station  standards  focus  on  negative  cash  flow  is  misplaced,  because  other  factors,  such  as  excessive  debt  and  interest  obligations,  also  can  cause  a  business  to  fail.  Coalition  Broadcasters  Comments  at  12-  13.  See  also 


 NAB  Comments  at  80  n.  149  (urging  the  Commission  to  eliminate  the  requirement  to  demonstrate  negative  cash  flow).  Coalition  Broadcasters  also  contend  that  4%  audience  share  does  not  reflect  financial  viability,  and  that 
 many  stations  with  higher  audience  shares  also  are  failing.  Coalition  Broadcasters  Comments  at  12-  13. 
 483  Coalition  Broadcasters  Comments  at  12-  14. 


 484  Media  General  et  al.  Comments  at  7. 
 485  Id. 
 486  UCC  Reply  Comments  at  23-  26. 
 487  Id.  at  25-  26. 
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 subsidiaries.  488 
 224.  We  conclude  that  tightening  our  waiver  standard  would  not  promote  our  public  interest  goals,  as  discussed  below.  Moreover,  we  agree  with  the  NAB  and  other  commenters  who  urge  us  to 


 expand  our  waiver  standard  to  include  consideration  of  combinations  that  will  yield  other  public  interest  benefits.  Our  treatment  of  waivers  will  follow  the  competition  principles  established  in  the  DOJ/  FTC 
 Merger  Guidelines,  with  a  specific  focus  on  the  industry  at  hand.  In  particular,  as  in  the  DOJ/  FTC  Merger  Guidelines,  we  will  consider  combinations  that  involve  firms  that  are  not  failing  but  that  could 
 better  serve  the  public  interest  through  a  merger  not  otherwise  permitted  by  our  rules.  489  We  also  will  consider  a  waiver  of  our  local  TV  ownership  rule  where  a  proposed  combination  involves  stations  that  do 
 not  engage  in  head-  to-  head  competition  because  they  do  not  have  overlapping  Grade  B  contours  and  are  not  carried  by  MVPDs  in  the  same  geographic  areas. 


 225.  First,  for  failed,  failing,  and  unbuilt  stations,  we  retain  the  existing  waiver  standard  with  one  exception.  We  remove  the  requirement  that  a  waiver  applicant  demonstrate  that  it  has  tried  and  failed 
 to  secure  an  out-  of-  market  buyer  for  the  subject  station.  In  many  cases,  the  buyer  most  likely  to  deliver  public  interest  benefits  by  using  the  failed,  failing,  or  unbuilt  station  will  be  the  owner  of  another  station 
 in  the  same  market.  We  agree  with  NAB  that  the  efficiencies  associated  with  operation  of  two  same-market  stations,  absent  unusual  circumstances,  will  always  result  in  the  buyer  being  the  owner  of  another 
 station  in  that  market.  490 
 226.  Otherwise,  however,  a  failed,  failing,  or  unbuilt  station  clearly  cannot  contribute  to  localism,  competition  or  diversity  in  local  markets.  Nothing  in  the  record  in  the  instant  proceeding  leads 


 us  to  find  otherwise.  We  conclude  that  the  public  interest  benefits  of  activating  a  dark  or  unbuilt  station,  outweighs  the  potential  harm  to  competition  or  diversity.  Therefore,  if  it  can  be  shown  that,  absent  the 
 transfer,  the  licensees  assets  will  exit  the  market,  then  the  transfer  is  not  likely  to  either  enhance  market  power  or  facilitate  its  exercise.  In  such  cases,  the  granting  of  a  waiver  would  not  be  inconsistent  with  our 
 competition  goal. 
 227.  The  record  also  suggests  that  local  television  stations  outside  the  largest  markets  may,  in  some  cases,  better  serve  the  public  interest  through  station  combinations  not  permitted  by  our  local 


 television  ownership  rules.  Our  new  rules  allow  one  company  to  own  two  stations  in  a  market  provided  both  are  not  ranked  in  the  top  four  in  ratings.  This  top  four-  ranked  prohibition  promotes  competition  by 
 preventing  the  strongest  competitors  in  each  market  from  combining.  The  top  four  restriction  is  premised  on  evidence  that  the  four  leading  stations  in  each  market  are  already  the  strongest  competitors  and  that 
 combinations  among  them  would  harm  the  public  interest  by  diminishing  competition  in  the  DVP  market.  491  However,  NAB  data  shows  that,  as  a  class,  smaller  market  stations  (including  both  top  four 
 and  other  stations)  are  less  effective  competitors  in  the  DVP  market  relative  to  stations  in  large  markets.  492  Therefore,  we  allowed  station  combinations  that  would  not  be  permitted  in  larger  markets. 


 488  CFA  Comments  at  288. 
 489  See  the  DOJ/  FTC  Merger  Guidelines    5.1,  5.2  (discussing  mergers  involving  a  failing  firm  and  a  failing 
 division). 
 490  NAB  Comments  at  80  n.  148. 


 491  See    195-  200,  supra. 
 492  NAB  April  30,  2003  Ex  Parte  at  2,  Chart  1. 
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 However,  our  concern  for  the  economics  of  broadcast  television  in  small  market  does  not  lead  us  to  relax  the  top  four  prohibition  generally  because  we  concluded  that  this  restriction  remains  necessary  to  promote 
 competition  in  the  DVP  market.  Nonetheless,  we  do  recognize  that  there  may  be  instances  where  application  of  this  top  four  restriction  will  disserve  the  public  interest  by  preventing  marginal  --  but  not 
 yet  failing  --  stations  from  effectively  serving  the  needs  of  their  communities.  Such  stations  may  not  be  financially  capable  of  producing  the  amount  of  news  and  local  affairs  programming  that  they  would  like 
 to  provide  their  communities,  which  in  turn  may  make  them  less  competitive  in  the  local  marketplace.  Accordingly,  in  order  to  effectuate  our  goals  of  diversity,  localism,  and  competition,  we  will  consider 
 waivers  of  the  top  four-  ranked  restriction  in  markets  with  11  or  fewer  television  stations.  Those  are  the  markets  in  which  we  have  already  recognized  that  the  economics  of  broadcast  television  justify  relatively 
 greater  levels  of  station  consolidation  better  serve  the  public  interest. 
 228.  In  considering  waivers  of  our  top  four-  ranked  restriction,  we  will  consider  a  number  of  factors.  For  instance,  mergers  between  stations  that  reduce  a  significant  competitive  disparity  between 


 the  merging  stations  and  the  dominant  station  in  the  marketplace  are  particularly  likely  to  be  pro-competitive.  Accordingly,  waiver  applicants  should  supply  television  ratings  information  for  the  four 
 most  recent  ratings  periods  for  all  local  stations  so  that  we  may  assess  the  competitive  effect  of  the  merger.  493 


 229.  Second,  we  also  will  evaluate  the  effect  of  the  proposed  merger  on  the  stations'  ability  to  complete  the  transition  to  digital  television.  Waiver  applicants  claiming  that  the  merger  is  needed  to 
 facilitate  the  digital  transition  should  provide  data  supporting  this  assertion. 
 230.  We  also  will  consider  the  effect  of  the  proposed  merger  on  localism  and  viewpoint  diversity.  For  instance,  if  both  stations  do  not  currently  produce  a  local  newscast,  the  merger  is  less  likely 


 to  result  in  a  reduction  of  viewpoint  diversity  than  if  both  stations  produce  news.  Similarly,  a  commitment  that  the  merging  parties  will  significantly  increase  news  and  local  programming  at  one  or 
 both  stations  could  result  in  a  merger  that  increases  localism  and  diversity  from  the  status  quo.  Waiver  applicants  should  submit  information  about  current  local  news  production  for  all  stations  in  the  local 
 market  and  the  effect  of  the  proposed  merger  on  local  news  and  public  affairs  programming  for  the  affected  stations.  Applicants  stating  that  the  merger  is  needed  to  preserve  a  local  newscast  should 
 document  the  financial  performance  of  the  affected  news  division.  Applicants  for  waiver  of  our  top  four-ranked  restriction  must  demonstrate  that  the  proposed  combination  will  produce  public  interest  benefits. 
 As  in  the  context  of  failing  station  waivers,  we  will  require  that,  at  the  end  of  the  merged  stations  license  terms,  the  owner  of  the  merged  stations  must  certify  to  the  Commission  that  the  public  interest  benefits  of 
 the  merger  are  being  fulfilled.  This  certification  must  include  a  specific,  factual  showing  of  the  program-related  benefits  that  have  accrued  to  the  public.  Cost  savings  or  other  efficiencies,  standing  alone,  will  not 
 constitute  a  sufficient  showing.  Finally,  our  review  of  waiver  requests  will  account  for  the  diminished  reach  of  UHF  stations.  As  discussed  in  our  national  television  ownership  rule  section,  UHF  stations  reach 
 fewer  households  than  VHF  stations  because  of  UHF  stations  weaker  broadcast  signals.  Reduced  audience  reach  diminishes  UHF  stations  impact  on  diversity  and  competition  in  local  markets. 
 Accordingly,  we  will  consider  whether  one  or  both  stations  sought  to  be  merged  are  UHF  stations. 
 231.  As  explained  above,  our  revised  local  TV  ownership  rule  no  longer  permits  combinations  involving  stations  that  do  not  have  overlapping  Grade  B  contours,  on  grounds  that,  because  of  statutory 


 mandatory  carriage  requirements,  most  stations  compete  with  each  other  on  a  DMA-  wide  basis. 
 493  See,  e.  g.,  Gray  May  29,  2003  Ex  Parte. 
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 However,  we  recognize  that  certain  stations  are  not  carried  throughout  their  assigned  DMAs,  and  thus  do  not  compete  with  each  other  within  their  assigned  markets.  Accordingly,  we  will  consider  waivers  of  our 
 local  TV  ownership  rule  where  a  party  can  demonstrate  that  the  signals  of  the  stations  in  a  proposed  combination:  (a)  do  not  have  overlapping  Grade  B  contours;  and  (b)  have  not  been  carried,  via  DBS  or 
 cable,  to  any  of  the  same  geographic  areas  within  the  past  year. 
 232.  With  respect  to  a  licensees  ability  to  transfer  or  assign  a  combination  involving  a  station  acquired  pursuant  to  a  waiver,  we  do  not  find  support  in  the  record  for  permitting  such  transfers  where 


 they  do  not  comply  with  our  rules.  The  transfer  or  assignment  of  such  a  combination  must  comply  with  our  rules  or  waiver  standards  at  the  time  an  application  to  transfer  or  assign  the  station  is  filed. 


 c.  Satellite  Stations 
 233.  Television  satellite  stations  retransmit  all  or  a  substantial  part  of  the  programming  of  a  commonly  owned  parent  station.  Satellite  stations  are  generally  exempt  from  our  broadcast  ownership 


 restrictions.  The  Commission  first  authorized  TV  satellite  operations  in  small  or  sparsely  populated  areas  with  insufficient  economic  bases  to  support  full-  service  operations.  494  Later,  we  authorized  satellite 
 stations  in  smaller  markets  already  served  by  full-  service  operations  but  not  reached  by  major  networks.  495  More  recently,  we  authorized  satellite  stations  in  larger  markets  where  the  applicant  has 
 demonstrated  that  the  proposed  satellite  could  not  operate  as  a  stand-  alone  full-  service  station.  496  In  the  Local  TV  Ownership  Report  and  Order,  we  retained  our  policy  of  exempting  satellite  stations  from  our 
 local  ownership  rules.  497  We  believe  that  continued  exemption  of  satellite  stations  from  the  local  TV  ownership  rule  is  appropriate.  Our  satellite  station  policy  rests  on  such  factors  as  the  questionable 
 financial  viability  of  the  satellite  as  a  stand-  alone  facility,  and  establishment  of  service  to  underserved  areas.  By  adding  stations  to  local  television  markets  where  stations  otherwise  would  not  have  been 
 established,  the  policy  advances  the  same  goals  as  those  underlying  our  local  TV  ownership  restrictions.  Since  these  stations  are  licensed  only  if  they  cannot  survive  as  standalone,  independently  operated 
 stations,  we  find  that  exempting  them  from  the  local  TV  ownership  rule  will  not  harm  competition  or  diversity. 


 d.  Transferability  of  Combinations  Under  Modified  Rule 
 234.  If  an  entity  acquires  a  second  or  third  station  that  complies  with  our  modified  rule,  it  will  not  later  be  required  to  divest  if  the  number  of  stations  in  the  market  subsequently  declines  below  the 


 level  consistent  with  our  outlet  cap,  or  if  more  than  one  commonly  owned  station  subsequently  becomes  a  top  four-  ranked  station  in  the  market.  The  impact  of  such  a  springing  rule  would  be  highly  disruptive 
 to  the  market.  Like  our  other  rules,  however,  we  will  not  ignore  the  public  interest  underpinnings  at  the  time  of  a  subsequent  sale  of  the  combination.  Thus,  absent  a  waiver,  a  combination  may  not  be  assigned 
 or  transferred  to  a  new  owner  if  the  combination  does  not  satisfy  our  local  TV  ownership  cap  at  the  time  of  the  proposed  assignment  or  transfer. 


 494  See,  e.  g.,  Authorization  of  UHF  Stations,  43  F.  C.  C.  2734  (1954). 
 495  See,  e.  g.,  Meyer  Broadcasting  Co.,  67  F.  C.  C.  2d  593  (1978),  aff'd  mem.  sub  nom.  Dickinson  Broadcasting  Corp. 
 v.  FCC,  593  F.  2d  1371  (D.  C.  Cir.  1979). 
 496  See  Television  Satellite  Stations,  Review  of  Policies  and  Rules,  6  FCC  Rcd  4212  (1991). 


 497  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12943    90. 
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 B.  Local  Radio  Ownership  Rule 
 235.  The  local  radio  ownership  rule  limits  the  number  of  commercial  radio  stations  overall  and  the  number  of  commercial  radio  stations  in  a  service  (AM  or  FM)  that  a  party  may  own  in  a  local  market. 


 Until  1992,  parties  were  prohibited  from  owning  two  same-  service  (AM  or  FM)  radio  stations  whose  signal  contours  overlapped.  498  Although  this  rule  effectively  prevented  radio  station  combinations  from 
 dominating  a  local  radio  market,  it  also  prevented  efficient  radio  station  combinations  from  developing.  As  a  result,  in  1992,  many  radio  stations  were  facing  difficult  financial  conditions.  499  To  address  this 
 concern,  the  Commission  in  1992  relaxed  the  local  radio  ownership  rule  by  establishing  numerical  limits  on  radio  station  ownership  based  on  the  total  number  of  commercial  radio  stations  in  a  market.  500 


 236.  In  the  1996  Act,  Congress  directed  the  Commission  to  revise  those  limits  to  provide  that:  (1)  in  a  radio  market  with  45  or  more  commercial  radio  stations,  a  party  may  own,  operate,  or  control  up 
 to  8  commercial  radio  stations,  not  more  than  5  of  which  are  in  the  same  service  (AM  or  FM);  (2)  in  a  radio  market  with  between  30  and  44  (inclusive)  commercial  radio  stations,  a  party  may  own,  operate,  or 
 control  up  to  7  commercial  radio  stations,  not  more  than  4  of  which  are  in  the  same  service  (AM  or  FM);  (3)  in  a  radio  market  with  between  15  and  29  (inclusive)  commercial  radio  stations,  a  party  may  own, 
 operate,  or  control  up  to  6  commercial  radio  stations,  not  more  than  4  of  which  are  in  the  same  service  (AM  or  FM);  and  (4)  in  a  radio  market  with  14  or  fewer  commercial  radio  stations,  a  party  may  own, 
 operate,  or  control  up  to  5  commercial  radio  stations,  not  more  than  3  of  which  are  in  the  same  service  (AM  or  FM),  except  that  a  party  may  not  own,  operate,  or  control  more  than  50  percent  of  the  stations  in 
 such  market.  501  Those  revisions,  along  with  the  simultaneous  repeal  of  national  limits  on  radio  station  ownership,  502  enabled  greater  consolidation  of  radio  stations  in  local  and  national  markets.  Currently, 
 there  are,  on  average,  approximately  10  radio  station  owners  in  local  markets,  503  and  the  largest  radio  station  operator,  Clear  Channel  Communications,  owns  over  1200  radio  stations  nationwide,  representing 
 approximately  10%  of  the  radio  stations  in  the  United  States.  504  As  a  result  of  this  consolidation,  the  radio  industry  today  is  on  a  stronger  financial  footing  than  it  was  a  decade  ago.  505 


 498  Before  1989,  the  Commission  relied  on  interference  contours  to  determine  whether  two  commonly  owned 
 radio  stations  implicated  the  rule.  In  1989,  the  Commission  began  using  principal  community  contours.  In  either  case,  parties  could  own  a  single  AM-  FM  combination  even  if  their  contours  overlapped.  See  Local  Radio 


 Ownership  NPRM,  16  FCC  Rcd  at  19863-  64    5-  7. 
 499  See  1992  Radio  Ownership  Report  and  Order,  7  FCC  Rcd  at  2757-  60    4-  10. 


 500  Under  the  1992  rules,  a  party  could  own  2  AM  and  2  FM  radio  stations  in  markets  with  15  or  more  commercial 
 radio  stations,  and  three  radio  stations  (of  which  no  more  than  2  could  be  AM  or  FM  stations)  in  smaller  markets.  The  1992  rule  also  imposed  an  audience  share  limit  on  radio  station  combinations  in  the  larger  market.  See  47 


 C.  F.  R.    73.3555(  a)(  1)  (1995). 
 501  1996  Act,    202(  b). 


 502  See  id.,    202(  a). 
 503  See  MOWG  Study  No.  11,  Radio  Industry  Review  2002:  Trends  in  Ownership,  Format,  and  Finance  by 
 George  Williams  and  Scott  Roberts  (Sept.  2002)  at  7  (  MOWG  Study  No.  11). 
 504  Id.  at  4;  see  also  http://  www.  clearchannel.  com/  radio/ 


 505  See  MOWG  Study  No.  11  at  13-  19. 
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 237.  The  local  radio  ownership  rule  has  not  been  altered  since  the  1996  Act  was  adopted.  In  the  1998  biennial  review,  the  Commission  concluded  that  the  rule  continued  to  be  necessary  in  the  public 
 interest  to  preserve  competition  and  diversity  in  local  radio  markets.  506  The  Commission  expressed  concern,  however,  that  the  methodologies  used  to  define  radio  markets  and  to  count  the  total  number  of 
 radio  stations  and  the  number  of  commonly  owned  radio  stations  in  a  radio  market  were  producing  irrational  and  inconsistent  results.  507  The  Commission  therefore  decided  in  the  first  biennial  review  to 
 initiate  a  rulemaking  proceeding  to  consider  changes  to  those  methodologies.  508  In  the  2000  biennial  review,  the  Commission  endorsed  the  conclusions  reached  in  the  first  biennial  review  with  respect  to  the 
 local  radio  ownership  rule.  509 
 238.  As  contemplated  in  the  first  biennial  review,  the  Commission  issued  the  Radio  Market  Definition  NPRM  in  December  2000  to  consider  changes  to  the  way  we  define  radio  markets  and 


 calculate  the  number  of  radio  stations  in  a  market.  510  In  November  2001,  the  Commission  issued  the  Local  Radio  Ownership  NPRM,  which  initiated  a  broader  inquiry  into  the  effect  of  consolidation  in  local 
 radio  markets  and  possible  changes  to  local  radio  ownership  rules  and  policies  to  reflect  the  current  radio  marketplace.  511  These  two  proceedings  (collectively,  the  Radio  NPRMs)  are  still  pending  and  have 
 been  incorporated  into  this  2002  biennial  review  proceeding. 
 239.  We  conclude  that  the  numerical  limits  in  the  local  radio  ownership  rule  are  necessary  in  the  public  interest  to  protect  competition  in  local  radio  markets.  We  conclude,  however,  that  the  rule  in 


 its  current  form  does  not  promote  the  public  interest  as  it  relates  to  competition  because  (1)  our  current  contour-  overlap  methodology  for  defining  radio  markets  and  counting  stations  in  the  market  is  flawed  as 
 a  means  to  protect  competition  in  local  radio  markets,  and  (2)  the  current  rule  improperly  ignores  competition  from  noncommercial  radio  stations  in  local  radio  markets.  To  address  those  concerns,  we 
 modify  the  rule  to  replace  the  contour-  overlap  market  definition  with  an  Arbitron  Metro  market  and  to  count  noncommercial  stations  in  the  radio  market;  and  we  initiate  a  new  rulemaking  proceeding  as  part  of 
 this  item  to  define  markets  for  areas  of  the  country  where  Arbitron  Metros  are  not  defined.  Although  we  primarily  rely  on  competition  to  justify  the  rule,  we  recognize  that  localism  and  diversity  are  fostered 
 when  there  are  multiple,  independently  owned  radio  stations  competing  in  the  same  market;  our  competition-  based  rule,  therefore,  will  also  promote  those  public  interest  objectives.  We  also  conclude 
 that,  consistent  with  our  focus  on  competition,  joint  sales  agreements  (  JSAs)  will  result  in  attribution  of  the  brokered  station  to  the  brokering  party  under  certain  conditions. 


 1.  Section  202(  h)  Determination 
 240.  Under  Section  202(  h),  we  consider  whether  the  local  radio  ownership  rule  continues  to  be 


 506  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11090-  91    59. 
 507  Id.  at  11091-  94    61-  68. 
 508  Id.  at  11094    68. 
 509  2000  Biennial  Regulatory  Review,  16  FCC  Rcd  1207,  1218    32  (2001);  see  also  2000  Biennial  Regulatory 
 Review,  Staff  Report,  15  FCC  Rcd  21084,  21145-  46  (2000). 
 510  Definition  of  Radio  Markets,  supra  note  8. 


 511  Local  Radio  Ownership  NPRM,  supra  note  8. 
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 necessary  in  the  public  interest  as  a  result  of  competition.  In  determining  whether  the  rule  meets  that  standard,  we  consider  whether  the  rule  serves  the  public  interest,  which,  in  radio  broadcasting, 
 traditionally  has  encompassed  competition,  localism,  and  diversity.  512  We  examine  each  of  these  public  interest  objectives  in  turn. 


 a.  Competition 
 241.  In  the  Policy  Goals  section,  we  explained  how  the  public  interest  is  served  by  preserving  competition  in  relevant  media  markets.  Although  limits  on  local  radio  ownership  are  generally  necessary 


 to  serve  the  public  interest,  we  conclude  that  the  current  local  radio  ownership  rule  does  not  serve  the  public  interest  as  it  relates  to  competition  for  two  reasons.  First,  the  current  rule  uses  a  methodology  for 
 defining  radio  markets  and  counting  the  number  of  radio  stations  in  a  market  that  has  not  protected  against  undue  concentration  in  local  radio  markets.  Second,  the  current  rule  fails  to  account  for  the 
 competitive  presence  of  noncommercial  stations  in  a  market.  We  accordingly  modify  the  rule  to  address  these  concerns. 


 (i)  Product  market  definition 
 242.  To  measure  the  state  of  competition  in  radio  broadcasting,  we  first  must  determine  the  relevant  product  markets  in  which  radio  stations  compete  and  the  other  media,  if  any,  that  compete  in 


 those  markets.  513  We  conclude  that  radio  broadcasters  operate  in  three  relevant  markets:  radio  advertising,  radio  listening,  and  radio  program  production. 


 243.  The  Radio  Advertising  Market.  We  conclude  that  advertisers  do  not  view  radio  stations,  newspapers,  and  television  stations  as  substitutes.  514  A  number  of  commenters  have  argued  that  there  is 
 little  substitution  between  advertising  on  broadcast  TV  and  newspapers.  For  example,  CWA  urges  the  Commission  to  adopt  local  ownership  rules  that  treat  TV,  newspapers,  and  radio  as  separate  local  product 
 markets.  515  This  conclusion  is  consistent  with  MOWG  Study  No.  10,  which  found  weak  substitutability  among  various  local  media  outlets  for  purposes  of  local  advertising  sales.  516  It  is  also  consistent  with 
 antitrust  cases  filed  by  the  Department  of  Justice,  in  which  it  has  alleged  that  radio  advertising  constitutes 


 512  Fox  Television,  280  F.  3d  at  1042. 
 513  A  product  market  includes  identical  products,  products  with  such  negligible  differences  that  buyers  regard 
 them  as  substitutes,  and  other  products  that  buyers  regard  as  such  close  substitutes  that  a  slight  price  increase  in  one  will  induce  shifts  of  demand  away  from  the  other.  See  DOJ/  FTC  Guidelines. 


 514  MOWG  Study  No.  10  at  12;  see  also  United  States  v.  Jacor  Communications  Inc.,  1996  WL  784589,  *10  (S.  D. 
 Ohio  1996)  (advertisers  perceive  radio  as  a  distinct  advertising  medium  from  television  or  newspapers);  Robert  Ekelund,  George  Ford,  and  John  Jackson,  Is  Radio  Advertising  a  Distinct  Local  Market?  An  Empirical  Analysis,  14 


 REV.  INDUS.  ORG.  239  (1999)  (radio  advertising  constitutes  a  distinct  market).  By  definition,  noncommercial  radio  stations  do  not  compete  in  the  radio  advertising  market. 


 515  CWA  Comments  at  13-  16. 
 516  MOWG  Study  No.  10  at  12.  For  a  technical  discussion  of  MOWG  Study  No.  10,  see  Appendix  E. 
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 a  separate  antitrust  market.  517  Thus,  at  least  in  terms  of  their  revenue  generating  customers,  radio  advertising,  newspaper  advertising,  and  television  advertising  make  up  distinct  product  markets.  518 
 244.  Further,  other  empirical  studies  confirm  that  advertisers  do  not  view  ads  in  newspapers  and  broadcast  radio  as  substitutes.  Authors  Alvin  Silk,  Lisa  Klein,  and  Ernst  Berndt  (2002)  examine 
 advertising  substitution  among  eight  media  in  the  national  markets.  519  They  report  only  weak  substitution  between  newspapers  and  other  media.  Reid  and  King  (2000)  conducted  a  study  based  on  interviewing 
 and  surveying  advertising  managers  in  national  markets  and  concluded  that  these  managers  did  not  view  radio  as  a  good  substitute  for  other  media  in  advertising.  520  The  evidence  presented  in  MOWG  Study  No. 
 4  also  suggests  that  advertisers  do  not  substitute  perfectly  between  radio  and  other  forms  of  media.  521  We  acknowledge  that  the  studies  discussed  in  this  paragraph  focus  on  national  advertising  markets.  522 


 517  See,  e.  g.,  Complaint    11-  14,  United  States  v.  Clear  Channel  Communications,  No.  1:  00CV02063  (D.  D.  C. 
 filed  Aug.  29,  2000);  Complaint    12,  United  States  v.  EZ  Communications,  Inc.,  No.  1:  97CV00406  (D.  D.  C.  filed  Feb.  27,  1997). 


 518  Various  commenters  have  argued  that  other  types  of  advertising    such  as  billboards  and  telephone  directories 
   also  are  in  the  same  product  market  with  radio  advertising.  There  is,  however,  no  evidence  in  the  record  or  in  the  academic  literature  to  support  that  argument. 


 519  Alvin  J.  Silk,  Lisa  R.  Klein,  and  Ernst  R.  Berndt,  Intermedia  Substitutability  and  Market  Demand  by  National 
 Advertisers,  REV.  INDUS.  ORG.  323-  348  (June  2002). 
 520  Leonard  N.  Reid  and  Karen  Whitehill  King,  A  Demand-  Side  View  of  Media  Substitutability  in  National 
 Advertising:  A  Study  of  Advertiser  Opinions  about  Traditional  Media  Options,  77(  2)  J.  MASS.  COMM.  Q.  292-  307  (Summer  2000). 


 521  MOWG  Study  No.  4,  Consolidation  and  Advertising  Prices  in  Local  Radio  Markets  by  Keith  Brown  and 
 George  Williams  (Sept.  2002)  (  MOWG  Study  No.  4).  The  authors  report  that  increases  in  concentration  in  the  radio  market  contributes  to  a  modest  increase  in  radio  advertising  prices.  This  evidence  of  market  power  suggests 


 that  advertising  on  radio  is  not  a  perfect  substitute  with  advertising  on  other  media.  Dean  Baker,  in  comments  submitted  by  AFL-  CIO,  criticizes  MOWG  Study  No.  4  for  concluding  that  income  growth  was  the  main  factor 
 behind  the  sharp  surge  in  ad  prices  following  the  relaxation  of  radio  ownership  rules.  He  argues  that  misspecification  of  the  model  may  have  led  to  understating  the  effects  that  concentration  has  on  radio  advertising 
 prices.  We  do  acknowledge,  as  Baker  argues,  that  the  authors  did  not  include  years  prior  to  the  1996  Act  that  might  help  establish  the  relationship  between  concentration  in  the  radio  market  and  prices  in  radio  advertising. 
 There  is,  therefore,  a  possibility  that  MOWG  Study  No.  4  understates  the  effect  that  ownership  concentration  in  local  radio  markets  has  on  radio  advertising  prices.  But  any  such  understatement  would  only  lend  further  support 
 to  our  conclusion  that  radio  advertising  is  a  separate  product  market. 
 522  See,  e.  g.,  Clear  Channel  Comments,  Statement  of  Professor  Jerry  A.  Hausman,  at  12-  17.  Hausman  also  argues 
 that  the  regressions  conducted  in  MOWG  Study  No.  4  did  not  include  the  prices  of  broadcast  television,  newspaper,  and  cable  advertising  and  therefore  the  coefficients  found  on  the  measures  of  concentration  are 


 unreliable,  that  the  result  is  not  robust  when  other  measures  of  concentration  are  used,  and  that  the  size  of  the  coefficient  that  Brown  and  Williams  report  does  not  warrant  concern.  As  to  the  first  point,  the  staff  has  found  that 
 the  results  of  MOWG  Study  No.  4  were  not  significantly  changed  when  the  price  of  broadcast  television  was  added  to  the  regression.  We  believe,  therefore,  that  the  findings  presented  by  MOWG  Study  No.  4  are  robust 
 even  if  other  media  are  included.  As  to  the  remaining  two  points,  the  MOWG  Studys  use  of  natural  logarithms  of  the  HHI  is  consistent  with  a  widely  examined  class  of  economic  models,  and,  although  Hausman  is  correct  that  the 
 study  reports  a  small  coefficient,  we  believe  that  a  small,  statistically  significant  coefficient  is  sufficient  to  support  our  conclusion  of  imperfect  substitution  between  radio  advertising  and  other  markets. 
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 Nothing  has  been  submitted  in  the  record,  however,  that  suggests  that  local  advertisers  are  better  able  to  substitute  between  radio  and  other  media  than  are  national  advertisers,  and  the  studies  results  are 
 consistent  with  the  results  of  MOWG  Study  No.  10,  which  did  examine  local  advertisers. 
 245.  The  Radio  Listening  Market.  We  conclude  that  radio  listening  is  a  relevant  product  market.  523  There  is  no  evidence  that  radio  listeners  consider  non-  audio  entertainment  alternatives  (e.  g., 


 reading  and  watching  television)  to  be  good  substitutes  for  listening  to  the  radio.  We  therefore  disagree  with  commenters  that  argue  that  the  relevant  market  should  be  broadened  from  radio  listening  to  include 
 non-  audio  entertainment  options.  524  We  also  disagree  with  commenters  who  argue  that  the  relevant  product  market  should  be  broadened  to  include  other  delivered  audio  media,  such  as  Internet  audio 
 streaming  and  satellite  radio.  525  Internet  audio  streaming  may  be  a  substitute  for  broadcast  radio  when  listening  takes  place  while  working  on  a  computer  or  in  a  small  office  environment.  A  significant  portion 
 of  audio  listening,  however,  occurs  while  driving  or  otherwise  outside  of  the  office  or  home.  526  Since  most  people  do  not  access  Internet  audio  from  a  mobile  location,  we  conclude  that  Internet  audio 
 streaming  is  not  a  substitute  for  broadcast  radio  for  a  significant  portion  of  audio  listening.  527  Similarly,  satellite  radio  may  be  a  substitute  for  broadcast  radio  for  the  fewer  than  600,000  people  that  subscribe  to 
 satellite  radio.  528  But  the  vast  majority  of  the  population  does  not  subscribe  to  a  satellite  radio  service.  529  Accordingly,  we  conclude  that  satellite  radio  is  not  yet  a  good  substitute  for  broadcast  radio  for  most 
 listeners. 
 246.  Preserving  competition  for  listeners  is  of  paramount  concern  in  our  public  interest  analysis.  Although  competition  in  the  radio  advertising  market  and  the  radio  program  production  market 


 indirectly  affects  listeners  by  enabling  radio  broadcasters  to  compete  fairly  for  advertising  revenue  and  programming    critical  inputs  to  broadcasters  ability  to  provide  service  to  the  public    it  is  the  state  of 


 523  The  relevant  product  market  includes  all  products  reasonably  interchangeable  by  consumers  for  the  same 
 purposes.    United  States  v.  E.  I  du  Ponte  de  Nemours  &  Co.,  351  U.  S.  377,  395  (1956). 
 524  In  defining  the  relevant  product  market  for  merger  analysis,  one  starts  with  the  products  supplied  by  the 
 merging  firms  and  asks  whether  a  monopolist,  supplying  those  products,  would  profitably  impose  a  small  but  significant  and  non-  transitory  price  increase.  If  the  monopolist  would  not  be  able  to  impose  such  a  price 


 increase,  then  one  adds  in  the  next  closest  substitute  to  the  products  of  the  merging  firms  and  repeats  the  experiment.  Gregory  J.  Werden,  The  1982  Merger  Guidelines  and  the  Ascent  of  the  Hypothetical  Monopolist 
 Paradigm,  at  http://  www.  usdoj.  gov/  atr/  hmerger/  11256.  htm  (visited  Mar.  20,  2003).  This  approach  has  been  referred  to  as  the  smallest  market  principle. 


 525  Murphy  Comments  in  MM  Docket  No.  00-  244  at  3;  Jimcar  Comments  in  MM  Docket  No.  00-  244  at  1. 
 526  See  Arbitron,  Radio  Today:  How  America  Listens  to  Radio  (2003)  at  http://  www.  arbitron.  com/  downloads/ 
 radiotoday03.  pdf  (  Radio  Today). 
 527  See  MMTC  Comments  in  MM  Docket  No.  01-  317  at  13-  14  n.  23  (  availability  of  the  Internet  has  been 
 overstated);  MMTC  Reply  Comments  in  MM  Docket  No.  01-  317  at  31  (Internet  radio  occupies  only  about  4%  of  radio  listening  at  home  and  work);  UCC  Comments  in  MM  Docket  No.  01-  317  at  9  (Internet  radio,  which  requires 


 the  use  of  a  computer  and  modem  does  not  offer  the  benefit  of  mobility,  and  cannot  reach  the  mobile  users). 
 528  See  supra    127.  In  contrast,  local  radio  stations  reach  approximately  94%  of  the  U.  S.  population  each  week. 
 See  Radio  Today,  supra  note  526  at  3. 
 529  UCC  Comments  in  MM  Docket  No.  01-  317  at  11;  MMTC  Comments  in  MM  Docket  No.  01-  317  at  32. 
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 competition  in  the  listening  market  that  most  directly  affects  the  public.  When  that  market  is  competitive,  rivals  profit  by  attracting  new  audiences  and  by  attracting  existing  audiences  away  from  competitors 
 programs.  Monopolists,  on  the  other  hand,  profit  only  by  attracting  new  audiences;  they  do  not  profit  by  attracting  existing  audiences  away  from  their  other  programs.  Because  the  additional  incentives  facing 
 competitive  rivals  are  more  likely  to  improve  program  quality  and  create  programming  preferred  by  existing  listeners,  530  it  is  critical  to  our  competition  policy  goals  that  a  sufficient  number  of  rivals  are 
 actively  engaged  in  competition  for  listening  audiences.  Limits  on  local  radio  ownership  promote  competition  in  the  radio  listening  market  by  assuring  that  numerous  rivals  are  contending  for  the  attention 
 of  listeners. 
 247.  Radio  Program  Production  Market.  Radio  stations  seek  to  acquire  audio  programming  from  a  variety  of  audio  program  producers.  Many  sellers  of  audio  programming  do  not  have  adequate 


 substitutes  for  local  radio  stations.  The  record  indicates  that  radio  stations  are  an  important  mechanism  by  which  the  American  public  is  made  aware  of  new  music.  531  Moreover,  the  record  suggests  no 
 reasonable  alternative  available  to  producers  of  radio  talk  shows    a  type  of  radio  programming  that  has  become  increasingly  popular  in  the  last  decade.  532  To  the  extent  that  the  radio  stations  in  a  local 
 community  are  owned  by  one  or  a  few  firms,  those  firms  could  constitute  a  bottleneck  that  would  impede  the  ability  of  radio  programming  producers  to  make  their  programming  available  to  consumers  in  that 
 community.  Accordingly,  we  conclude  that  radio  programming  constitutes  a  separate  relevant  product  market. 


 (ii)  Geographic  Market  Definition 
 248.  Competition  analysis  requires  that  we  determine  the  relevant  geographic  market  in  which  radio  stations  compete.  There  is  no  serious  dispute  that  the  relevant  geographic  market  for  the  product 


 markets  in  which  radio  stations  compete  is  local:  advertisers  and  program  producers  seeking  to  reach  listeners  in  a  local  community  cannot  readily  substitute  radio  stations  (or  any  other  media)  that  do  not 
 serve  that  community  for  the  local  radio  stations  that  do.  The  parameters  of  the  local  market,  however,  have  been  a  source  of  considerable  debate  and  controversy.  533  We  currently  use  a  contour-  overlap 
 methodology  for  defining  radio  markets  and  determining  the  number  of  radio  stations  that  are  in  those  markets.  534  That  methodology  has  been  subject  to  intense  criticism  for  producing  unrealistic  and 
 irrational  results,  which  in  turn  led  the  Commission  to  issue  two  separate  rulemaking  notices    the  Radio  NPRMs    to  examine  the  problems  associated  with  the  contour-  overlap  system  in  greater  detail. 


 249.  We  have  examined  the  record  developed  from  the  Radio  NPRMs  in  conjunction  with  our  overall  biennial  review  of  the  media  ownership  rules.  Based  on  the  record  and  our  own  experience,  we 


 530  For  a  discussion  of  program  provision  under  alternative  market  structures,  see,  Steiner,  supra  note  403; 
 MOWG  Study  No.  6  at  3-  5;  and  Sinclair  Comments,  Baumann/  McAnneny  Statement  at  2-  6. 
 531  See  Future  of  Music  Coalition  Comments,  Radio  Deregulation:  Has  It  Served  Citizens  and  Musicians,  at  61- 
 67;  AFTRA  Comments  in  MM  Docket  No.  01-  317  at  12-  14. 
 532  See  NAB  Comments  in  MM  Docket  No.  01-  317  at  19;  NAB  Reply  Comments  in  MM  Docket  No.  01-  317  at  8- 
 9. 
 533  See  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19862-  70    3-  18. 


 534  See  Appendix  F  for  a  more  detailed  explanation  of  the  current  contour  overlap  methodology. 
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 now  conclude  that  the  contour-  overlap  system  should  be  replaced  by  a  more  rational  and  coherent  methodology  based  on  geographically-  determined  markets  to  promote  more  effectively  our  competition 
 policy  goals. 
 (a)  Problems  with  the  Existing  Radio  Market  Definition  and  Counting  Methodologies 


 250.  We  currently  rely  on  the  principal  community  contours  of  the  commercial  radio  stations  that  are  proposed  to  be  commonly  owned  to  determine  the  relevant  radio  market  in  which  those  stations 
 participate  and  to  count  the  other  radio  stations  that  are  in  the  market.  535  We  first  consider  whether  an  area  of  overlap  exists  among  the  principal  community  contours  of  all  of  the  stations  proposed  to  be 
 commonly  owned.  If  no  such  overlap  area  exists,  then  the  radio  stations  involved  are  presumed  to  be  in  separate  radio  markets,  and  the  local  radio  ownership  rule  is  not  triggered.  If  one  or  more  areas  of 
 contour  overlap  exist,  however,  the  rule  is  triggered,  536  and  we  must  determine  whether  the  proposed  combination  complies  with  the  limits  specified  in  the  rule. 


 251.  We  first  ask  how  many  stations  a  party  would  own  in  the  relevant  radio  market  (i.  e.,  the  numerator  of  the  fraction  upon  which  the  numerical  limits  in  the  local  radio  ownership  rule  are  based). 
 Under  our  current  methodology,  we  deem  the  radio  stations  whose  principal  community  contours  mutually  overlap  to  be  in  the  same  market,  and  we  deem  those  stations  to  be  the  only  stations  owned  by 
 the  common  owner  in  that  market.  In  some  instances,  a  radio  stations  principal  community  contour  will  overlap  some,  but  not  all,  of  the  principal  community  contours  of  other  commonly  owned  radio  stations. 
 In  those  cases,  separate  radio  markets  will  be  formed  from  the  mutual  contour  overlaps  of  different  subsets  of  commonly  owned  radio  stations.  We  nevertheless  apply  the  same  rule:  In  each  of  those 
 separate  markets,  we  deem  the  radio  stations  whose  principal  community  contours  mutually  overlap  to  be  in  the  same  market,  and  we  deem  those  stations  to  be  the  only  stations  owned  by  the  common  owner  in 
 that  market. 
 252.  After  calculating  the  numerator  for  a  particular  radio  market,  we  next  determine  the  size  of  the  market  (i.  e.,  the  denominator  in  the  fraction).  To  do  this,  we  again  rely  on  principal  community 


 contours.  We  count  as  being  in  the  relevant  radio  market  the  radio  stations  that  are  included  in  the  numerator.  We  add  to  this  number  every  other  commercial  radio  stations  whose  principal  community 
 contour  overlaps  the  principal  community  contour  of  at  least  one  of  the  stations  counted  in  the  numerator.  The  total  represents  the  size  of  the  market  against  which  the  number  of  commonly  owned  stations  (i.  e., 
 the  numerator)  is  evaluated  to  determine  whether  the  proposed  combination  complies  with  the  local  radio  ownership  rule. 


 253.  One  significant  problem  with  the  current  contour-  overlap  system  is  what  is  known  as  the  Pine  Bluff  problem,  or  the  numerator-  denominator  inconsistency.  537  As  explained  above,  a  party  is 
 deemed  to  own  only  those  stations  that  are  represented  in  the  numerator,  i.  e.,  stations  that  have  mutually  overlapping  principal  community  contours.  In  calculating  the  denominator,  however,  any  radio  station 


 535  The  principal  community  contour  for  AM  stations  is  the  predicted  or  measured  5  mV/  m  groundwave  contour 
 and  for  FM  stations  is  the  predicted  3.16  mV/  m  contour.  47  C.  F.  R.    73.3555(  a)(  3)(  i). 
 536  A  single  AM/  FM  combination  is  always  permitted.  47  C.  F.  R.    73.3555(  a)(  2)  (overlap  between  two  stations 
 in  different  services  is  permissible  if  neither  of  those  two  stations  overlaps  a  third  station  in  the  same  service.) 
 537  Application  of  Pine  Bluff  Radio,  Inc.  (Assignor)  and  Seark  Radio,  Inc.  (Assignee),  14  FCC  Rcd  6594  (1999). 
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 whose  principal  community  contour  overlaps  the  principal  community  contour  of  at  least  one  of  the  radio  stations  in  the  numerator  is  counted  as  being  in  the  market,  regardless  of  who  owns  that  station.  As  a 
 result,  the  denominator  may  include  radio  stations  that  are  owned  by  the  same  party  that  owns  the  radio  stations  represented  in  the  numerator.  Because  those  stations  are  counted  in  the  denominator,  they  are  by 
 definition  in  the  market,  but  they  would  not  count  against  the  partys  ownership  limit  in  that  market  unless  their  principal  community  contours  overlap  the  principal  community  contours  of  all  of  the  radio 
 stations  in  the  numerator. 
 254.  The  numerator-  denominator  inconsistency  has  two  potential  and  interrelated  effects  that  highlight  the  problems  with  our  current  methodology.  First,  by  counting  commonly  owned  stations  in  the 


 denominator  that  are  not  counted  in  the  numerator,  a  party  may  be  able  to  use  its  own  radio  stations  to  increase  the  size  of  the  radio  market  and  thereby  bump  itself  into  a  higher  ownership  tier.  Second  (and 
 more  commonly),  the  inconsistency  enables  a  party  to  own  radio  stations  that  are  in  the  relevant  radio  market  (as  determined  by  our  rules)  without  having  those  stations  count  against  the  partys  ownership 
 limit  in  that  market.  538  The  current  system  of  counting  radio  stations  thus  enables  a  party,  by  taking  advantage  of  the  effects  of  the  numerator-  denominator  inconsistency,  to  circumvent  our  limits  on  radio 
 station  ownership,  which  are  intended  to  protect  against  excessive  concentration  levels  in  local  radio  markets. 


 255.  We  cannot  fix  the  problems  associated  with  our  current  methodology  merely  by  excluding  commonly  owned  stations  from  the  denominator  or  including  those  stations  in  the  numerator.  539  If  we 
 exclude  commonly  owned  stations  from  the  denominator,  then  we  would  be  determining  which  radio  stations  are  in  the  market  based  on  who  owns  those  stations,  a  distinction  that  would  be  both  unprincipled 
 and  unprecedented  in  the  history  of  competition  analysis.  If  we  include  in  the  numerator  commonly  owned  stations  represented  in  the  denominator,  a  partys  ownership  level  in  a  particular  market  may  be 
 overly  inflated  by  outlying  stations  far  from  the  area  of  concentration.  540  Each  of  these  proposals  thus  would  create  new  reverse  anomalies  to  cancel  out  the  effects  of  the  numerator-  denominator 
 inconsistency. 
 256.  Our  experience  with  the  current  contour-  overlap  methodology  leads  us  to  the  conclusion  that  it  is  flawed  as  a  means  to  preserve  competition  in  local  radio  markets,  and  that  we  should  take  an 


 entirely  new  approach  to  market  definition.  541  As  is  clear  from  our  description  of  the  current  market  definition  and  counting  methodologies,  the  size  of  a  radio  market  under  our  current  system  is  unique  to 
 the  proposed  combination  being  evaluated.  A  different  combination  of  radio  stations,  or  the  addition  or  subtraction  of  a  radio  station  from  the  combination,  has  the  potential  to  change  the  area  covered  by  the 
 principal  community  contours  of  the  combination  and,  thus,  to  change  the  number  of  commercial  radio 
 538  The  first  effect  arises  from  including  commonly  owned  radio  stations  in  the  denominator.  The  second  effect 
 arises  from  excluding  those  stations  from  the  numerator. 
 539  This  is  one  of  the  options  we  suggested  as  a  remedy  for  the  Pine  Bluff  problem  if  we  decided  to  retain  a 
 contour-  overlap  radio  market  definition.  See  Radio  Market  Definition  NPRM,  15  FCC  Rcd  at  25077    9. 
 540  See  Aurora  Comments  in  MM  Docket  No.  00-  244  at  20-  22;  NAB  Comments  in  MM  Docket  No.  00-  244  at  28. 


 541  In  light  of  our  analysis,  we  reject  the  various  proposals  that  some  commenters  have  advanced  to  reform  the 
 contour-  overlap  system.  See,  e.  g.,  Main  Street  Comments  in  MM  Docket  No.  01-  317  at  2  (proposing  change  to  AM  propagation  standard);  Davis  Comments  in  MM  Docket  No.  01-  317  at  3  (proposing  change  from  principal 


 community  contour  to  interference  standard). 
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 stations  that  are  counted  as  being  in  the  market.  This  is  a  singular  and  unusual  method  for  determining  the  size  of  a  market.  Under  traditional  antitrust  principles,  the  relevant  geographic  market  is  used  to 
 identify  the  parties  that  compete  in  that  market.  542  Our  contour-  overlap  methodology,  in  contrast,  uses  the  outlets  of  one  party    commonly  owned  stations  with  mutually  overlapping  principal  community  contours 
   to  define  the  local  radio  market  and  identify  other  market  participants.  This  is  an  inherent  aspect  of  the  contour-  overlap  methodology  that  is  not  in  line  with  coherent  and  accepted  methods  for  delineating 
 geographic  markets  for  purposes  of  competition  analysis. 
 257.  The  conceptual  problems  with  the  contour-  overlap  methodology  have  significant  implications  for  our  ability  to  guard  against  undue  concentration  in  local  radio  markets.  Because  radio 


 stations  with  larger  signal  contours  are  more  likely  to  reach  a  wider  audience,  consolidation  of  these  radio  stations  in  the  hands  of  one  or  a  few  owners  increases  the  potential  for  market  power  in  local  radio 
 markets.  Yet  the  contour-  overlap  system  actually  encourages  consolidation  of  powerful  radio  stations  because  stations  with  larger  signal  contours  are  more  likely  to  create  larger  radio  markets,  which  make  it 
 more  likely  that  a  party  would  be  able  to  acquire  additional  radio  stations  in  that  market.  543  Thus,  by  creating  this  perverse  incentive,  the  contour-  overlap  methodology  may  undermine  the  primary  public 
 interest  rationale  for  the  local  radio  ownership  rule.  544 
 258.  Other  aspects  of  our  contour-  overlap  methodology  also  limit  its  usefulness  in  protecting  and  promoting  competition.  The  method  for  determining  which  stations  are  in  a  market  often  does  not 


 reflect  the  area  of  true  competition  among  radio  stations.  We  currently  count  a  radio  station  as  being  a  competitor  in  a  radio  market  if  its  principal  community  contour  overlaps  any  one  of  the  principal 
 community  contours  that  form  the  market  boundary.  Those  radio  stations  may  be  too  distant  to  serve  effectively  either  the  listeners  or  the  advertisers  in  the  geographic  area  in  which  concentration  is 
 occurring,  but  they  are  included  in  the  market  because  of  the  happenstance  of  the  size,  shape,  or  location 


 542  The  DOJ  identifies  a  relevant  geographic  market  as  the  region  where  a  hypothetical  monopolist  that  is  the  only 
 producer  of  the  relevant  product  in  the  region  would  profitably  impose  at  least  a  small  but  significant  and  nontransitory  increase  in  the  price  of  the  relevant  product,  assuming  that  the  prices  of  all  products  provided 


 elsewhere  do  not  change.  DOJ/  FTC  Merger  Guidelines    1.21.  This  approach  is  consistent  with  the  Supreme  Courts  definition  of  the  relevant  geographic  market  as  the  region  in  which  the  seller  operates,  and  to  which  the 
 purchaser  can  practicably  turn  for  supplies.  United  States  v.  Grinnell  Corp.,  348  U.  S.  563,  588-  89  (1966). 
 543  See,  e.  g.,  Bear  Stearns  Ex  Parte  Presentation,  A  Defining  Moment  in  Radio?  by  Victor  B.  Miller  (May  12, 
 2003)  at  10  (  Defining  Moment  in  Radio). 
 544  NAB  proposes  to  limit  the  contour  of  Class  A,  AM  stations  for  determining  the  number  of  stations  that 
 comprise  a  radio  market  to  a  non-  directional  5-  kilowatt  facility  (Regional  Class  B  facility).  See  Letter  from  Jerianne  Timmerman,  NAB,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Jan.  24,  2003)  (  NAB  Jan.  24,  2003  Ex 


 Parte).  Class  A  stations  usually  have  very  large  principal  community  contours,  which  results  in  stations  being  counted  in  the  market  that  may  be  very  far  away  from  the  proposed  combination  of  stations  that  define  the  market. 
 Alternatively,  NAB  proposes  to  address  the  large  signal  anomaly  by  excluding  from  the  count  of  stations  in  a  market  any  station    irrespective  of  service    whose  transmitter  site  is  more  than  92  kilometers  (58  miles)  from  the 
 area  of  common  overlap  of  the  stations  being  acquired.  See  Letter  from  Edward  O.  Fritts,  NAB,  to  Michael  K.  Powell,  Chairman,  FCC  (May  23,  2003).  Although  either  of  these  approaches  could  reduce  the  number  of  stations 
 counted  in  a  market,  the  problems  with  contour-  overlap  approaches  are  not  limited  to  situations  in  which  there  is  a  large  signal.  However,  as  explained  infra  at    282-  286  we  adopt  NABs  second  proposal  in  the  interim  modified 
 contour-  overlap  rule  to  be  used  for  stations  located  outside  of  Arbitron  Metros  until  the  completion  of  the  rulemaking  proceeding  in  Docket  No.  03-  130. 
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 of  one  or  more  of  the  principal  community  contours  of  the  radio  stations  involved. 
 259.  The  contour-  overlap  methodology  also  makes  it  difficult  to  measure  concentration  levels  in  local  radio  markets  accurately.  As  currently  implemented,  the  methodology  does  not  examine  the 


 number  of  radio  station  owners  in  a  market;  it  only  considers  how  many  radio  station  signals  cross  the  market  boundary  created  by  the  principal  community  contours  of  commonly  owned  stations  with 
 mutually  overlapping  contours.  Those  signals  may  be  owned  by  only  one  other  party;  indeed,  because  of  the  numerator-  denominator  inconsistency,  those  radio  stations  may  be  owned  by  the  same  party.  The 
 current  methodology  simply  does  not  take  ownership  into  account,  which  makes  an  accurate  measure  of  local  radio  concentration  difficult  to  achieve. 


 260.  Consistency  suffers  as  well.  Under  the  contour-  overlap  methodology,  every  combination  operates  in  a  radio  market  that  is  unique  to  that  combination.  545  Thus,  there  is  no  common  metric  that  we 
 can  use  to  compare  the  effect  of  two  different  combinations  on  competition.  546  In  fact,  we  cannot  even  rationally  evaluate  the  effect  that  adding  a  new  radio  station  to  an  existing  combination  would  have  on 
 competition  because  the  relevant  radio  markets  before  and  after  the  acquisition  may  be  completely  different,  depending  on  the  vagaries  of  the  contour  overlaps. 


 261.  Commenters  nonetheless  argue  that  we  may  not  alter  the  market  definition  unless  we  conclude  that  the  current  market  definition  has  caused  actual  harm  to  our  public  interest  goals.  547  We  do 
 not  agree  that  we  must  demonstrate  actual  harm  to  move  from  an  irrational  market  definition  to  a  rational  one.  Any  analysis  of  the  potential  harms  of  concentration  should  be  focused  on  the  limits  on  how  many 
 stations  a  party  may  own  in  a  market,  rather  than  on  whether  a  distorted  methodology  for  defining  radio  markets  and  counting  radio  stations  should  be  preserved.  548 


 262.  We  recognize  that  our  current  view  differs  from  what  we  stated  in  1992  when  we  first  adopted  the  contour-  overlap  methodology  for  defining  radio  markets  and  counting  market  participants.  549 
 At  the  time,  however,  the  numerical  limits  prohibited  station  combinations  in  excess  of  2  AM  and  2  FM  stations,  and  imposed  on  top  of  that  an  audience  share  cap  of  25%  in  the  largest  markets.  Even  though 
 the  problems  with  the  contour-  overlap  system  were  present  at  the  beginning,  the  effect  was  less  evident  because  of  the  far  more  restrictive  ownership  limits.  It  was  only  after  the  ownership  limits  were 
 substantially  raised  in  the  1996  Act  that  the  scope  of  the  market  distorting  effects  of  that  system  became 


 545  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19880    44;  Defining  Moment  in  Radio  at  10. 
 546  See  NAB  Comments  in  MM  Docket  No.  01-  317  at  34  (  Utilizing  a  contour  overlap  method  of  market 
 definition  for  competitive  purposes  would  essentially  require  each  applicant  to  submit  a  customized  competition  analysis  based  on  the  unique  market  created  by  every  proposed  transaction.). 


 547  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  00-  244  at  12-  13,  28. 
 548  In  any  event,  the  record  does  provide  some  evidence  of  potential  competitive  harm.  MOWG  Study  No.  4 
 suggests  that  consolidation  has  resulted  in  an  increase  in  advertising  prices.  See  discussion  of  product  market,  Section  VI(  B)(  1)(  a)(  i),  supra.  In  addition,  several  smaller  broadcasters  have  asserted  that  consolidation  has 


 created  market  power,  which  has  resulted  in  significant  harm  to  their  ability  to  generate  advertising  revenue,  to  invest  in  improvements  to  radio  service,  and  even  to  stay  in  business.  See  discussion  of  rejection  of  repeal  and 
 other  modifications,  Section  VI(  B)(  1)(  a)(  iii)(  b). 
 549  See  1992  Radio  Reconsideration  Order,  7  FCC  Rcd  at  6394-  96    37-  43. 
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 manifest.  In  light  of  this  experience,  it  would  be  irresponsible  for  us  to  leave  uncorrected  our  market  definition  and  counting  methodology. 
 263.  In  short,  our  experience  with  the  contour-  overlap  system  leads  us  to  believe  that  it  is  ineffective  as  a  means  to  measure  competition  in  local  radio  markets,  and  that  a  different  method  of 
 defining  the  market  will  more  effectively  serve  our  goals.  We  see  scant  evidence  in  the  record  to  lead  us  to  a  different  conclusion.  Some  commenters  correctly  note  that  any  methodology  we  develop  may  create 
 anomalous  situations  in  certain  instances.  550  But  we  cannot  agree  that  our  inability  to  achieve  perfection  in  every  instance  justifies  maintaining  the  current  system.  We  conclude  that  our  methodology  for 
 defining  radio  markets  and  counting  market  participants  must  be  changed. 
 (b)  Statutory  Authority 
 264.  Before  explaining  our  modified  market  definition  and  counting  methodologies,  we  address  arguments  that  we  lack  the  statutory  authority  to  revise  those  methodologies  in  a  way  that  would  prohibit 


 radio  station  combinations  that  are  permissible  under  the  current  framework.  After  reviewing  the  relevant  statutory  provisions,  we  find  that  argument  to  be  without  merit. 


 265.  The  Communications  Act  grants  us  the  authority  to  [  m]  ake  such  rules  and  regulations,  .  .  .  not  inconsistent  with  law,  as  may  be  necessary  to  carry  out  the  provisions  of  the  Act.  551  We  also  are 
 authorized  to  make  such  rules  and  regulations  .  .  .  not  inconsistent  with  [the]  Act,  as  may  be  necessary  in  the  execution  of  [our]  functions.  552  The  Supreme  Court  has  held  that  these  broad  grants  of  rulemaking 
 power  authorize  us  to  adopt  rules  to  ensure  that  broadcast  station  ownership  is  consistent  with  the  public  interest.  553  We  find  nothing  in  the  1996  Act  or  its  legislative  history  that  diminishes  that  authority.  554  To 
 the  contrary,  Section  202(  b)  contemplated  that  we  would  exercise  our  rulemaking  authority  to  make  the  revisions  to  the  rule  that  Congress  required,  and  Section  202(  h)  contemplates  that  we  will  exercise  our 
 rulemaking  authority  to  repeal  or  modify  ownership  rules  that  we  determine  are  no  longer  in  the  public  interest.  We  accordingly  find  that  we  have  the  authority  to  revise  the  local  radio  ownership  rule  in  a 
 manner  that  serves  the  public  interest. 
 266.  Some  commenters  nevertheless  argue  that  the  1996  Act  restricts  how  we  may  define  the  public  interest.  They  contend  that  Congress  specifically  found  the  levels  of  radio  station  ownership 


 specified  in  Section  202(  b)  to  be  in  the  public  interest.  Because  Congress  has  specifically  spoken,  the 


 550  See,  e.  g.,  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  15;  Nassau  Reply  Comments  in  MM  Docket  No. 
 01-  317  at  5;  NAB  Comments  in  MM  Docket  No.  00-  244  at  5;  MBC  Comments  in  MM  Docket  No.  00-  244  at  5;  Cumulus  Comments  in  MM  Docket  No.  00-  244  at  5;  Cox  Comments  in  MM  Docket  No.  01-  317  at  12. 


 551  47  U.  S.  C.    303(  r). 
 552  47  U.  S.  C.    154(  i). 
 553  See,  e.  g.,  Storer  Broadcasting,  351  U.  S.  at  202-  03. 
 554  See,  e.  g.,  Keene  Corp.  v.  United  States,  508  U.  S.  200,  209  (1993)  (statutory  revisions  are  not  presumed  to 
 change  the  law  unless  an  intent  to  make  such  a  change  is  clearly  expressed)  (internal  punctuation  omitted).  Accord  United  States  v.  Wilson,  503  U.  S.  329,  336  (1992);  Green  v.  Bock  Laundry  Machine  Co.,  490  U.  S.  504, 


 521  (1989).  See  also  1996  Act,    601(  c)(  1),  110  Stat.  143  (1996  Act  shall  not  be  construed  to  modify,  impair,  or  supersede  Federal  .  .  .  law  unless  expressly  so  provided). 
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 argument  goes,  we  no  longer  have  the  discretion  to  interpret  the  public  interest  in  a  manner  that,  in  purpose  or  effect,  precludes  a  radio  station  combination  that  complies  with  the  numerical  limits  of  the 
 current  rule,  as  determined  by  the  existing  market  definition  and  counting  methodologies.  555 
 267.  We  find  that  argument  flawed.  Even  assuming  arguendo  the  premise  of  the  argument    that  Congress  intended  Section  202(  b)  as  a  statement  of  the  radio  station  ownership  levels  that  would  be 


 conclusively  consistent  with  the  public  interest    it  does  not  follow  that  Congress  intended  that  statement  to  remain  true  in  perpetuity.  In  Fox,  the  court  held,  in  the  context  of  the  national  television  ownership 
 cap,  that  the  numbers  Congress  selected  determined  only  the  starting  point  for  analysis  and  instructed  us  not  to  defer  to  the  Congresss  choice  of  numbers  in  our  analysis.  556  Thus,  even  if  Congress  believed 
 in  1996  that  Section  202(  b)  set  the  appropriate  radio  station  ownership  levels,  Fox  holds  that  we  retain  the  authority    indeed,  the  obligation    to  determine  ourselves  whether  a  change  in  the  rules  would  serve  the 
 public  interest. 
 268.  In  Fox,  of  course,  the  court  was  addressing  whether  we  were  required  to  defer  to  the  ownership  limits  established  in  the  1996  Act  in  justifying  retention  of  the  national  television  ownership 


 rule.  But  if  Fox  correctly  held  that  we  should  not  defer  to  the  1996  Act  in  deciding  whether  a  rule  continues  to  be  in  the  public  interest,  we  see  no  statutory  basis  to  suggest  that  the  1996  Act  in  some  way 
 prevents  us  from  changing  the  way  we  define  radio  markets  or  count  radio  stations. 
 269.  Commenters  arguing  against  our  statutory  authority  place  great  weight  on  the  Fox  courts  holding  that  Section  202(  h)  carries  with  it  a  presumption  in  favor  of  repealing  or  modifying  the 


 ownership  rules.  557  We  recognize  that  the  Section  202(  h)  presumption  requires  us  to  justify  a  decision  to  retain  the  rule.  The  purpose  of  the  presumption  is  thus  to  shift  the  traditional  administrative  law  burden 
 from  those  seeking  to  modify  or  eliminate  the  rule  to  those  seeking  to  retain  it.  It  would  be  a  substantial  leap,  however,  to  read  this  presumption  as  having  the  additional  effect  of  limiting  the  types  of  changes 
 that  we  may  conclude  are  in  the  public  interest.  558  We  see  no  basis  for  such  a  view.  Had  Congress 


 555  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  01-  317  at  7-  10;  Radio  One  Comments  in  MM  Docket  No.  01- 
 317  at  4;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  10;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  2;  NAB  Reply  Comments  in  MM  Docket  No.  01-  317  at  3. 


 556  Fox  Television,  280  F.  3d  at  1043. 
 557  Id.  at  1048. 
 558  Cox  argues  that  the  Commission  found  that  it  lacked  statutory  authority  to  change  the  local  radio  ownership 
 rule  in  the  1998  Biennial  Review  Report.  Cox  Comments  in  MM  Docket  No.  01-  317  at  4.  In  that  report,  the  Commission  stated  that  tightening  the  ownership  limits  would  be  inappropriate  given  that  Congress  directed  the 


 Commission  to  adopt  these  limits  in  1996.  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11091    60.  This  statement  does  not  speak  to  the  Commissions  authority;  rather,  it  reflects  the  Commissions  policy  decision  to 
 monitor  .  .  .  consolidation  and  gather  information  regarding  the  overall  impact  on  competition  and  diversity  before  considering  changes  to  the  limits  established  by  Section  202(  b).  Id.  at  11088    53.  See  also  Fox 
 Television,  280  F.  3d  at  1042  (noting  that  the  Commission  had  adopted  a  wait-  and-  see  approach  in  the  1998  Biennial  Review  Report).  Indeed,  in  the  same  report,  the  Commission  concluded  that  it  should  initiate  a 
 rulemaking  proceeding  to  consider  changes  to  the  way  markets  are  defined  and  radio  stations  counted,  finding  that  the  current  definitions  and  methodologies  may  be  undermining  Congress  intent.  15  FCC  Rcd  at  11091    61. 
 The  Commission  would  not  have  taken  this  action  if  it  had  concluded  that  Section  202(  b)  foreclosed  revisions  that  would  make  the  local  radio  ownership  rule  more  restrictive. 
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 intended  to  curtail  the  Commissions  regulatory  powers  so  drastically,  it  would  have  done  so  in  more  express  terms.  559 
 270.  Invocation  of  the  ratification,  or  reenactment,  doctrine  does  not  alter  the  analysis.  560  Under  that  doctrine,  Congress  is  presumed  to  have  adopted  the  settled  judicial  interpretation  of  a  statute 
 when  it  reenacts  that  statute.  561  Congress  repetition  of  a  well-  established  term  [also]  carries  the  implication  that  Congress  intended  the  term  to  be  construed  in  accordance  with  pre-  existing  regulatory 
 interpretations.  562  The  ratification  doctrine  may  not  be  invoked,  however,  where  there  is  no  evidence  to  suggest  that  Congress  was  even  aware  of  an  agencys  position.  563  It  is  not  enough  for  Congress  to  be 
 presumed  to  know  the  law;  Congress  must  make  an  affirmative  step  to  ratify  the  agencys  position.  564 
 271.  We  conclude  that  the  ratification  doctrine  is  not  applicable  here.  We  find  nothing  in  the  1996  Act  or  in  its  legislative  history  that  evidences  a  congressional  intent  to  adopt  the  market  definition 


 and  counting  methodologies  that  the  Commission  adopted  in  1992.  Contrary  to  certain  commenters  arguments,  565  moreover,  the  Commission  did  not  acquiesce  to  the  ratification  theory  in  1996  by  carrying 
 forward  these  methodologies  without  notice  and  comment.  The  Commission  merely  noted  that  the  revisions  mandated  by  Section  202(  b)  did  not  directly  affect  the  market  definition  and  counting 
 methodologies  in  the  local  radio  ownership  rule.  566 
 272.  Even  if  the  ratification  doctrine  could  be  invoked,  that  would  not  preclude  [an]  agency,  in  the  exercise  of  its  rulemaking  authority,  from  later  adopting  some  other  reasonable  and  lawful 


 interpretation  of  the  statute.  567  The  ratification  doctrine  does  not  mean  that  the  prior  construction  has  become  so  embedded  in  the  law  that  only  Congress  can  effect  a  change,  but  permits  changes  through 


 559  American  Hospital  Assn  v.  NLRB,  499  U.  S.  606,  613  (1991)  (  As  a  matter  of  statutory  drafting,  if  Congress 
 had  intended  to  curtail  in  a  particular  area  the  broad  rulemaking  authority  [it  has]  granted  .  .  .  ,  we  would  have  expected  it  to  do  so  in  language  expressly  describing  [such]  an  exception  .  .  .  .  If  [a  statute]  had  been  intended  to 


 place  [such  an]  important  limitation  .  .  .  ,  we  would  expect  to  find  some  expression  of  that  intent  in  the  legislative  history.);  cf.  Landgraf  v.  USI  Film  Prods.,  511  U.  S.  244,  259  (1994)  (  we  find  it  most  unlikely  that  Congress 
 intended  the  introductory  clause  to  carry  the  critically  important  meaning  petitioner  assigns  it). 
 560  See,  e.  g.,  Clear  Channel  Comments  in  MM  Docket  No.  00-  244  at  3. 


 561  See,  e.  g.,  Keene  Corp.,  508  U.  S.  at  208. 
 562  Bragdon  v.  Abbott,  524  U.  S.  624,  631  (1998). 
 563  Brown  v.  Gardner,  513  U.  S.  115,  121  (1994)  (citing  United  States  v.  Calamaro,  354  U.  S.  351,  359  (1959)). 
 564  International  Union,  UAW  v.  Brock,  816  F.  2d  761,  767  (D.  C.  Cir.  1987)  (citing  SEC  v.  Sloan,  436  U.  S.  103, 
 121  (1978)).  Accord  American  Fed.  of  Labor  and  Congress  of  Indus.  Orgs.  v.  Brock,  835  F.  2d  912,  915-  16  (D.  C.  Cir.  1987). 


 565  See,  e.  g.,  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  9;  Cox  Comments  in  MM  Docket  No.  01- 
 317  at  4;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  4  n.  2. 
 566  Implementation  of  Section  202(  a)  and  202(  b)(  1)  of  the  Telecommunications  Act  of  1996  (Broadcast  Radio 
 Ownership),  11  FCC  Rcd  12368,  12370    4  (1996). 
 567  McCoy  v.  United  States,  802  F.  2d  762,  766  (4th  Cir.  1986). 
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 exercise  by  the  administrative  agency  of  its  continuing  rule-  making  power.  568  Because  Congress  has  left  the  Commissions  general  rulemaking  powers  intact,  the  ratification  doctrine    even  if  properly  invoked   
 would  not  bar  us  from  exercising  those  powers  to  change  the  method  used  to  define  local  radio  markets  and  count  radio  stations  for  purposes  of  the  local  radio  ownership  rule. 


 (c)  Geography-  Based  Radio  Markets 
 273.  We  describe  below  the  modified  market  definition  and  counting  methodologies  we  will  use  to  determine  compliance  with  the  local  radio  ownership  rule.  569  We  conclude  that  a  local  radio 


 market  that  is  objectively  determined,  i.  e.,  that  is  independent  of  the  radio  stations  involved  in  a  particular  acquisition,  presents  the  most  rational  basis  for  defining  radio  markets.  We  understand  that  geographic 
 areas  are  less  accurate  than  contours  in  measuring  the  signal  reach  of  individual  stations.  570  But  radio  stations  serve  people,  not  land;  and  while  radio  signals  may  overlap  over  uninhabited  land  or  even 
 water,  571  people  in  the  United  States  tend  to  be  clustered  around  specific  population  centers.  The  fact  that  radio  signals  are  not  congruent  with  geographic  boundaries  does  not  undermine  the  logic  of  relying  on 
 geographic  areas  to  define  radio  markets. 
 274.  As  explained  below,  we  will  rely  on  the  Arbitron  Metro  Survey  Area  (Arbitron  Metro)  as  the  presumptive  market.  We  also  establish  a  methodology  for  counting  the  number  of  radio  stations  that 


 participate  in  a  radio  market.  572  We  initiate  below  a  new  rulemaking  proceeding  to  define  radio  markets  for  areas  of  the  country  not  located  in  an  Arbitron  Metro,  and  we  adopt  a  modified  contour-  overlap 
 approach  to  ensure  the  orderly  processing  of  radio  station  applications  pending  completion  of  that  rulemaking  proceeding. 


 (i)  Arbitron  Metro  Survey  Areas 
 275.  Market  definition.  Where  a  commercially  accepted  and  recognized  definition  of  a  radio  market  exists,  it  seems  sensible  to  us  to  rely  on  that  market  definition  for  purposes  of  applying  the  local 
 radio  ownership  rule.  Arbitron,  as  the  principal  radio  rating  service  in  the  country,  has  defined  radio  markets  for  most  of  the  more  populated  urban  areas  of  the  country.  These  radio  markets  Arbitron  Metros 
   are  Arbitrons  primary  survey  area,  which  in  turn  are  based  on  Metropolitan  Areas  (MAs)  established 


 568  Helvering  v.  Reynolds,  313  U.  S.  428,  432  (1941)  (citing  Helvering  v.  Wilshire  Oil  Co.,  308  U.  S.  90,  100-  101 
 (1939));  see  also  Brock,  835  F.  2d  at  916. 
 569  Applicants  will  be  required  to  demonstrate  compliance  with  the  rule  when  filing  applications  to  obtain  a  new 
 construction  permit  or  license,  to  assign  or  transfer  an  existing  permit  or  license,  or  to  make  certain  modifications,  such  as  a  change  in  the  community  of  license  of  a  radio  station. 


 570  See,  e.  g.,  Entercom  Comments  in  MM  Docket  No.  00-  244  at  3;  NAB  Comments  in  MM  Docket  No.  00-  244  at 
 11;  Viacom  Comments  in  MM  Docket  No.  00-  244  at  3. 
 571  See,  e.  g.,  Main  Street  Comments  in  MM  Docket  No.  01-  317  at  4-  6. 


 572  We  make  clear  that  any  radio  station  that  is  included  in  the  radio  market  (i.  e.,  the  denominator)  under  our 
 methodology  will  also  be  counted  against  a  station  owners  ownership  limit  in  such  market  (i.  e.,  the  numerator).  We  reject  Viacoms  argument  that  we  should  continue  the  numerator-  denominator  inconsistency  in  geography-based 


 markets.  See  Letter  from  Anne  Lucey,  Viacom,  to  Paul  Gallant,  Special  Advisor,  Media  Bureau  (May  7,  2003)  at  1  (  Viacom  May  7,  2003  Ex  Parte). 
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 by  the  Office  of  Management  and  Budget  (OMB).  573 
 276.  The  record  shows  that  Arbitrons  market  definitions  are  an  industry  standard  and  represent  a  reasonable  geographic  market  delineation  within  which  radio  stations  compete.  574  Indeed,  the  DOJ 


 consistently  has  treated  Arbitron  Metros  as  the  relevant  geographic  market  for  antitrust  purposes.  575  Although  NAB  opposes  reliance  on  Arbitron  markets,  its  own  study  states  that  Arbitrons  service  is  the 
 primary  currency  through  which  buyers  and  sellers  of  radio  airtime  negotiate  prices  for  radio  advertising  in  most  local  markets.  576  As  that  study  states,  all  aspects  of  the  information  that  Arbitron  includes  in 
 these  reports,  including  the  ways  in  which  the  markets  are  defined,  are  driven  by  [the]  single  goal  of  enabling  commercial  radio  stations  and  advertisers  [to]  determine  the  relative  value  of  radio  station 
 airtime.  577  As  NABOB  succinctly  states,  Radio  stations  compete  in  Arbitron  markets.  578  Given  the  long-  standing  industry  recognition  of  the  value  of  Arbitrons  service,  579  we  believe  there  is  strong  reason 
 to  adopt  a  local  radio  market  definition  that  is  based  on  this  established  industry  standard.  580 
 277.  Several  commenters  have  argued  that  Arbitron  market  definitions  are  not  reliable  enough 
 573  MOWG  Study  No.  11  at  4.  MAs  are  comprised  of  metropolitan  statistical  areas  (MSAs),  consolidated 
 metropolitan  statistical  areas  (CMSAs),  and  primary  metropolitan  statistical  areas  (PMSAs).  Metropolitan  Areas  1999,  Statistical  Policy  Office,  Office  of  Management  and  Budget  (OMB  Metropolitan  Areas).  CMSAs  are 


 comprised  of  multiple  PMSAs.  In  2000,  OMB  revised  its  procedures  for  defining  MAs.  It  also  adopted  a  more  generic  term,  Core  Based  Statistical  Area  (CBSA),  to  cover  both  traditional  Metropolitan  Areas  and  the  new 
 Micropolitan  Statistical  Areas  (  Micro  MSAs)  that  OMB  has  defined  for  less  populated  areas  of  the  country.  See  generally  Standards  for  Defining  Metropolitan  and  Micropolitan  Statistical  Areas,  65  Fed.  Reg.  82228  (2000). 
 OMB  released  the  updated  MA  and  Micro  MSA  list,  which  incorporates  the  data  from  obtained  the  2000  census,  on  June  6,  2003.  See  OMB  Bulletin  03-  04,  http://  www.  whitehouse.  gov/  omb/  bulletins/  b03-  04.  html. 


 574  NABOB  Comments  in  MM  Docket  No.  01-  317  at  8.  See  also  Eure  Comments  in  MM  Docket  No.  01-  317  at  4; 
 Inner  City  Comments  at  3-  4;  North  American  Comments  in  MM  Docket  No.  01-  317  at  4;  UCC  Comments  in  MM  Docket  No.  01-  317  at  12;  NABOB  et  al.  Comments  at  17. 


 575  See,  supra  note  517. 
 576  NAB  Comments  in  MM  Docket  No.  00-  244,  Attachment  B,  An  Analysis  of  the  Proposed  Use  of  Arbitron  Data 
 to  Define  Radio  Markets  by  David  Gunzerath,  Ph.  D.,  Director  of  Survey  Research,  Research  &  Planning  Dept,  National  Association  of  Broadcasters  (Feb.  26,  2001)  (  NAB  Comments,  Gunzerath  Report). 


 577  NAB  Comments  in  MM  Docket  No.  00-  244,  Gunzerath  Report  at  3. 
 578  NABOB  Comments  at  18. 
 579  Arbitrons  predecessor  was  founded  in  1966.  NAB  Comments  in  Docket  No.  00-  244,  Gunzerath  Report  at  2. 
 580  In  approximately  five  areas,  Arbitron  Metros  are  embedded  within  or  overlap  another  Arbitron  Metro. 
 Defining  Moment  in  Radio  at  30.  If  the  radio  stations  at  issue  in  an  application  are  located  in  such  an  embedded  or  overlap  area,  we  will  examine  each  Arbitron  Metro  separately  and  will  not  process  the  application  unless  the 


 proposed  combination  complies  with  the  local  radio  ownership  rule  in  each  Metro  implicated  by  the  proposed  combination.  We  believe  this  approach  comports  with  our  general  recognition  that  Arbitrons  market  definitions 
 are  the  recognized  industry  standard.  We  reject  Bear  Stearns  proposal  that  we  apply  a  different  test  for  these  markets  in  which  permissible  ownership  levels  would  be  based  on  the  size  and  the  business  plan  of  the  particular 
 group  owner.  Id.  at  31-  32.  We  believe  such  a  scheme  would  be  inconsistent  with  our  general  reliance  on  Arbitrons  market  definition  and  cumbersome  to  administer. 
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 for  us  to  use  as  a  radio  market  definition.  581  Although  Arbitron  Metro  boundaries  do  occasionally  change,  we  are  not  convinced  that  such  changes  occur  with  such  frequency,  or  that  they  are  so  drastic,  that  we 
 must  reject  reliance  on  those  boundaries  in  defining  the  relevant  radio  markets.  Indeed,  as  Bear  Stearns  states,  the  self-  correcting  nature  of  Arbitron  Metros  can  be  a  useful  tool  for  keeping  up  with  the  reality 
 of  the  marketplace.  582 
 278.  We  believe,  moreover,  that  we  can  establish  safeguards  to  deter  parties  from  attempting  to  manipulate  Arbitron  market  definitions  for  purposes  of  circumventing  the  local  radio  ownership  rule. 


 Specifically,  we  will  not  allow  a  party  to  receive  the  benefit  of  a  change  in  Arbitron  Metro  boundaries  unless  that  change  has  been  in  place  for  at  least  two  years.  This  safeguard  includes  both  enlarging  the 
 Metro  (to  make  a  market  larger)  and  shrinking  the  Metro  (to  split  a  partys  non-  compliant  station  holdings  into  separate  markets).  Similarly,  a  station  combination  that  does  not  comply  with  the  rule  cannot  rely  on 
 a  change  in  Arbitron  Metro  definitions  to  show  compliance  and  thereby  avoid  the  transfer  restrictions  outlined  in  the  grandfathering  section  below,  unless  that  change  has  been  in  effect  for  two  years.  We  also 
 will  not  allow  a  party  to  receive  the  benefit  of  the  inclusion  of  a  radio  station  as  home  to  a  Metro  unless  such  stations  community  of  license  is  located  within  the  Metro  or  such  station  has  been  considered  home 
 to  that  Metro  for  at  least  two  years.  583  We  believe  these  safeguards  will  ensure  that  changes  in  Arbitron  Metro  boundaries  and  home  market  designations  will  be  made  to  reflect  actual  market  conditions  and  not 
 to  circumvent  the  local  radio  ownership  rule.  584 
 279.  Counting  Methodology.  For  each  Arbitron  Metro,  Arbitron  lists  the  commercial  radio  stations  that  obtain  a  minimum  audience  share  in  the  Metro.  Some  of  these  stations  are  designated  by 


 Arbitron  as  home  to  the  Metro.  These  home  radio  stations  usually  are  either  licensed  to  a  community  within  the  Arbitron  Metro  or  are  determined  by  Arbitron  to  compete  with  the  radio  stations  located  in  the 
 Metro.  These  radio  stations  are  also  known  as  above-  the-  line  stations  because,  in  ratings  reports,  Arbitron  uses  a  dotted  line  to  separate  these  stations  from  other  radio  stations    known  as  below-  the- 


 581  See  NAB  Comments  in  MM  Docket  No.  01-  317  at  35;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  24- 
 25;  Cumulus  Reply  Comments  in  MM  Docket  No.  01-  317  at  4;  WVRC  Comments  in  MM  Docket  No.  00-  244  at  24;  Viacom  Comments  in  MM  Docket  No.  00-  244  at  7;  NAB  Comments  in  MM  Docket  No.  00-  244  at  16-  17; 


 Entercom  Comments  in  MM  Docket  No.  00-  244  at  6;  Cumulus  Comments  in  MM  Docket  No.  00-  244  at  5;  Aurora  Comments  in  MM  Docket  No.  00-  244  at  8;  ARD  Reply  Comments  in  MM  Docket  No.  00-  244  at  1;  Idaho 
 Wireless  Comments  in  MM  Docket  No.  00-  244  at  6;  Brill  Comments  in  MM  Docket  No.  00-  244  at  2;  Aurora  Comments  in  MM  Docket  No.  00-  244  at  10. 


 582  Defining  Moment  in  Radio  at  11.  Changes  in  Metro  boundaries  can  occur  as  a  result  of  population  shifts.  Id. 
 In  addition,  Arbitron  may  add  a  county  to  a  Metro  if  55%  of  the  countys  radio  listening  is  within  the  proposed  Metro,  15%  of  the  countys  residents  commute  into  the  proposed  Metro,  and  75%  of  Arbitron  subscribers  agree  to 


 the  proposed  change.  Id.  We  believe  these  standards  will  help  protect  against  sudden,  drastic  changes  in  Arbitron  Metro  boundaries. 


 583  Similarly,  a  party  may  not  receive  the  benefit  of  changing  the  home  status  of  its  own  station  if  such  change 
 occurred  within  the  two  years  prior  to  the  filing  of  an  application.  For  an  explanation  of  home  status,  see  the  following  paragraphs  regarding  the  counting  methodology  for  Arbitron  Metros. 


 584  To  the  extent,  of  course,  that  we  determine  that,  despite  these  safeguards,  an  Arbitron  Metro  boundary  has 
 been  altered  to  circumvent  the  local  radio  ownership  rule,  we  can  and  will  consider  that  fact  in  evaluating  whether  a  radio  station  combination  complies  with  the  rules  numerical  limits. 
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 line  stations    that  have  historically  received  a  minimum  listening  share  in  a  Metro.  585 
 280.  The  Commission  traditionally  has  relied  on  BIAs  Media  Access  Pro  database  to  obtain  information  about  particular  Arbitron  Metros.  586  The  BIA  database  relies  on  Arbitrons  market 


 definitions  and  builds  upon  Arbitrons  data  to  provide  greater  detail  about  the  competitive  realities  in  Metro  markets.  587  Given  our  experience  with  the  BIA  database  and  its  acceptance  in  the  industry,  we  will 
 count  as  being  in  an  Arbitron  Metro  above-  the-  line  radio  stations  (i.  e.,  stations  that  are  listed  as  home  to  that  Metro),  as  determined  by  BIA.  588  We  also  will  include  in  the  market  any  other  licensed  full  power 
 commercial  or  noncommercial  radio  station  whose  community  of  license  is  located  within  the  Metros  geographic  boundary.  589  By  including  these  stations  in  the  Metro,  our  counting  methodology  will  reflect 
 more  accurately  the  competitive  reality  recognized  by  the  radio  broadcasting  industry.  590  It  is  also  quite  sensible.  Because  we  require  radio  stations  to  serve  their  communities  of  license,  we  know  that  stations 
 licensed  to  communities  in  a  particular  Metro  represent  a  source  of  competition  within  that  Metro.  591  In  addition  to  serving  its  community  of  license,  to  the  extent  that  a  radio  station  competes  beyond  that,  it  is 


 585  Stations  that  have  no  reportable  audience  share  in  a  Metro  may  remain  as  a  below-  the-  line  station  if  they 
 historically  have  received  a  minimum  audience  share  in  the  Metro. 
 586  See,  e.  g.,  Whitehall  Enterprises,  Inc.,  17  FCC  Rcd  17509  (2002).  BIA  is  a  communications  and  information 
 technology,  investment  banking,  consulting,  and  research  firm.  BIA  provides  strategic  funding,  consulting  and  financial  services  to  the  telecommunications,  Internet,  and  media/  entertainment  industries. 


 587  For  example,  Arbitron  counts  only  commercial  stations  that  meet  certain  minimum  reporting  standards.  See 
 Letter  from  Anne  Lucey,  Viacom,  to  Paul  Gallant,  Special  Advisor,  Media  Bureau  (May  5,  2003),  Attachment  at  1  n.  4.  BIA  attempts  to  include  every  commercial  and  noncommercial  radio  station  licensed  in  each  Metro.  Defining 


 Moment  in  Radio  at  16.  BIA  also  may  determine  on  its  own  whether  a  particular  station  licensed  to  a  community  outside  of  a  Metro  should  be  listed  as  home  to  that  Metro.  Id. 


 588  See,  e.  g.,  id.  If  the  BIA  database  counts  any  foreign  radio  stations  as  participating  in  a  particular  Metro,  we 
 also  will  count  those  stations  in  the  relevant  market.  See  id.  at  17;  Jefferson-  Pilot  Comments  in  MM  Docket  No.  01-  317  at  8-  9. 


 589  We  will  rely  on  the  Commissions  broadcast  database  in  determining  the  communities  of  license  of  radio 
 stations.  In  the  rare  case  where  the  boundaries  of  a  community  of  license  cross  a  boundary  between  two  radio  markets,  we  will  consider  the  radio  stations  licensed  to  that  community  to  participate  in  both  markets. 


 590  By  counting  every  radio  station  that  is  located  in  a  Metro,  we  resolve  concerns  that  Arbitron  does  not  include 
 stations  that  have  less  than  a  minimum  audience  share.  See  WVRC  Comments  in  MM  Docket  No.  01-  317  at  30  n.  63,  31;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  25;  WVRC  Comments  in  MM  Docket  No.  00-  244  at 


 24;  Cox  Comments  in  MM  Docket  No.  00-  244  at  10;  Letter  from  Jack  N.  Goodman,  NAB,  to  Michael  K.  Powell,  Chairman,  FCC  (May  29,  2003)  at  2  (  NAB  May  29,  2003  Ex  Parte). 


 591  See  UCC  Comments  in  MM  Docket  No.  01-  317  at  12-  13.  NAB  claims  that  a  community  of  license  test 
 produces  a  different  market  size  count  than  a  home  market  test.  NAB  May  29,  2003  Ex  Parte  at  2.  However,  NABs  own  data  suggest  that  the  market  tier  would  be  the  same  under  either  test  in  over  60%  of  Metros.  Id., 


 Attachment.  Moreover,  our  counting  methodology  appears  different  from  the  one  NAB  used  in  its  analysis.  For  example,  NAB  appears  to  have  excluded  stations  from  markets  in  which  their  communities  of  license  are  located 
 if  such  stations  are  home  to  another  Metro.  As  we  explain  in  the  following  footnote,  we  always  count  a  station  as  participating  in  the  market  in  which  its  community  of  license  is  located. 
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 likely  to  serve  the  larger  out-  lying  metropolitan  areas  that  also  comprise  Arbitron  Metros.  592  Accordingly,  we  find  it  is  appropriate  to  count  these  radio  stations  in  determining  the  size  of  an  Arbitron 
 Metro.  593 
 281.  We  reject  arguments  that  we  should  count  below-  the-  line  stations  in  determining  the  size  of  a  Metros  radio  market.  594  Below-  the-  line  stations  can  be  a  considerable  distance  from  the  Metro,  and 


 in  many  cases  serve  different  population  centers,  if  not  altogether  different  Metros,  from  radio  stations  located  in  the  market.  595  NAB  estimates  that,  on  average,  approximately  70%  of  radio  listening  within  a 
 market  is  attributable  to  commercial  stations  listed  as  being  home  to  that  market.  596  Bear  Stearns  likewise  estimates  that  local  radio  stations  generally  capture  a  disproportionate  share  of  the  local  markets 
 listening  share  and  revenue  share.  597  Although  we  recognize  that,  in  certain  instances,  certain  below-  the-line  radio  station  may  have  a  competitive  impact  in  the  market  for  radio  listening,  we  believe  that,  on 
 balance,  counting  every  below-  the-  line  radio  station  would  produce  a  distorted  picture  of  the  state  of  competition  in  a  particular  Metro.  598 


 592  It  is  for  this  reason  that  a  radio  station  located  outside  of  a  Metro  occasionally  may  be  included  as  home  to  that 
 Metro.  In  such  cases,  we  will  count  that  station  as  participating  in  the  radio  market  in  which  its  community  of  license  is  located  in  addition  to  the  Metro.  We  believe  this  simple  rule  will  help  prevent  odd  results  in  cases 


 where  a  station  requests  home  status  in  order  to  be  viewed  as  a  participant  in  another  (usually  larger)  Metro.  See,  e.  g.,  Great  Scott  Broadcasting,  17  FCC  Rcd  5397,  5406    25  (2002)  (noting  that  a  radio  station  that  was 
 licensed  to  Trenton,  New  Jersey  and  was  the  second  highest  rated  station  in  the  Trenton  Metro  was  listed  as  home  to  the  Middlesex-  Somerset-  Union  Metro);  see  also  Viacom  May  7,  2003  Ex  Parte  at  3;  NAB  May  29,  2003  Ex 
 Parte  at  3. 
 593  We  disagree  with  commenters  that  contend  that  the  home  status  designation  is  unreliable.  See,  e.  g.,  Nassau 
 Comments  in  MM  Docket  No.  01-  317  at  8-  9.  Because  a  station  will  always  be  considered  to  participate  in  the  radio  market  in  which  its  city  of  license  is  located,  the  home  status  designation  only  affects  radio  stations 


 licensed  outside  of  the  Metro  to  which  it  is  home.  It  makes  sense  to  us,  moreover,  to  count  those  stations  in  the  market  in  which  they  are  commercially  recognized  as  competitors. 


 594  See,  e.  g.,  Aurora  Comments  in  MM  Docket  No.  00-  244  at  12;  Viacom  May  7,  2003  Ex  Parte. 
 595  See,  e.  g.,  UCC  Comments  in  MM  Docket  No.  01-  317  at  12-  13. 
 596  NAB  Comments  in  MM  Docket  No.  01-  317  at  4.  We  expect  that  listening  to  in-  market  stations  is  even  higher 
 when  noncommercial  stations  are  taken  into  account. 
 597  Defining  Moment  in  Radio  at  12.  Bear  Stearns  states  that  the  mean  of  audience  share  and  revenue  share  that 
 the  top  3  in-  market  radio  station  groups  receive  is  58.9%  and  82.9%,  respectively.  Bear  Stearns  concludes  that    out-  of-  market  players  are  probably  not  as  significant  in  competing  for  local  dollars  as  are  in-  market  players. 


 Id.  Bear  Stearns  also  notes  that  the  radio  business,  more  than  any  other  measured  media,  is  a  local  medium  and  that  78%  of  the  radio  industrys  revenues  are  derived  from  local  advertisers.  Id.  We  have  previously  observed 
 that  local  businesses  may  not  find  out-  of-  market  radio  stations  to  be  adequate  substitutes  for  in-  market  stations.  See,  e.  g.,  Youngstown  Radio  License,  L.  L.  C.,  17  FCC  Rcd  13896,  13903    20  (2002). 


 598  This  distortion  generally  can  occur  in  two  ways.  First,  counting  every  below-  the-  line  station  as  numerically 
 equal  to  every  in-  market  station  would  artificially  inflate  the  size  of  radio  markets.  Second,  it  could  unnecessarily  restrict  consolidation  across  markets  because  a  partys  ownership  interest  in  a  radio  station  in  one  market  could 


 also  count  against  that  party  in  an  adjacent  market  solely  by  virtue  of  such  station  obtaining  a  minimal  audience  share  in  the  adjacent  market.  See  Defining  Moment  in  Radio  at  13-  14. 
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 (ii)  Areas  Not  Located  in  an  Arbitron  Metro 
 282.  Arbitron  Metros  do  not  cover  the  entire  country;  the  287  Arbitron  Metros  cover  approximately  60%  of  the  commercial  radio  stations,  30%  of  the  counties,  and  78%  of  the  population 
 above  the  age  of  12  in  the  United  States,  including  Puerto  Rico.  599  Several  commenters  have  raised  concerns  concerning  the  appropriate  method  of  defining  radio  markets  in  areas  of  the  country  not  covered 
 by  Arbitron  Metros.  600 
 283.  One  possibility,  in  the  absence  of  a  pre-  defined  radio  market,  is  to  determine  the  relevant  radio  market  on  a  case-  by-  case  basis,  in  the  context  of  an  individual  application.  Such  a  process, 


 however,  would  create  significant  regulatory  uncertainty  and  impose  substantial  burdens  on  small-  market  radio  broadcasters.  601  The  better  course  is  to  develop  radio  market  definitions  for  non-  Metro  areas 
 through  the  rulemaking  process.  602  We  believe  that  would  provide  the  most  expeditious  way  to  delineate  appropriate  radio  market  boundaries  for  the  entire  country  and  give  all  interested  parties  clear  guidance 
 about  how  we  will  analyze  a  proposed  radio  station  combination  under  the  local  radio  ownership  rule.  Because  the  rulemaking  record  in  this  proceeding  provides  little  information  about  the  appropriate 
 boundaries  of  specific  non-  Metro  radio  markets,  603  we  initiate  below  a  new  rulemaking  proceeding  to  seek  comment  on  that  issue. 


 284.  While  that  rulemaking  proceeding  is  pending,  we  will  need  to  process  applications  proposing  radio  station  combinations  in  non-  Metro  areas  and  determine  whether  such  combinations 
 comply  with  the  local  radio  ownership  rule.  Although  we  find  the  contour-  overlap  methodology  problematic  for  the  reasons  stated  above,  we  conclude  that  its  temporary  use  during  the  pendency  of  the 
 rulemaking  proceeding  cannot  be  avoided.  Conducting  a  case-  by-  case  analysis  would  create  significant  regulatory  uncertainty,  and  adopting  an  ill-  considered  proxy  geographic  market  could  produce 
 unforeseeable  distortions.  The  contour-  overlap  methodology  is,  at  a  minimum,  well  understood,  and  continuing  its  use  for  a  few  additional  months  would  allow  for  the  orderly  processing  of  radio  station 
 applications. 
 285.  Although  we  find  it  necessary  to  maintain  the  contour-  overlap  market  definition  for  an  additional  period  of  time,  we  will  make  certain  adjustments  to  minimize  the  more  problematic  aspects  of 


 that  system.  Specifically,  we  adopt  NABs  proposal  to  exclude  from  the  market  (i.  e.,  the  denominator) 


 599  MOWG  Study  No.  11  at  4-  5  &  nn.  6  &  7. 
 600  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  01-  317  at  35;  WVRC  Comments  in  MM  Docket  No.  01-  317  at 
 29;  Cumulus  Reply  Comments  in  MM  Docket  No.  01-  317  at  5;  WVRC  Comments  in  MM  Docket  No.  00-  244  at  23;  Disney  Comments  in  MM  Docket  No.  00-  244  at  3;  Viacom  Comments  in  MM  Docket  No.  00-  244  at  7; 


 NextMedia  Comments  in  MM  Docket  No.  00-  244  at  4;  NAB  Comments  in  MM  Docket  No.  00-  244  at  15;  Entercom  Comments  in  MM  Docket  No.  00-  244  at  5;  Cumulus  Comments  in  MM  Docket  No.  00-  244  at  6;  Cox 
 Comments  in  MM  Docket  No.  00-  244  at  9;  Brill  Comments  in  MM  Docket  No.  00-  244  at  2. 
 601  See,  e.  g.,  Letter  from  Lewis  W.  Dickey,  President,  Cumulus  Media,  to  Michael  K.  Powell,  Chairman,  FCC 
 (May  19,  2003)  at  2. 
 602  NAB  May  23,  2003  Ex  Parte  at  2-  3. 


 603  Id. 
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 radio  stations  that  are  commonly  owned  with  the  stations  in  the  numerator.  604  This  will  prevent  a  party  from  piggy-  backing  on  its  own  stations  to  bump  into  a  higher  ownership  tier.  We  also  will  adopt 
 NABs  suggestion  that  we  exclude  from  the  market  any  radio  station  whose  transmitter  site  is  more  than  92  kilometers  (58  miles)  from  the  perimeter  of  the  mutual  overlap  area.  605  This  will  alleviate  some  of  the 
 gross  distortions  in  market  size  that  can  occur  when  a  large  signal  contour  that  is  part  of  a  proposed  combination  overlaps  the  contours  of  distant  radio  stations  and  thereby  brings  them  into  the  market. 


 286.  We  will  require  parties  proposing  a  radio  station  combination  involving  one  or  more  stations  whose  communities  of  license  are  not  located  within  an  Arbitron  Metro  boundary  to  show 
 compliance  with  the  local  radio  ownership  rule  using  the  interim  contour-  overlap  methodology.  606  In  making  that  showing,  parties  should  include  in  the  numerator  and  denominator  radio  stations  that  meet  the 
 criteria  for  inclusion  under  that  methodology  (as  modified  by  the  preceding  paragraph)  regardless  of  whether  they  are  included  in  Arbitron  Metros.  We  emphasize,  however,  that  the  interim  contour-  overlap 
 methodology  may  not  be  used  to  justify  radio  station  combinations  in  Arbitron  Metros  that  exceed  the  numerical  limits  of  the  local  radio  ownership  rule;  in  all  cases,  parties  must  demonstrate    using  the 
 standards  for  Arbitron  Metros  described  above    that  they  comply  with  those  limits  in  each  Metro  implicated  by  the  proposed  combination. 


 (iii)  Modification  to  The  Local  Radio  Ownership  Rule 
 (a)  Analysis  of  the  Current  Numerical  Limits 
 287.  Having  discussed  the  relevant  product  and  geographic  markets  for  radio,  we  now  undertake  our  obligation  under  Section  202(  h)  to  determine  whether  the  current  limits  on  radio  station 


 ownership  are  necessary  to  promote  the  public  interest  in  competition.  607  With  respect  to  the  ownership  tiers,  we  conclude  that  the  current  rule  meets  that  standard.  We  find,  however,  that  the  rule  improperly 
 fails  to  consider  the  effect  that  noncommercial  stations  can  have  on  competition  in  the  local  radio  market.  We  accordingly  modify  the  rule  to  count  noncommercial  radio  stations  in  determining  the  size  of  the 
 radio  market. 
 288.  We  conclude  that  the  ownership  tiers  in  the  current  rule  represent  a  reasonable  means  for  promoting  the  public  interest  as  it  relates  to  competition.  In  radio  markets,  barriers  to  entry  are  high 


 because  virtually  all  available  radio  spectrum  has  been  licensed.  Radio  broadcasting  is  thus  a  closed  entry  market,  i.  e.,  new  entry  generally  can  occur  only  through  the  acquisition  of  spectrum  inputs  from  existing 
 radio  broadcasters.  608  The  closed  entry  nature  of  radio  suggests  that  the  extent  of  capacity  that  is  available  for  new  entry  plays  a  significant  role  in  determining  whether  market  power  can  develop  in  radio 


 604  Id. 
 605  Id. 
 606  The  interim  methodology  will  be  triggered  even  if  a  radio  station  is  home  to  an  Arbitron  Metro,  as  long  as  its 
 community  of  license  is  located  outside  of  the  Metro. 
 607  Although  the  numerical  limits  in  the  local  radio  ownership  rule  traditionally  have  been  focused  on  ensuring 
 Local  Radio  Diversity,  see  1996  Act,    202(  b),  we  rely  primarily  on  our  competition  goal  to  justify  the  rule.  See  Fox  Television,  280  F.  3d  at  1042. 


 608  The  need  for  governmental  approval  also  imposes  costs  on  new  entry  into  the  market. 
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 broadcasting.  Numerical  limits  on  radio  station  ownership  help  to  keep  the  available  capacity  from  becoming  locked-  up  in  the  hands  of  one  or  a  few  owners,  and  thus  help  prevent  the  formation  of  market 
 power  in  local  radio  markets. 
 289.  Although  competition  theory  does  not  provide  a  hard-  and-  fast  rule  on  the  number  of  equally  sized  competitors  that  are  necessary  to  ensure  that  the  full  benefits  of  competition  are  realized, 


 both  economic  theory  and  empirical  studies  suggest  that  a  market  that  has  five  or  more  relatively  equally  sized  firms  can  achieve  a  level  of  market  performance  comparable  to  a  fragmented,  structurally 
 competitive  market.  609  The  current  tiers  ensure  that,  in  markets  with  between  27  and  51  radio  stations,  there  will  be  approximately  five  or  six  radio  station  firms  of  roughly  equal  size.  610  An  analysis  of  the  top 
 100  Metro  markets  indicates  that  many  of  them  fall  within  this  range.  611 
 290.  We  find  that  the  concentration  levels  permitted  by  the  current  rule  represent  a  reasonable  and  necessary  balance  for  radio  broadcasting  that  comports  with  general  competition  theory,  and  we 


 decline  to  relax  the  rule  to  permit  greater  consolidation  in  local  radio  markets.  We  acknowledge  that  many  radio  markets  currently  have  more  than  6  radio  station  firms.  According  to  MOWG  Study  No.  11, 
 the  top  50  Metros  have  an  average  of  19.9  radio  station  owners,  the  next  50  Metros  have  an  average  of  11.4  owners,  and  the  remaining  Metros  have  an  average  of  6.7  owners.  612  We  also  consider,  however, 
 that  radio  stations  are  not  all  equal  in  terms  of  their  technical  capabilities  (i.  e.,  each  radio  station  covers  a  population  with  varying  levels  of  signal  quality),  and  that  the  technical  differences  among  stations  can 
 cause  radio  stations  groups  with  similar  numbers  of  radio  stations  to  have  vastly  different  levels  of  market  power.  Thus,  although  the  top  50  Metros  have  an  average  of  19.9  owners,  the  top  station  group  in  each  of 
 those  Metros  has,  on  average,  35.2%  of  the  revenue  share,  and  the  top  four  groups  receive,  on  average,  86.1%  of  the  revenue  share.  613  The  top  four  firms  also  dominate  audience  share.  614  According  to  the 
 Future  of  Music  Coalition,  the  top  four  firms  receive  77.1%  of  the  audience  share  in  the  top  10  Metros, 


 609  A  game-  theoretic  analysis  of  the  number  of  independent  firms  that  are  required  to  produce  competitive  market 
 performance  is  provided  by  R.  Selter,  A  Simple  Model  of  Imperfect  Competition  Where  Four  are  Few  and  Six  are  Many,  INTL  J.  GAME  THEORY  2  (1973).  This  model  is  presented  more  intuitively  in  Louis  Phillips,  COMPETITION 


 POLICY:  A  GAME  THEORY  PERSPECTIVE  Ch.  2  (Cambridge,  UK:  Cambridge  Univ.  Press  1995).  An  empirical  study  which  finds  that  additional  market  entry  has  little  effect  on  market  conduct  once  a  market  has  between  three 
 and  five  firms  is  provided  by  Timothy  F.  Bresnahan  and  Peter  C.  Reiss,  Entry  and  Competition  in  Concentrated  Markets,  99  J.  OF  POL.  ECON.  997-  1009  (1991).  These  limits  roughly  comport  with  the  limit  in  the  DOJ/  FTC 
 Merger  Guidelines  between  moderately-  and  highly-  concentrated  markets.  DOJ/  FTC  Guidelines    1.51. 
 610  Markets  with  27  radio  stations  must  have  at  least  4.5  owners  (27  stations  divided  by  the  6  station  limit). 
 Markets  with  51  radio  stations  must  have  at  least  6.375  owners  (51  stations  divided  by  8  station  limit). 
 611  Defining  Moment  in  Radio  at  21.  Our  own  analysis  of  BIA  data  confirms  this  conclusion. 


 612  MOWG  Study  No.  11,  App.  D. 
 613  Id.  In  Metros  51  to  100,  the  average  revenue  shares  for  the  top  firm  and  the  four  top  firms  are  42.8%  and 
 93.5%,  respectively.  In  Metros  101-  287,  the  figures  are  50.9%  and  95%,  respectively. 
 614  The  radio  stations  that  receive  the  highest  audience  shares  tend  to  receive  a  disproportionate  portion  of  the 
 revenue  shares.  See  Defining  Moment  for  Radio  at  12;  see  also  Arbitron,  Radios  Leading  Indicator:  Audience  ratings  and  the  impact  on  revenue,  available  at  http://  www.  arbitron.  com/  downloads/  leadindicator2002.  pdf. 
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 84.7%  in  Metros  11  to  25,  and  85.8%  in  Metros  26-  50.  615  Bear  Stearns  analysis  also  shows  that,  in  the  top  100  radio  markets,  the  top  three  radio  groups  receive  a  median  of  82.9%  of  the  revenue  share  and 
 58.9%  of  the  audience  share.  616  And  MOWG  Study  No.  4  indicates  that  the  increase  in  concentration  in  radio  markets  has  resulted  in  an  appreciable,  albeit  small,  increase  in  advertising  rates.  617  This  data 
 suggests  that  the  current  numerical  limits  are  not  unduly  restrictive.  618 
 291.  For  markets  with  more  than  51  radio  stations,  the  number  of  radio  station  firms  ensured  by  the  rule  increases  as  the  size  of  the  market  increases.  Because  of  this,  some  parties  argue  that  we  should 


 raise  the  numerical  limits  to  permit  common  ownership  of  more  than  eight  radio  stations  in  larger  markets.  619  We  reject  that  argument.  There  is  no  evidence  in  the  record  that  indicates  that  the  efficiencies 
 of  consolidating  radio  stations  increase  appreciably  for  combinations  involving  more  than  eight  radio  stations.  620  On  the  other  hand,  extremely  large  radio  markets  tend  to  cover  a  large  area  geographically 
 and  also  tend  to  be  more  crowded  in  terms  of  radio  signals.  As  a  result,  large  markets  may  include  a  greater  number  of  extremely  small  radio  stations,  as  well  as  radio  stations  that  are  a  significant  distance 
 from  each  other.  621  Both  of  these  phenomena  may  make  a  large  market  appear  more  competitive  than  it  actually  is.  622  For  example,  there  are  approximately  84  radio  stations  (52  FM  and  27  AM)  licensed  to  the 
 Los  Angeles  Metro.  Of  the  FM  stations,  twenty-  three  are  Class  A  or  Class  D  stations,  the  weakest  classes  of  FM  stations.  Of  the  27  AM  stations  in  Los  Angeles,  only  five  are  50  kilowatts  and  three  are  20 
 kilowatts.  The  remaining  19  AM  stations  include  one  10  kilowatt  station  and  18  stations  with  a  power  of  5  kilowatts  or  less.  Some  of  these  technically  weaker  stations  may,  of  course,  be  strong  competitors  in 
 their  markets,  depending  on  a  variety  of  factors  such  as  format  choice,  population  coverage,  and  quality  of  programming.  623  But  even  in  Los  Angeles,  the  second  largest  radio  market  in  the  nation,  the  top  one, 


 615  FMC  Comments  at  33.  The  audience  share  of  the  top  four  firms  in  markets  51-  100  and  101-  289  is  92.5%  and 
 93.9%,  respectively.  Id. 
 616  Defining  Moment  in  Radio  at  12. 


 617  MOWG  Study  No.  4  at  18. 
 618  We  see  no  significant  benefit  in  tinkering  with  the  basic  structure  of  the  tiers.  See,  e.  g.,  Hodson  Comments  in 
 MM  Docket  No.  01-  317  at  7  (proposing  six-  tier  framework).  Bear  Stearns  argues  that  we  should  adjust  the  tiers  because,  in  its  view,  Arbitron  Metro  markets  contain  on  average  fewer  stations  than  the  current  contour-  overlap 


 markets.  Defining  Moment  in  Radio  at  21-  25.  We  reject  that  argument.  The  purpose  of  developing  a  sound  market  definition  methodology  is  to  enable  us  to  measure  concentration  levels  more  accurately.  We  do  not  see 
 why  that  should  affect  the  level  of  concentration  we  permit  in  a  (properly  defined)  market. 
 619  See  Defining  Moment  in  Radio  at  21-  22;  Viacom  May  5,  2003  Ex  Parte  at  11. 


 620  No  party  contends  that  radio  broadcasting  is  a  natural  monopoly,  i.  e.,  that  one  firm  can  always  provide  service 
 more  efficiently  than  two  or  more  firms. 
 621  See,  e.  g.,  NextMedia  Comments  in  MM  Docket  No.  00-  244  at  5;  accord  Letter  from  Jeffrey  H.  Smulyan, 
 Chairman  and  CEO,  Emmis  Communications  to  Michael  K.  Powell,  Chairman,  FCC  (May  30,  2003);  Letter  from  Lee  J.  Peltzman,  Shainis  and  Peltzman,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  7,  2003)  (Peltzman  May  7, 


 2003  Ex  Parte  Letter). 
 622  In  addition  to  our  decision  to  cap  radio  station  ownership  at  8  stations,  we  take  the  technical  differences  of 
 radio  stations  into  account  by  maintaining  separate  AM  and  FM  limits. 
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 two,  and  four  radio  station  firms  receive  31.2%,  60.2%,  and  76.1%,  respectively,  of  the  revenue  share.  624  By  capping  the  numerical  limit  at  eight  stations,  we  seek  to  guard  against  consolidation  of  the  strongest 
 stations  in  a  market  in  the  hands  of  too  few  owners  and  to  ensure  a  market  structure  that  fosters  opportunities  for  new  entry  into  radio  broadcasting.  625 


 292.  We  also  decline  to  make  the  numerical  limits  more  restrictive.  In  the  smallest  radio  markets,  the  current  rule  provides  that  one  entity  may  own  up  to  half  of  the  commercial  radio  stations  in  a 
 market.  Although  this  would  be  considered  highly  concentrated  from  a  competitive  point  of  view,  the  Commission  has  recognized  that  greater  levels  of  concentration  may  be  needed  to  ensure  the  potential  for 
 viability  of  radio  stations  in  smaller  markets.  626  Given  these  concerns,  we  find  it  reasonable  to  allow  greater  levels  of  concentration  in  smaller  radio  markets,  but  to  require  more  independent  radio  station 
 owners  as  the  size  of  the  market  increases  and  viability  concerns  become  less  acute. 
 293.  In  analyzing  the  level  of  concentration  in  radio  markets  that  would  be  consistent  with  the  public  interest,  we  seek  both  to  ensure  a  healthy,  competitive  radio  market  and  enable  radio  owners  to 


 achieve  significant  efficiencies  through  consolidation  of  broadcast  facilities.  Prior  to  1992,  the  local  radio  ownership  rule  did  a  poor  job  of  recognizing  that  a  certain  level  of  consolidation  can  be  efficient.  Given 
 the  generally  difficult  economic  conditions  at  the  time,  the  inability  of  stations  to  seek  efficiencies  through  consolidation  may  have  contributed  to  the  industrys  financial  difficulties.  We  do  not  seek  to 
 undermine  the  benefits  that  consolidation  has  brought  to  the  financial  stability  of  the  radio  industry;  we  seek  to  ensure  that  such  consolidation  does  not  reach  the  point  of  stifling  competitive  incentives.  Because 
 we  believe  that  the  current  numerical  limits  by  and  large  strike  the  appropriate  balance,  627  we  reaffirm  those  limits. 


 294.  We  also  reaffirm  the  AM  and  FM  ownership  limits  in  the  current  rule.  Eliminating  the  service  limits  would  improperly  ignore  the  significant  technical  and  marketplace  differences  between  AM 
 and  FM  stations.  AM  stations  have  significantly  less  bandwidth  than  FM  stations,  and  the  fidelity  of  their 
 (Continued  from  previous  page)  623  It  is  for  this  reason  that  we  cannot  agree  with  certain  commenters  arguments  that  we  should  allow  greater 


 consolidation  of  less  powerful  radio  facilities  in  a  local  market.  See,  e.  g.,  Letter  from  John  S.  Logan,  Dow,  Lohnes  &  Albertson,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  15,  2003);  Letter  from  Linda  G.  Morrison, 
 Leventhal,  Senter  &  Lerman,  to  Marlene  H.  Dortch,  Secretary,  FCC  (May  28,  2003);  NextMedia  Comments  in  MM  Docket  No.  00-  244  at  4-  5.  The  local  radio  ownership  rule  takes  into  account  differences  in  power  and  class 
 of  radio  stations  where  appropriate.  We  see  no  feasible  way  to  account  for  unique  market  conditions  or  individual  company  holdings  without  frustrating  our  goal  of  providing  regulatory  certainty  through  relatively  simple,  bright-line 
 rules. 
 624  MOWG  Study  No.  11,  App.  F. 


 625  See  infra    296-  301. 
 626  See  1992  Radio  Ownership  Order,  7  FCC  Rcd  at  2777  (competitive  realities  are  substantially  different  in 
 markets  of  different  sizes).  See  also  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  18-  20. 
 627  See  Sinclair,  284  F.  3d  at  162;  AT&  T  Corp.  v.  FCC,  220  F.  3d  607,  627  (D.  C.  Cir.  2000)  (the  Commission  has 
 wide  discretion  to  determine  where  to  draw  administrative  lines);  Cassell  v.  FCC,  154  F.  3d  478,  485  (D.  C.  Cir.  1998)  (the  Commissions  line-  drawing  is  entitled  deference  so  long  as  it  is  not  patently  unreasonable);  Health 


 and  Medicine  Policy  Research  Group  v.  FCC,  807  F.  2d  1038,  1043  (D.  C.  Cir.  1987)  (  the  scope  of  review  is  particularly  limited  when  the  FCC  engages  in  the  process  of  drawing  lines);  Hercules  Inc.  v.  EPA,  598  F.  2d  91, 
 107-  108  (D.  C.  Cir.  1978)  (agency's  numbers  must  only  be  within  a  zone  of  reasonableness). 
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 audio  signal  is  inferior  to  that  of  FM  stations.  628  Unlike  FM  stations,  moreover,  AM  signal  propagation  also  varies  with  time  of  day.  During  the  day,  AM  signals  travel  through  ground  currents  for  between  50 
 to  200  miles;  at  night,  AM  signals  travel  further  because  they  are  reflected  from  the  upper  atmosphere.  As  a  result,  many  AM  stations  are  required  to  cease  operation  at  sunset.  629  These  and  other  technical 
 differences  630  have  an  effect  on  radio  listenership  patterns.  As  of  2002,  82%  of  radio  audience  comes  from  the  FM  service,  while  18%  of  radio  audience  comes  from  the  AM  service.  631  Radio  formats  also  can 
 be  affected.  In  Los  Angeles,  for  example,  our  analysis  indicates  that  many  of  the  AM  stations  have  a  news/  talk/  sports  or  ethnic  format,  while  music  formats  are  more  likely  on  commercial  FM  stations.  We 
 cannot  agree,  therefore,  that  eliminating  the  service  caps  and  treating  AM  and  FM  radio  stations  equally  for  purposes  of  the  overall  station  limit  is  consistent  with  our  interest  in  protecting  competition  in  local 
 radio  markets. 
 295.  Although  we  reaffirm  the  ownership  tiers  in  the  local  radio  ownership  rule,  we  conclude  that  it  is  not  necessary  in  the  public  interest  to  exclude  noncommercial  radio  stations  in  determining  the 


 size  of  the  radio  market.  Although  noncommercial  stations  do  not  compete  in  the  radio  advertising  market,  they  compete  with  other  radio  stations  in  the  radio  listening  and  program  production  markets.  632 
 Indeed,  noncommercial  stations  can  receive  a  significant  listening  share  in  their  respective  markets.  633  Their  presence  in  the  market  therefore  exerts  competitive  pressure  on  all  other  radio  stations  in  the  market 
 seeking  to  attract  the  attention  of  the  same  body  of  potential  listeners.  In  television,  we  have  recognized  the  contribution  that  noncommercial  stations  can  make  to  competition  by  counting  noncommercial 
 stations  in  determining  the  size  of  the  television  market.  We  see  no  reason  to  treat  noncommercial  radio  stations  differently. 


 (b)  Rejection  of  Repeal  and  Other  Modifications 
 296.  We  reject  arguments  that  we  should  repeal  the  local  radio  ownership  rule.  We  see  nothing  in  the  record  that  persuades  us  that  the  acquisition  of  market  power  in  radio  broadcasting  serves  the  public 


 628  See  Digital  Audio  Broadcasting  Systems  and  Their  Impact  on  the  Terrestrial  Radio  Broadcast  Service,  17  FCC 
 Rcd  19990,  19997    19  (2002).  The  development  of  in-  band,  on-  channel  technology  may  help  AM  stations  overcome  this  limitation.  See  id. 


 629  Id. 
 630  See  generally  Review  of  Technical  Assignment  Criteria  for  the  AM  Broadcast  Service,  2  FCC  Rcd  5014 
 (1987);  Review  of  Technical  Assignment  Criteria  for  the  AM  Broadcast  Service,  5  FCC  Rcd  4381  (1990);  Review  of  the  Methods  for  Calculating  Nighttime  Protection  for  Stations  in  the  AM  Broadcast  Service,  3  FCC  Rcd  6448 


 (1988). 
 631  See  Arbitron  National  Radio  Services,  Tracking  Trends  at  http://  www.  Arbitron.  com/  national_  radio/  home.  htm 
 (visited  May  11,  2003);  see  also  Peltzman  May  7,  2003  Ex  Parte  at  1.  Viacom  argues  that  four  of  the  ten  highest  billing  stations  in  the  country  are  AM  stations.  See  Letter  from  Meredith  Senter,  Levanthal,  Senter  &  Lerman,  to 


 Marlene  H.  Dortch,  Secretary,  FCC  (May  15,  2003)  at  3.  We  fail  to  see  how  looking  at  only  the  top  ten  billing  stations  provides  much  information  about  the  relative  strength  of  AM  and  FM  stations  across  the  country.  To  the 
 contrary,  the  fact  that  a  few  high-  power  AM  stations  are  comparable  to  FM  stations  in  terms  of  billing  capability  weighs  against  Viacoms  alternative  argument  that  we  should  disregard  AM  ownership  entirely.  Id. 


 632  See,  e.  g.,  Viacom  May  5,  2003  Ex  Parte  at  4. 
 633  See,  e.  g.,  Viacom  May  7,  2003  Ex  Parte  at  2. 
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 interest.  634  As  we  explain  in  the  Policy  Goals  section,  we  are  committed  to  establishing  a  regulatory  framework  that  promotes  competition  in  the  field  of  broadcasting.  Competition  breeds  innovation  in 
 programming  and  creates  incentives  to  continually  improve  program  quality.  635  Because  competition    and  the  benefits  that  flow  from  it    is  lessened  when  the  market  is  dominated  by  one  or  a  few  players,  we 
 seek  through  our  rules  to  prevent  that  type  of  market  structure  from  developing. 
 297.  Without  some  check,  a  party  could  acquire  all  or  a  significant  portion  of  the  limited  number  of  broadcast  radio  channels  in  a  local  community,  leaving  listeners,  advertisers,  and  program 


 producers  with  fewer  substitutes.  That  situation  also  would  raise  the  cost  of  entry  into  the  market  by  new  entrants  because  there  would  be  fewer  radio  stations  available  from  which  a  party  could  construct  a 
 competing  station  group.  636  Because  the  most  potent  sources  of  innovation  often  arise  from  new  entrants,  637  a  market  structure  that  significantly  raises  the  costs  of  entry  leads  to  less-  than-  optimal  results 
 in  terms  of  innovation  and  program  quality  and  thereby  harms  the  public  interest.  638  It  is  therefore  necessary  for  us  to  impose  limits  on  the  number  of  radio  stations  a  party  may  own  in  a  local  market  to 
 preserve  competition  in  the  relevant  markets  in  which  radio  stations  compete.  639 
 298.  Several  commenters  argue  that  the  local  radio  ownership  rule  is  unjustified  because  consolidation  has  resulted  in  efficiencies  and  has  produced  significant  public  interest  benefits.  640  In  the 


 Local  Radio  Ownership  NPRM,  we  asked  for  information  on  three  specific  markets    Syracuse,  New  York;  Rockford,  Illinois;  and  Florence,  South  Carolina.  Clear  Channel  is  the  largest  group  owner  in 
 Syracuse;  641  Cumulus  is  a  large  group  owner  in  Rockford  and  Florence.  642  Clear  Channel  and  Cumulus  have  provided  detailed  information  highlighting  the  public  interest  benefits  that  they  contend  they  have 
 produced  by  consolidating  radio  stations  in  those  markets,  such  as  greater  investment  in  facilities  and 


 634  Most  of  the  debate  centers  around  whether  radio  broadcasting  constitutes  a  separate  relevant  product  market 
 (we  have  concluded  that  it  does)  and  the  means  we  should  use  to  protect  competition  in  the  relevant  market  (we  have  just  answered  that  question).  Although  some  parties  have  suggested  that  monopoly  in  broadcasting  would 


 promote  program  diversity,  we  find  the  evidence  supporting  that  theory  inconclusive.  See  infra    307-  315. 
 635  See,  e.  g.,  EchoStar/  DirecTV  HDO,  17  FCC  Rcd  at  20626    176.  See  also  Policy  Goals,  Section  III,  supra. 


 636  See  Dick  Comments  in  MM  Docket  No.  01-  317  at  6;  Hodson  Comments  in  MM  Docket  No.  01-  317  at  6. 
 637  See,  e.  g.,  1998  Biennial  Regulatory  Review    Testing  New  Technology,  14  FCC  Rcd  at  6077    28;  see  also 
 MMTC  Comments  in  MM  Docket  No.  01-  317  at  107. 
 638  See  Policy  Goals,  Section  III,  supra. 


 639  Id.  The  Policy  Goals  Section  contains  an  explanation  of  why  we  decide  to  rely  on  prescriptive  rules  rather  than 
 case-  by-  case  analyses  to  promote  our  public  interest  objectives  in  media. 
 640  See,  e.  g.,  Viacom  Comments  in  MM  Docket  No.  01-  317  at  51,  60-  63;  Clear  Channel  Comments  in  MM 
 Docket  No.  01-  317  at  23-  24. 
 641  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  24. 


 642  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  7. 
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 programming,  including  local  news  and  public  affairs.  643 
 299.  We  do  not  dispute  that  a  certain  level  of  consolidation  of  radio  stations  can  improve  the  ability  of  a  group  owner  to  make  investments  that  benefit  the  public.  644  Our  responsibility  under  the 


 statute,  however,  is  to  determine  the  level  at  which  the  harms  of  consolidation  outweigh  its  benefits,  and  to  establish  rules  to  prevent  that  situation  from  developing.  And  while  Clear  Channel,  Cumulus,  and 
 others  highlight  the  public  interest  benefits  that  they  were  able  to  achieve  through  consolidation,  we  also  seek  to  ensure  that  radio  stations  outside  of  the  dominant  groups  can  remain  viable  and,  beyond  that,  can 
 prosper.  Several  commenters  express  concern  that,  in  markets  with  a  high  level  of  concentration,  small  radio  firms  may  be  forced  to  sell  out  to  group  owners.  645  Specifically,  the  concern  is  that,  in  a 
 concentrated  market,  dominant  radio  station  groups  can  exercise  market  power  to  attract  revenue  at  the  expense  of  the  small  owner.  646  As  a  result,  the  small  owner  has  greater  difficulty  obtaining  the  revenue  it 
 needs  to  develop  and  broadcast  attractive  programming  and  to  compete  generally  against  the  dominant  station  groups.  647  Although  we  decline  to  pass  on  the  competitive  situation  in  any  particular  radio  market 
 in  the  context  of  this  rulemaking  proceeding,  648  the  concerns  raised  by  these  commenters  comport  with  the  competition  analysis  that  underlies  this  order  and  supports  our  decision  not  to  repeal  the  local  radio 
 ownership  rule. 
 300.  We  also  reject  arguments  that  we  incorporate  a  market  share  analysis  into  the  local  radio  ownership  rule  or  that  we  continue  to  flag  applications  that  propose  radio  station  combinations  above  a 


 certain  market  share.  649  Several  parties  have  suggested  that  we  consider  audience  share  or  revenue  share 
 643  Clear  Channel  Comments  in  MM  Docket  No.  01-  317,  Exh.  4;  Cumulus  Comments  in  MM  Docket  No.  01-  317 
 at  6-  14;  Cumulus  Comments  at  7-  12.  Clear  Channel  also  filed  similar  information  about  other  radio  markets  in  which  it  operates.  Clear  Channel  Comments  in  MM  Docket  No.  01-  317,  Exh.  5. 


 644  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  01-  317  at  44-  45;  Radio  One  Comments  in  MM  Docket  No.  01- 
 317  at  11-  12;  Viacom  Comments  in  MM  Docket  No.  01-  317  at  60-  62;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  23-  24;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  5-  6,  19;  Zimmer  Comments  in  MM 


 Docket  No.  00-  244  at  6;  Weigle  Comments  in  MM  Docket  No.  00-  244  at  6;  Viacom  Comments  in  MM  Docket  No.  00-  244  at  6;  HBC  Comments  in  MM  Docket  No.  01-  317  at  11-  12;  NAB  Reply  Comments  in  MM  Docket  No. 
 01-  317  at  11;  Zimmer  Comments  in  MM  Docket  No.  00-  244  at  7. 
 645  See  AFTRA  Comments  in  MM  Docket  No.  01-  317  at  2;  North  American  Comments  in  MM  Docket  No.  01- 
 317  at  12;  Blakeney  Comments  in  MM  Docket  No.  01-  317  at  2;  MMTC  Comments  in  MM  Docket  No.  01-  317  at  23-  24,  45. 


 646  See  North  American  Comments  in  MM  Docket  No.  01-  317  at  11;  Idaho  Comments  in  MM  Docket  No.  01-  317 
 at  3;  Dick  Comments  in  MM  Docket  No.  01-  317  at  3;  MMTC  Comments  in  MM  Docket  No.  01-  317  at  21. 
 647  See  AFTRA  Comments  in  MM  Docket  No.  01-  317  at  9;  Daugherty  Comments  in  MM  Docket  No.  01-  317  at  3; 
 Kennelwood  Comments  at  1-  3. 
 648  See,  e.  g.,  Kennelwood  Comments  at  8. 


 649  In  August  1998  the  Commission  began  flagging  public  notices  of  radio  station  transactions  that,  based  on  an 
 initial  analysis  by  the  staff,  proposed  a  level  of  local  radio  concentration  that  implicated  the  Commissions  public  interest  concern  for  maintaining  diversity  and  competition.  See  Broadcast  Applications,  Rep.  No.  24303  (Aug.  12, 


 1998).  Under  this  policy,  the  Commission  flagged  proposed  transactions  that  would  result  in  one  entity  controlling  50%  or  more  of  the  advertising  revenues  in  the  relevant  Arbitron  radio  market  or  two  entities 
 controlling  70%  or  more  of  the  advertising  revenues  in  that  market.  See  Applications  of  Shareholders  of  AMFM,  (continued.) 
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 in  determining  the  level  at  which  common  ownership  of  local  radio  stations  becomes  contrary  the  public  interest.  650  We  recognize  that  competition  analysis  generally  looks  to  market  share  as  the  primary 
 indicator  of  market  power.  Market  share,  however,  must  be  considered  in  conjunction  with  the  overall  structure  of  the  industry  in  determining  whether  market  power  is  present.  651  In  radio,  the  availability  of  a 
 sufficient  number  of  radio  channels  is  of  particular  importance  in  ensuring  that  competition  can  flourish  in  local  radio  markets.  The  numerical  caps  and  the  AM/  FM  service  limits  are  designed  to  address  that 
 interest,  and  in  our  judgment,  establishing  a  inflexible  market  share  limit  in  our  bright-  line  rule  would  add  little,  if  any,  benefit.  We  do  not  seek  to  discourage  radio  firms  from  earning  market  share  through 
 investment  in  quality  programming  that  listeners  prefer;  our  objective  is  to  prevent  firms  from  gaining  market  dominance  through  the  consolidation  of  a  significant  number  of  key  broadcast  facilities.  We  do 
 not  believe  that  developing  a  market  share  limit  would  significantly  advance  that  objective. 
 301.  We  recognize  that  our  conclusion  differs  from  the  Commissions  view  in  1992  that  an  audience  share  cap  was  necessary  to  prevent  consolidation  of  the  top  stations  in  a  particular  local 


 market.  652  But  the  audience  share  cap  was  never  intended  to  be  more  than  a  backstop  to  the  new  numerical  limits  the  Commission  had  established,  which  for  the  first  time  allowed  a  party  to  own  multiple 
 radio  stations  in  a  local  market.  653  The  audience  share  cap  was  eliminated  as  a  result  of  the  revisions  to  the  local  radio  ownership  rule  that  Congress  mandated  in  the  1996  Act,  which  left  only  the  numerical 
 caps  in  place.  But  because  of  the  problems  associated  with  the  contour-  overlap  market  definition  and  counting  methodologies,  we  could  not  rely  with  confidence  on  those  numerical  limits  to  protect  against 
 undue  concentration  in  local  markets.  As  a  result,  we  began  looking  at  revenue  share  in  our  flagging  process  and  the  interim  policy  that  we  established  in  the  Local  Radio  Ownership  NPRM.  Now  that  we 
 have  established  a  rational  system  for  defining  radio  markets  and  counting  market  participants,  we  believe  that  the  numerical  limits  will  be  better  able  to  protect  against  harmful  concentration  levels  in  local  radio 
 markets  that  might  otherwise  threaten  the  public  interest.  To  the  extent  an  interested  party  believes  this  not  to  be  the  case,  it  has  a  statutory  right  to  file  a  petition  to  deny  a  specific  radio  station  application  and 
 present  evidence  that  makes  the  necessary  prima  facie  showing  that  a  proposed  combination  is  contrary  to  the  public  interest.  654 


 b.  Localism 
 302.  Our  localism  goal  stems  from  our  interest  in  ensuring  that  licensed  broadcast  facilities 
 (Continued  from  previous  page)  Inc.,  (Transferor)  and  Clear  Channel  Communication,  Inc.  (Transferee),  15  FCC  Rcd  16062,  16066    7  n.  10 
 (2000)  (  AMFM,  Inc.).  Flagged  transactions  were  subject  to  a  further  competitive  analysis,  the  scope  of  which  is  embodied  in  the  interim  policy  set  forth  in  the  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19894-  97    84-  89. 


 650  See,  e.  g.,  Hodson  Comments  in  MM  Docket  No.  01-  317  at  6-  7;  UCC  Comments  in  MM  Docket  No.  01-  317  at 
 27;  NABOB  Comments  in  MM  Docket  No.  01-  317  at  5;  Radio  One  Reply  Comments  in  MM  Docket  No.  01-  317  at  3;  Cumulus  Comments  at  14. 


 651  See,  e.  g.,  United  States  v.  Microsoft  Corp.,  235  F.  3d  34,  51,  54  (D.  C.  Cir.  2001);  TV  FNPRM,  10  FCC  Rcd  at 
 3535    21. 
 652  1992  Radio  Ownership  Order,  7  FCC  Rcd  at  2781    53. 


 653  Id. 
 654  47  U.  S.  C.    309(  d). 
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 serve  and  are  responsive  to  the  needs  and  interests  of  the  communities  to  which  they  are  licensed.  655  Our  localism  policy  influences  many  of  our  broadcast  policy  decisions,  including  decisions  relating  to  how 
 radio  spectrum  is  allocated  and  to  the  public  interest  obligations  that  are  imposed  on  radio  broadcasters.  656 
 303.  Some  commenters  argue  that  the  local  radio  ownership  rule  harms  localism  by  preventing  efficient  consolidation  that  promotes  improved  local  service.  As  explained  in  the  Competition  Section 


 above,  we  agree  that  consolidation  of  radio  stations  can  result  in  efficiencies.  This  does  not  mean,  however,  that  all  consolidation  serves  the  public  interest.  657  We  recognize  only  those  efficiencies  that 
 inure  to  the  benefit  of  the  public.  658  In  a  competitive  market,  the  efficiencies  arising  out  of  consolidation  will  be  passed  on  to  listeners  through  greater  innovation  and  improved  service  quality,  which  in  this 
 context  contemplates  programming  that  is  responsive  to  the  needs  and  interests  of  the  local  community.  In  a  concentrated  market,  radio  station  firms  have  diminished  incentive  to  compete  vigorously.  Smaller 
 firms,  moreover,  may  have  insufficient  resources  to  compete  aggressively  with  the  dominant  firms  in  the  market,  which  makes  smaller  firms  less  effective  in  meeting  the  needs  and  interests  of  their  local 
 communities.  Thus,  by  preserving  a  healthy,  competitive  local  radio  market,  the  local  radio  ownership  rule  also  helps  promote  our  interest  in  localism. 


 304.  Aside  from  the  positive  effect  on  localism  that  ensues  from  a  competitive  radio  market,  we  see  little  to  indicate  that  the  local  radio  ownership  rule  significantly  advances  our  interest  in  localism.  In 
 prior  rulemaking  proceedings,  the  Commission  has  not  emphasized  localism  as  one  of  the  justifications  for  the  local  radio  ownership  rule,  659  and  the  record  suggests  no  reason  for  adopting  a  different  view  here. 
 Although  some  parties  suggest  that  localism  has  suffered  as  a  result  of  consolidation,  the  source  of  the  alleged  harm  appears  to  be  the  overall  national  size  of  the  radio  station  group  owner  rather  than  the 
 number  of  radio  stations  commonly  owned  in  a  local  market.  Thus,  Idaho  Wireless  contends  that  large  group  owners  downsize  local  staff  so  that  they  can  run  stations  all  over  the  country  more  cheaply,  660 
 and  UCC  asserts  that  consolidation  has  resulted  in  nearly  identical  programming  in  different  local  markets.  661  These  concerns  do  not  address  whether  consolidation  of  radio  stations  in  a  local  market 
 would  harm  localism.  National  radio  ownership  limits  are  outside  the  scope  of  this  proceeding. 
 c.  Diversity 
 305.  Viewpoint  Diversity.  Viewpoint  diversity  rests  on  the  assumption  that  the  widest  possible  dissemination  of  information  from  diverse  and  antagonistic  sources  is  essential  to  the  welfare  of  the 


 655  Notice,  17  FCC  Rcd  at  18526    70. 
 656  Id. 
 657  See  2000  CMRS  Review,  16  FCC  Rcd  at  22696    55. 
 658  See,  e.  g.,  Whitehall  Enterprises,  Inc.,  17  FCC  Rcd  at  17525    49.  Accord  EchoStar/  DirecTV  HDO,  17  FCC 
 Rcd  at  20604    98. 
 659  See,  e.  g.,  1992  Radio  Ownership  Order,  7  FCC  Rcd  2755;  1989  Multiple  Ownership  First  Report  and  Order,  4 
 FCC  Rcd  1723. 
 660  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at  3,  9-  10;  see  also  North  American  Comments  in  MM 
 Docket  No.  01-  317  at  11. 
 661  UCC  Reply  Comments  in  MM  Docket  No.  01-  317  at  17. 
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 public.  662  Many  outlets  contribute  to  the  dissemination  of  diverse  viewpoints,  and  provide  news  and  public  affairs  programming  to  the  public.  Elsewhere  in  this  Order,  we  discuss  in  exacting  detail  the 
 various  sources  of  local  news  and  information  that  are  available  to  the  public.  Here,  it  is  sufficient  to  say  that  media  other  than  radio  play  an  important  role  in  the  dissemination  of  local  news  and  public  affairs 
 information. 
 306.  That,  of  course,  does  not  mean  that  radio  broadcasting  is  irrelevant  to  viewpoint  diversity.  We  recognize  that  radio  can  reach  specific  demographic  groups  more  easily  than  other  forms  of  mass 


 media.  663  Because  of  this,  and  because  of  its  relative  affordability  compared  to  other  mass  media,  radio  remains  a  likely  avenue  for  new  entry  into  the  media  business,  particularly  by  small  businesses,  women, 
 minorities,  and  other  entrepreneurs  seeking  to  meet  a  market  demand  or  provide  programming  to  underserved  communities.  New  entry  promotes  outlet  diversity,  which  in  turn  enhances  viewpoint 
 diversity  and  the  public  interest.  Our  competition-  based  limits  on  local  radio  ownership  thus  promote  viewpoint  diversity,  not  only  by  ensuring  a  sufficient  number  of  independent  radio  voices,  but  also  by 
 preserving  a  market  structure  that  facilitates  and  encourages  entry  into  the  local  media  market  by  new  and  underrepresented  parties. 


 307.  Programming  Diversity.  Some  commenters  argue  that  program  diversity  should  be  the  paramount  diversity  concern  in  radio  broadcasting.  664  The  record  is  divided  on  the  effect  of  consolidation 
 on  program  diversity.  Some  argue  that  the  local  radio  ownership  rule  harms  program  diversity  because  greater  concentration  leads  to  more  homogenized,  less  innovative  programming.  665  Others  argue  that  the 
 rule  encourages  program  diversity  because  greater  concentration  encourages  the  common  owner  to  program  in  a  manner  that  appeals  to  different  audiences.  666 


 308.  In  theory,  program  diversity  promotes  the  public  interest  by  affording  consumers  access  to  a  greater  array  of  programming  choices.  We  have  long  recognized  that  the  most  extreme  example  of  zero 
 program  diversity    duplication  of  programming    generally  results  in  an  inefficient  use  of  the  scarce  radio  spectrum  and  a  lost  opportunity  to  use  that  spectrum  to  serve  a  community.  For  that  reason,  our 
 rules  restrict  the  ability  of  radio  broadcasters  to  duplicate  programming  in  the  same  community.  667  The  corollary  is  that  greater  variety  of  differentiated  programming  advances  the  public  interest  by  giving 
 consumers  in  a  local  community  more  selection  from  which  they  can  obtain  programming  to  meet  their  varied  interests. 


 662  Associated  Press  v.  United  States,  326  U.  S.  1  (1945). 
 663  See  MMTC  Comments  in  MM  Docket  No.  01-  317  at  47. 
 664  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  01-  317  at  16;  Clear  Channel  Comments  in  MM  Docket  No.  01- 
 317  at  14. 
 665  AFTRA  Comments  in  MM  Docket  No.  01-  317  at  11;  Hodson  Feb.  28,  2002,  Comments  at  5-  6;  Amherst 
 Comments  in  MM  Docket  No.  01-  317  at  3. 
 666  NAB  Comments  in  MM  Docket  No.  01-  317  at  18-  20;  Radio  South  Comments  in  MM  Docket  No.  01-  317  at  2; 
 Clear  Channel  Reply  Comments  in  MM  Docket  No.  01-  317  at  3;  NAB  Reply  Comments  in  MM  Docket  No.  01-  317  at  12;  Zimmer  Comments  In  MM  Docket  No.  00-  244  at  6;  Citadel  Comments  in  MM  Docket  No.  00-  244  at  8. 


 667  47  C.  F.  R.    73.3556. 
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 309.  No  party  seriously  disputes  that  greater  program  diversity  promotes  the  public  interest.  The  difficulty  is  in  finding  a  way  to  measure  program  diversity  in  a  coherent  and  consistent  manner  so 
 that  we  can  determine  how  it  is  affected  by  concentration.  668  The  record  indicates  that  different  measures  of  format  diversity  produce  strikingly  different  results. 


 310.  A  number  of  commenters  cite  a  recent  study  by  Berry  and  Waldfogel  that  found  that  reductions  in  the  numbers  of  owners  in  radio  markets  led  to  an  increase  in  radio  format  labels.  669  This 
 confirms,  they  argue,  Steiners  claim  that  a  monopoly  broadcaster  will  provide  more  diverse  programming  than  a  number  of  competitive  stations.  670  The  evidence  presented  in  MOWG  Study  No.  11, 
 however,  suggests  that  the  number  of  formats  across  radio  markets  has  remained  flat  since  the  passage  of  the  1996  Act.  671  The  discrepancy  between  these  two  studies  is  due  to  the  different  classification  of  format 
 used  in  each  study.  MOWG  Study  No.  11  uses  the  most  general  type  of  classification  available  in  the  BIA  database,  while  Berry  and  Waldfogel  uses  the  finer  classification  formats  available  in  Duncan.  An 
 example  will  illustrate  the  difference.  One  radio  format  Adult  Contemporary  taken  from  the  BIA  can  be  broken  down  into  five  different  subformats  under  Duncans  system:  Adult  Contemporary,  Adult 
 Contemporary/  Album  Oriented  Rock,  Adult  Contemporary/  Contemporary  Hit  Radio,  Adult  Contemporary/  New  Rock,  and  Adult  Contemporary  Oldies.  While  we  agree  that  the  Duncan  formats 
 allow  a  somewhat  richer  portrayal  of  the  variety  of  music  than  the  more  general  format  categories,  we  are  not  certain  how  substantial  the  difference  between  many  of  these  minor  subcategories  within  the  major 
 categories  of  format  are.  We  therefore  question  how  well  the  increases  in  radio  formats  reported  by  Berry  and  Waldfogel  imply  increases  in  radio  program  diversity. 


 311.  The  relationship  between  radio  formats  and  radio  programming  is  investigated  in  a  study  by  Peter  DiCola  and  Kristin  Thomson.  672  By  searching  through  playlist  data  in  Radio  and  Records,  they 
 found  substantial  overlap  between  the  major  radio  formats.  For  example,  they  found  that  in  August  2002,  that  Contemporary  Hit  Rock  (CHR)  Rhythmic  and  Urban  shared  76%  of  the  songs  on  their  top  50 
 charts.  673  Further,  they  found  that  the  overlap  had  increased  for  some  music  format  pairs  and  decreased  for  others.  674  The  considerable  overlap  between  major  format  categories  reported  by  DiCola  and 


 668  The  relationship  between  concentration  and  program  diversity  is  not  necessarily  linear.  One  study  examining 
 the  relationship  between  industry  structure  and  variety  in  the  music  recording  industry  found  that  high  and  low  levels  of  concentration  result  in  less  variety,  while  maximum  variety  is  promoted  at  a  moderately  concentrated 


 structure.  In  this  study,  that  moderate  concentration  level  corresponded  with  the  top  four  firms  capturing  approximately  half  the  market  revenue.  See  Peter  J.  Alexander,  Product  Variety  and  Market  Structure,  32  J. 
 ECON.  BEHAVIOR  &  ORG.  207  (1997). 
 669  Steven  Berry  and  Joel  Waldfogel,  Do  Mergers  Increase  Product  Variety?  Evidence  from  Radio  Broadcasting, 
 116(  3)  Q.  J.  ECON.  1009-  25. 
 670  Steiner,  supra  note  400.  See  infra    313-  14. 


 671  MOWG  Study  No.  11. 
 672  Future  of  Music  Coalition  Comments,  Radio  Deregulation:  Has  It  Served  Citizens  and  Musicians?  by  Peter 
 DiCola  and  Kristin  Thomson. 
 673  Future  of  Music  Coalition  Comments  at  Table  4-  1,  at  56. 


 674  For  example,  overlap  in  Top  50  charts  for  CHR  Pop  and  CHR  Rhythmic  has  increased  by  14%  from  1994  and 
 2002.  Id  at  Table  4-  2,  at  60. 
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 Thomson  suggest  far  greater  overlap  between  the  Duncan  formats  which  Berry  and  Waldfogel  use.  The  presence  of  substantial  overlap  between  music  formats  that  do  not  remain  stable  through  time  suggests 
 that  the  number  of  formats  is  not  a  good  measure  of  program  diversity. 
 312.  MOWG  Study  No.  9  addresses  the  issue  of  diversity  in  radio  by  examining  top  10  playlists  across  a  sample  of  radio  stations  published  by  Radio  and  Records.  675  Overall,  the  results  suggest 


 that  song  diversity  remained  approximately  flat  from  1996  to  2001.  MOWG  Study  No.  9  compared  the  total  number  of  unique  songs  in  top  10  playlists  between  1996  and  2001  and  found  the  number  of  songs 
 changed  from  1241  to  1228,  a  1  percent  decline.  676  MOWG  Study  No.  9  also  constructed  a  measure  to  compare  the  difference  of  the  top  10  songs  played  between  radio  stations.  677  The  authors  found  that 
 comparing  stations  within  the  same  format  led  to  an  overall  decline  of  2.4%  in  top  10  playlist  diversity.  678  A  similar  exercise,  however,  comparing  radio  stations  in  similar  but  different  formats  found  a  slight 
 increase  in  diversity  of  0.74%.  679  The  study  also  attempted  to  establish  the  direct  link  of  songlist  diversity  and  consolidation  in  the  radio  industry.  Overall,  the  results  suggest  that  consolidation  in  the  radio 
 industry  neither  helped  nor  hindered  playlist  diversity  between  radio  stations.  680 
 313.  The  studies  on  program  diversity  also  do  not  draw  a  sufficiently  reliable  causal  link  between  ownership  concentration  and  the  purported  increase  in  format  diversity.  To  establish  that  link, 


 some  commenters  rely  on  the  theory  proposed  by  Peter  Steiner  in  1952  that  a  monopoly  broadcaster  will  diversify  programming  to  attract  different  groups  with  distinct  listening  preferences  and  thereby  secure 
 the  largest  total  audience  for  advertisers,  whereas  broadcasters  operating  in  a  competitive  environment  would  be  more  likely  to  duplicate  formats  if  a  majority  of  listeners  prefer  a  particular  format.  According 
 to  these  commenters,  the  Steiner  theory  supports  the  causal  link  between  the  increase  in  radio  ownership  concentration  over  the  last  few  years  and  the  asserted  increase  in  format  diversity.  681 


 675  MOWG  Study  No.  9,  Radio  Market  Structure  and  Music  Diversity  by  George  Williams,  Keith  Brown,  and 
 Peter  Alexander  (Sept.  2002)  (  MOWG  Study  No.  9). 
 676  Id.  at  9. 


 677  The  technical  details  of  this  difference  measure  are  described  in  the  paper,  but  essentially  the  measure  counts 
 the  number  of  times  two  different  playlists  do  not  share  a  song.  Thus  if  the  top  10  songs  of  two  stations  share  4  songs,  the  distance  measure  would  equal  6. 


 678  MOWG  Study  No.  9  at  11. 
 679  Id.  at  13. 
 680  MOWG  Study  No.  9  also  attempted  to  establish  the  direct  relationship  between  consolidation  of  radio  stations 
 in  a  market  and  the  songlist  diversity  in  that  market  through  linear  regression.  The  results  reported  suggest  that  common  ownership  of  radio  stations  in  a  market  can  increase  playlist  diversity.  Unfortunately,  inspection  of  the 


 data  suggest  that  this  result  may  not  be  very  robust.  The  number  of  common  radio  stations  in  issues  of  Radio  and  Records  examined  between  1996  and  2001  is  so  few  that  that  the  result  is  driven  by  only  a  handful  of  radio  station 
 pairs.  This  remains  to  be  an  important  question  for  further  research. 
 681  See,  e.  g.,  Clear  Channel  Comments,  Hausman  Statement  at  12. 
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 314.  Steiners  theory  has  produced  much  discussion  and  research  in  the  economic  literature,  682  and  the  Commission  has  itself  recognized  the  theory  that  greater  consolidation  could  lead  to  greater 
 format  diversity.  683  After  a  careful  review  of  the  economic  literature,  however,  we  cannot  confidently  adopt  the  view  that  we  should  encourage  more  consolidation  in  order  to  achieve  greater  format  diversity. 
 Like  many  economic  theories,  the  Steiner  theory  and  its  progeny  rests  on  a  number  of  assumptions.  The  ability  of  the  theory  to  predict  actual  market  results  reliably  therefore  depends  in  large  part  on  the 
 accuracy  of  those  assumptions.  For  example,  Steiner  assumes  that  viewers  prefer  only  one  type  of  programming;  when  viewers  have  lesser  preferred  substitutes,  different  results  are  produced.  Moreover, 
 competitive  models  perform  better  than  monopoly  in  terms  of  diversity  and  consumer  welfare  when  channel  space  increases.  684  Changes  in  various  other  assumptions  also  may  affect  the  results  reached  by 
 the  original  Steiner  model.  685  We  need  not  review  all  of  these  assumptions  here;  it  is  sufficient  that  they  exist  and  that  their  accuracy  is  open  to  debate.  Although  further  research  on  the  Steiner  model  may  be 
 fruitful,  we  cannot  at  this  time  rely  on  that  model  to  accept  the  argument  that  greater  consolidation  leads  to  more  format  diversity  in  radio  broadcasting.  686 


 315.  In  light  of  this  record,  we  cannot  conclude  that  radio  ownership  concentration  has  any  effect  on  format  diversity,  either  harmful  or  beneficial.  Accordingly,  we  do  not  rely  on  it  to  justify  the 
 local  radio  ownership  rule.  687 
 2.  Attribution  of  Joint  Sales  Agreements 
 316.  In  the  Local  Radio  Ownership  NPRM,  we  sought  comment  on  the  appropriate  regulatory  treatment  for  radio  Joint  Sales  Agreements  (JSAs).  688  A  typical  radio  JSA  authorizes  the  broker  to  sell 


 682  Jack  H.  Beebe,  in  particular,  has  used  the  Steiner  model  to  create  a  significantly  more  sophisticated  model  of 
 program  choice  in  broadcasting.  Jack  H.  Beebe,  Institutional  Structure  and  Program  Choices  in  Television  Markets,  91(  1)  Q.  J.  ECON.  15  (1977). 


 683  Notice,  17  FCC  Rcd  at  18530    82  n.  159. 
 684  Beebe,  supra  note  682  at  15. 
 685  For  example,  taking  advertising  into  account  may  change  the  results  of  the  Steiner  model.  See  Simon 
 Anderson  and  Steve  Coate,  Market  Provision  of  Public  Goods:  The  Case  for  Broadcasting,  Working  Paper  (UVA  and  Cornell  2001). 


 686  Even  if  the  Steiner  model  is  an  accurate  model  of  program  choice  in  broadcasting,  we  would  not  necessarily 
 conclude  that  greater  consolidation  in  radio  broadcasting  would  serve  the  public  interest.  As  explained  above,  consolidation  may  have  certain  negative  effects  on  innovation  and  program  quality  that  outweigh  any  asserted 


 increase  in  program  diversity.  Because  we  do  not  rely  on  the  Steiner  model  here,  we  do  not  attempt  to  undertake  a  balancing  of  those  competing  interests  at  this  time. 


 687  We  leave  open  the  possibility  that,  after  further  research,  additional  evidence  may  be  adduced  to  establish  the 
 link  between  ownership  concentration  and  format  diversity.  If  such  a  link  can  be  shown,  we  will  consider  the  implications  of  that  link  on  the  local  radio  ownership  rule  at  that  time. 


 688  As  we  stated  in  the  Notice,  as  a  general  matter,  we  are  not  reviewing  our  attribution  rules  as  part  of  the  biennial 
 review  process.  Notice,  17  FCC  Rcd  at  18506    7  n.  13.  However,  we  specifically  sought  comment  in  the  Local  Radio  Ownership  NPRM  on  whether  to  attribute  radio  JSAs.  Therefore,  we  will  consider  changes  to  our 


 attribution  rules  only  in  this  one  context.  Because  we  did  not  raise  the  issue  of  whether  to  change  our  current  (continued.) 
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 advertising  time  for  the  brokered  station  in  return  for  a  fee  paid  to  the  licensee.  Because  the  broker  normally  assumes  much  of  the  market  risk  with  respect  to  the  station  it  brokers,  JSAs  generally  give  the 
 broker  authority  to  hire  a  sales  force  for  the  brokered  station,  set  advertising  prices,  and  make  other  decisions  regarding  the  sale  of  advertising  time,  subject  to  the  licensees  preemptive  right  to  reject  the 
 advertising.  Currently,  JSAs  are  not  attributable  under  the  Commissions  attribution  rules.  Therefore,  radio  stations  subject  to  JSAs  do  not  count  toward  the  number  of  stations  the  brokering  licensee  may  own 
 in  a  local  market. 
 317.  Based  on  the  record  in  this  proceeding,  and  on  our  experience  with  JSAs  and  our  local  radio  ownership  rules,  we  will  now  count  the  brokered  station  toward  the  brokering  licensees  permissible 


 ownership  totals  under  the  revised  local  ownership  rules.  Where  an  entity  owns  or  has  an  attributable  interest  in  one  or  more  stations  in  a  local  radio  market,  joint  advertising  sales  of  another  station  in  that 
 market  for  more  than  15  percent  of  the  brokered  stations  advertising  time  per  week  will  result  in  counting  the  brokered  station  toward  the  brokering  licensees  ownership  caps.  Specifically,  we  have 
 concerns  regarding  the  impact  of  in-  market  JSAs  on  competition  in  local  radio  markets.  We  do  not  believe  that  out-  of-  market  JSAs  pose  the  same  economic  concerns.  Therefore,  JSAs  will  not  be 
 attributable  when  a  party  does  not  own  any  stations  or  have  an  attributable  interest  in  stations  in  the  local  market  in  which  the  brokered  station  is  located.  689 


 318.  In  considering  revisions  to  our  attribution  rules,  we  have  always  sought  to  identify  and  include  those  positional  and  ownership  interests  that  convey  a  degree  of  influence  or  control  to  their 
 holder  sufficient  to  warrant  limitation  under  our  ownership  rules.  690  As  with  LMAs,  JSAs  are  not  precluded  by  any  Commission  rule  or  policy  as  long  as  the  Commissions  ownership  rules  are  not 
 violated  and  the  participating  licensees  maintain  ultimate  control  over  their  facilities.  Nothing  in  the  record  indicates  that  licensees  abdicate  control  over  stations  that  are  subject  to  JSAs.  However,  we  find 
 that  the  use  of  in-  market  JSAs  may  undermine  our  continuing  interest  in  broadcast  competition  sufficiently  to  warrant  limitation  under  the  multiple  ownership  rules.  691  Where  we  have  referred  to 
 influence,  we  have  viewed  it  as  an  interest  that  is  less  than  controlling,  but  through  which  the  holder  is  likely  to  induce  a  licensee  to  take  actions  to  protect  the  interests  of  the  holder.  Our  judgment  as  to  what 
 level  of  influence  should  be  subject  to  restriction  by  the  multiple  ownership  rules  has,  in  turn,  been  based  on  our  judgment  regarding  what  interests  in  a  licensee  convey  a  realistic  potential  to  affect  its 


 (Continued  from  previous  page)  policy  regarding  non-  attribution  of  television  JSAs,  we  will  not  consider  any  changes  in  this  Order.  We  will  issue 
 a  future  Notice  of  Proposed  Rulemaking  to  seek  comment  on  whether  or  not  to  attribute  television  JSAs. 
 689  For  instance,  consider  a  licensee  that  owns  a  radio  station  in  the  Cleveland,  Ohio,  radio  metro,  and  has  a  JSA 
 for  a  radio  station  in  the  Akron,  Ohio,  radio  metro.  The  broker  owns  no  stations  in  the  Akron,  Ohio,  market.  The  JSA  in  the  Akron,  Ohio,  market  therefore  would  not  be  attributable.  However,  in-  market  JSAs  will  be 


 attributable  regardless  of  whether  the  advertising  time  for  the  station  is  sold  in  conjunction  with  commonly  owned  stations  in  the  same  market,  or  with  stations  in  distant  markets.  The  potential  for  influence  over  the  brokered 
 station  would  exist  under  both  scenarios. 
 690  Attribution  of  Ownership  Interests,  97  F.  C.  C.  2d  997,  999,  1005  (1984),  (  1984  Attribution  Order)  on  recon., 
 58  RR  2d  604  (1985),  on  further  recon.,  1  FCC  Rcd  802  (1986);  1999  Attribution  Report  and  Order,  14  FCC  Rcd  at  12612    121. 


 691  See  1992  Radio  Ownership  Order,  7  FCC  Rcd  at  2788    64;  Attribution  NPRM,  10  FCC  Rcd  3606,  3609    4 
 (1995)  (quoting  1984  Attribution  Order,  97  F.  C.  C.  2d  at  999). 
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 programming  and  other  core  operational  decisions.  692 
 319.  We  find  that  where  one  station  owner  controls  a  large  percentage  of  the  advertising  time  in  a  particular  market,  it  has  the  ability  potentially  to  exercise  market  power.  Many  times,  the  broker  will 


 sell  advertising  packages  for  the  group  of  stations,  offer  substantial  discounts  and  create  incentives  not  available  to  other  broadcasters  in  the  market.  In  any  given  radio  market,  a  broker  may  own  or  have  an 
 ownership  interest  in  stations,  operate  stations  pursuant  to  an  LMA,  693  or  sell  advertising  time  for  stations  pursuant  to  a  JSA.  Control  over  spot  sales  by  one  station  affords  significant  power  over  the  other.  694 
 Thus,  JSAs  raise  concerns  regarding  the  ability  of  smaller  broadcasters  to  compete,  and  may  negatively  affect  the  health  of  the  local  radio  industry  generally.  JSAs  put  pricing  and  output  decisions  in  the  hands 
 of  a  single  firm.  Instead  of  stations  competing  against  one  another,  a  single  firm  sells  packages  of  time  for  all  stations,  eliminating  competition  in  the  market. 


 320.  We  have  not  previously  attributed  JSAs  based  on  our  earlier  conclusion  that  JSAs  do  not  convey  sufficient  influence  or  control  over  a  stations  core  operations  to  be  considered  attributable.  695 
 While  we  have  recognized  the  DOJs  concerns  as  to  the  impact  of  same-  market  radio  JSAs  on  competition,  we  noted  that  the  DOJ  and  the  Commissions  concerns  may  differ  in  certain  respects.  696  We 
 have  previously  distinguished  JSAs  and  LMAs,  finding  that  only  LMAs  have  the  ability  to  affect  programming,  personnel,  advertising,  physical  facilities,  and  other  core  operations  of  stations.  697  There 
 are  several  reasons  for  our  policy  change.  Upon  reexamination  of  the  attribution  issue,  we  find  that,  because  the  broker  controls  the  advertising  revenue  of  the  brokered  station,  JSAs  have  the  same  potential 
 as  LMAs  to  convey  sufficient  influence  over  core  operations  of  a  station  to  raise  significant  competition  concerns  warranting  attribution.  698  As  with  LMAs,  licensees  of  stations  subject  to  JSAs  typically  receive  a 
 monthly  fee  regardless  of  the  advertising  sales  or  audience  share  of  the  station.  Therefore,  licensees  of  stations  subject  to  JSAs  have  less  incentive  to  maintain  or  attain  significant  competitive  standing  in  the 
 market. 


 692  Attribution  NPRM,  10  FCC  Rcd  at  3610    4. 
 693  LMAs  typically  provide  that  the  broker  may  sell  advertising  time  and  retain  the  advertising  revenue  for  the 
 programming  it  provides  to  the  brokered  station. 
 694  1999  Attribution  Report  and  Order,  14  FCC  Rcd  at  12612    121. 


 695  Id.  at  12612    122.  However,  we  left  open  the  possibility  that  JSAs  could  threaten  competition,  and  retained 
 discretion  to  review  cases  involving  radio  or  television  JSAs  on  a  case-  by-  case  basis  if  it  appeared  that  such  JSAs  pose  competition  or  other  concerns.  Id.  at  12613    123.  See,  e.  g.,  Shareholders  of  the  Ackerly  Group,  Inc. 


 (Transferor)  and  Clear  Channel  Corp.  (Transferee),  17  FCC  Rcd  10828  (2002). 
 696  1999  Attribution  Order,  14  FCC  Rcd  at  12612    122. 


 697  Id. 
 698  In  1996,  we  revisited  the  issue  of  whether  to  attribute  JSAs.  See  Review  of  the  Commissions  Regulations 
 Governing  Attribution  of  Broadcast  Interests,  11  FCC  Rcd  19895,  19911  (1996)  (  1996  Attribution  FNPRM).  We  considered  whether  JSAs  present  diversity  and  competition  concerns,  and  whether  a  company  could  potentially 


 exert  market  power  by  controlling  a  certain  amount  of  the  advertising  revenue  share  in  the  market.  In  declining  to  attribute  JSAs,  we  concluded  that  they  do  not  convey  the  degree  of  influence  or  control  over  station  programming  or 
 core  operations  such  that  they  should  be  attributed.  1999  Attribution  Order,  14  FCC  Rcd  at  12612    122. 
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 321.  Although  we  continue  to  believe  that  JSAs  may  have  some  positive  effects  on  the  local  radio  industry,  we  find  that  the  threat  to  competition  and  the  potential  impact  on  the  influence  over  the 
 brokered  station  outweighs  any  potential  benefits  and  requires  attribution.  As  with  our  decision  in  1992  to  attribute  radio  LMAs,  we  find  that  modification  of  our  regulation  also  is  warranted  given  the  need  for 
 our  attribution  rules  to  reflect  accurately  competitive  conditions  of  todays  local  radio  markets.  699  We  noted  then,  and  it  still  holds  true  today,  that  it  would  be  inconsistent  with  our  rules  to  allow  a  local  station 
 owner  to  substantially  broker  a  station,  whether  pursuant  to  an  LMA  or  JSA,  that  it  could  not  own  under  the  local  radio  ownership  limits.  700 


 322.  Some  commenters  argue  that  we  should  continue  to  exempt  JSAs  from  attribution  because  they  produce  a  public  interest  benefit.  701  Others  believe  that  we  either  should  treat  JSAs  the  same  as 
 LMAs  in  our  competition  analysis,  702  or  that  we  should  require  prior  approval  for  both  JSAs  and  LMAs.  703  Clear  Channel  argues  that  [  n]  othing  has  transpired  over  the  succeeding  two  years  [since  we 
 decided  not  to  attribute  JSAs]  that  would  justify  reconsideration  of  these  positions.  704  We  disagree  with  Clear  Channel.  Our  experience  administering  the  local  radio  ownership  rule  convinces  us  that  we  need  to 
 modify  our  attribution  policy  with  regard  to  JSAs  for  the  above  reasons.  Although,  like  LMAs,  JSAs  might  produce  public  interest  benefits,  we  find  that  JSAs  may  convey  sufficient  influence  or  control  over 
 advertising  to  be  considered  attributable.  705 
 323.  We  believe  that  a  15  percent  advertising  time  threshold  will  identify  the  level  of  control  or  influence  that  would  realistically  allow  holders  of  such  influence  to  affect  core  operating  functions  of  a 


 station,  and  give  them  an  incentive  to  do  so.  At  the  same  time,  a  15  percent  threshold  will  allow  a  station  the  flexibility  to  broker  a  small  amount  of  advertising  time  through  a  JSA  with  another  station  in  the  same 
 market  without  that  brokerage  rising  to  an  attributable  level  of  influence.  We  believe  that  the  15  percent  threshold  (which  is  the  same  threshold  used  for  determining  attribution  of  radio  and  television  LMAs) 


 699  In  1992,  based  on  concerns  about  competition  and  diversity,  we  attributed  radio  LMAs  where  an  entity  owns  a 
 station  in  a  local  radio  market  and  brokers  another  station  in  the  market  for  more  than  15  percent  of  the  brokered  stations  broadcast  hours  per  week.  1992  Radio  Ownership  Report  and  Order,  7  FCC  Rcd  at  2788.  In  1999,  we 


 attributed  television  LMAs.  See  1999  Attribution  Report  and  Order,  14  FCC  Rcd  at  12597    83. 
 700  1992  Radio  Ownership  Report  and  Order,  7  FCC  Rcd  at  2788-  89    65. 


 701  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  27;  Cox  Comments  in  MM  Docket  No.  01-  317  at  17- 
 18;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  15  n.  10;  Clear  Channel  Reply  Comments  in  MM  Docket  No.  01-  317  at  5  n.  7. 


 702  Dick  Broadcasting  Comments  in  MM  Docket  No.  01-  317  at  8;  Eure  Comments  in  MM  Docket  No.  01-  317  at 
 2;  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at  9;  Hodson  Comments  in  MM  Docket  No.  01-  317  at  9. 
 703  North  American  Comments  in  MM  Docket  No.  01-  317  at  17-  18;  Dick  Broadcasting  Comments  in  MM  Docket 
 No.  01-  317  at  8;  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at  9. 
 704  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  27. 


 705  As  evidence  of  potential  adverse  competitive  effects  pursuant  to  the  interim  policy  adopted  in  the  Local  Radio 
 Ownership  NPRM,  we  considered  the  presence  of  both  LMAs  and  JSAs  in  the  relevant  radio  market.  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19896    86. 
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 balances  these  interests.  706 
 324.  Under  our  modified  rules,  JSAs  currently  in  existence  will  be  attributable.  Parties  with  existing,  attributable  JSAs  in  Arbitron  Metros  under  our  new  rules  will  be  required  to  file  a  copy  of  the 


 JSA  with  the  Commission  within  60  days  of  the  effective  date  of  this  Order.  707  For  JSAs  involving  stations  located  outside  of  Arbitron  Metros,  we  will  require  such  JSAs  to  be  filed  within  60  days  of  the 
 effective  date  of  our  decision  in  Docket  No.  03-  130,  unless  a  different  date  is  announced  in  that  decision.  In  addition,  we  are  modifying  FCC  Application  Forms  314  and  315  to  require  applicants  to  file 
 attributable  JSAs  at  the  time  an  application  is  filed,  regardless  of  whether  the  markets  implicated  by  the  application  are  located  in  Arbitron  Metros. 


 325.  Existing  JSAs.  We  are  aware  that  attribution  of  in-  market  radio  JSAs  may  affect  licensees  compliance  with  the  modified  local  radio  ownership  rules.  In  addition,  we  do  not  want  to  unnecessarily 
 adversely  affect  current  business  arrangements  between  licensees  and  brokers.  Therefore,  we  will  give  licensees  sufficient  time  to  make  alternative  business  arrangements  where  they  have  in-  market  JSAs 
 entered  into  prior  to  the  adoption  date  of  this  Order  that  would  cause  them  to  exceed  relevant  ownership  limits.  In  such  situations,  parties  will  have  2  years  from  the  effective  date  of  this  Order  to  terminate 
 agreements,  or  otherwise  come  into  compliance  with  the  local  radio  ownership  rules  adopted  herein.  708  However,  if  a  party  sells  an  existing  combination  of  stations  within  the  2-  year  grace  period,  it  may  not 
 sell  or  assign  the  JSA  to  the  new  owner  if  the  JSA  causes  the  new  owner  to  exceed  any  of  our  ownership  limits;  the  JSA  must  be  terminated  at  the  time  of  the  sale  of  the  stations.  JSAs  that  do  not  cause  a  party 
 to  exceed  the  modified  local  radio  rules  may  continue  in  full  force  and  effect  and  may  be  transferred  or  assigned  to  third  parties.  Finally,  parties  are  prohibited  from  entering  a  new  JSA  or  renewing  an  existing 
 JSA  that  would  cause  the  broker  of  the  station  to  exceed  our  media  ownership  limits. 
 3.  Waiver  Standards 
 326.  In  the  Local  Radio  Ownership  NPRM,  we  requested  comment  on  how  we  should  analyze  proposed  radio  station  transactions  involving  failed,  failing,  unbuilt,  or  silent  stations.  709  We  presented 


 this  question  in  terms  of  our  consideration  of  a  case-  by-  case  competition  analysis  of  radio  station  transactions  (as  opposed  to  requesting  specific  comment  on  potential  waiver  standards),  and  we  in  fact 
 received  very  few  comments  addressing  this  issue.  710  In  light  of  our  rejection  of  a  case-  by-  case  analysis  for  radio  transactions,  the  other  changes  we  are  making  to  the  local  radio  ownership  rule,  and  the  dearth 
 of  comments  on  this  issue,  we  decline  at  this  time  to  adopt  any  specific  waiver  criteria  relating  to  radio  station  ownership.  Parties  who  believe  that  the  particular  facts  of  their  case  warrant  a  waiver  of  the  local 


 706  See  1999  Attribution  Report  and  Order,  14  FCC  Rcd  at  12598    85  n.  183. 
 707  Both  the  licensee  and  the  broker  should  submit  copies  of  their  JSAs  as  supplements  to  their  Ownership  Reports 
 on  file  at  the  Commission. 
 708  This  includes  JSAs  involving  radio  stations  in  non-  Metro  markets.  We  believe  the  two-  year  time  grace  period 
 will  give  sufficient  time  for  us  to  conclude  the  proceeding  in  MB  Docket  No.  03-  130  and  give  parties  sufficient  time  thereafter  to  take  any  necessary  action  to  come  into  compliance  with  our  media  ownership  rules. 


 709  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19891-  92    74-  77. 
 710  See  MMTC  Comments  in  MM  Docket  No.  01-  317  at  53. 
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 radio  ownership  rule  may  seek  a  waiver  under  the  general  good  cause  waiver  standard  in  our  rules.  711 
 C.  Cross  Ownership 
 327.  In  this  section  we  address  (1)  the  newspaper/  broadcast  cross-  ownership  rule  712  and  (2)  the  radio-  television  cross-  ownership  rule  713  to  determine  whether  they  are  necessary  in  the  public  interest 


 pursuant  to  Section  202(  h).  Based  on  the  record  in  this  proceeding,  we  find  that  neither  our  current  nation-  wide  prohibition  on  common  ownership  of  daily  newspapers  and  broadcast  outlets  in  the  same 
 market  nor  our  cross-  service  restriction  on  commonly  owned  radio  and  television  outlets  in  the  same  market,  is  necessary  in  the  public  interest.  With  respect  to  both  rules,  we  conclude  that  the  ends  sought 
 can  be  achieved  with  more  precision  and  with  greater  deference  to  First  Amendment  interests  by  modifying  the  rules  into  a  single  set  of  cross-  media  limits  described  below. 


 1.  Newspaper/  Broadcast  Cross-  Ownership  Rule 
 328.  Adopted  in  1975,  the  newspaper/  broadcast  cross-  ownership  rule  prohibits  in  absolute  terms  common  ownership  of  a  full-  service  broadcast  station  and  a  daily  newspaper  when  the  broadcast  stations 


 service  contour  encompasses  the  newspapers  city  of  publication.  714  The  rule  was  intended  to  promote  media  competition  and  diversity,  715  yet  the  rule  makes  no  allowance  for  the  size  of  the  market  at  issue, 
 the  number  of  broadcast  outlets  or  newspapers  in  the  market,  or  the  variety  of  other  media  interests  that  serve  the  market.  When  it  adopted  the  rule,  the  Commission  grandfathered  combinations  in  many 
 markets  (so  long  as  the  ownership  of  the  combination  remained  the  same),  but  it  required  divestiture  of  properties  in  highly  concentrated  markets.  These  so-  called  highly  concentrated  markets  were  those  in 
 which  a  combination  of  newspaper  and  broadcast  outlets  would  be  expected  to  be  the  most  harmful  to  media  diversity. 


 329.  The  Commission  examined  the  newspaper/  broadcast  cross-  ownership  rule  and  several  other  broadcast  ownership  rules  in  its  first  biennial  review  in  1998.  716  The  Commission  concluded  in  its  1998 
 Biennial  Review  Report  that  the  newspaper/  broadcast  cross-  ownership  rule  continued  to  serve  the  public  interest  because  it  furthered  diversity,  and  therefore  should  be  retained.  717  However,  the  Commission 
 noted  that  the  rule  might  not  be  necessary  to  achieve  its  intended  public  interest  benefits  under  all 
 711  47  C.  F.  R.    1.3. 
 712  47  C.  F.  R.    73.3555(  d). 
 713  47  C.  F.  R.    73.3555(  c). 
 714  For  AM  radio  stations,  the  service  contour  is  the  2mV/  m  contour,  47  C.  F.  R.    73.3555(  d)(  1);  for  FM  radio 
 stations,  the  service  contour  is  the  1mV/  m  contour,  id.    73.3555(  d)(  2);  for  TV  stations,  the  service  contour  is  the  Grade  A  contour,  id.    73.3555(  d)(  3).  A  daily  newspaper  is  one  that  is  published  in  the  English  language  four  or 


 more  times  per  week.  Id.    73.3555  n.  6. 
 715  1975  Multiple  Ownership  Second  Report  and  Order,  50  F.  C.  C.  2d  at  1074. 


 716  1998  Biennial  Regulatory  Review,  Notice  of  Inquiry,  13  FCC  Rcd  11276  (1998)  (  Biennial  NOI).  The 
 Commission  incorporated  the  record  from  the  Newspaper/  Radio  NOI  into  the  record  of  the  Biennial  NOI.  See  id.  at  11286    30. 


 717  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11105-  08    89-  93. 
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 circumstances.  More  specifically,  the  Commission  stated  that  [  t]  here  may  be  instances,  for  example,  in  which,  given  the  size  of  the  market  and  the  size  and  type  of  the  newspaper  and  broadcast  outlet  involved, 
 sufficient  diversity  and  competition  would  remain  if  a  newspaper/  broadcast  combination  were  allowed.  718  Thus,  the  Commission  committed  to  undertaking  a  rulemaking  proceeding  to  tailor  the  rule 
 accordingly.  719  That  proceeding  was  commenced  in  2001,  720  and  later  was  made  part  of  this  biennial  review  proceeding.  721 


 330.  Upon  review,  we  now  conclude  that  (1)  the  rule  cannot  be  sustained  on  competitive  grounds,  (2)  the  rule  is  not  necessary  to  promote  localism  (and  may  in  fact  harm  localism),  and  (3)  most 
 media  markets  are  diverse,  obviating  a  blanket  prophylactic  ban  on  newspaper-  broadcast  combinations  in  all  markets.  722  Instead,  we  will  review  proposed  license  transfers  and  renewals  involving  the  combination 
 of  daily  newspapers  and  broadcast  properties  only  to  the  extent  that  they  would  implicate  the  cross-  media  limits  discussed  below. 


 a.  Competition 
 331.  We  first  define  the  relevant  product  and  geographic  markets  in  which  broadcasters  and  newspapers  compete,  and  then  assess  whether  the  rule  is  necessary  to  promote  competition  in  these 


 markets.  As  we  noted  in  the  newspaper/  broadcast  proceeding,  our  focus  is  on  the  primary  economic  market  in  which  broadcast  stations  and  newspapers  compete:  advertising.  723  Our  concern  is  not  related  to 
 competition  in  advertising  markets  themselves,  but  is  instead  directed  at  the  ability  of  broadcasters  to  compete  for  advertising  dollars.  If  free  over-  the-  air  broadcasting  is  to  remain  vibrant,  broadcasters  must 
 be  able  to  organize  efficiently  and  compete  for  advertising  dollars.  We  look,  therefore,  to  the  sole  source  of  revenue  for  these  stations    advertising    to  define  the  product  market.  724 


 718  Id.  at  11105    88.  The  Newspaper  Association  of  America  (  NAA)  challenged  the  Commissions  decision 
 not  to  repeal  the  rule.  Newspaper  Assn  of  America  v.  FCC,  Case  No.  00-  1375  (D.  C.  Cir.  filed  Aug.  16,  2000).  By  order  dated  August  30,  2000,  the  court  held  the  case  in  abeyance. 


 719  Id.  In  its  2000  biennial  regulatory  review  proceeding,  the  Commission  did  not  alter  the  recommendations  it  had 
 made  with  respect  to  the  newspaper/  broadcast  cross-  ownership  rules  in  the  1998  biennial  review  proceeding.  See  2000  Biennial  Regulatory  Review,  16  FCC  Rcd  1207  (2001). 


 720  Newspaper/  Broadcast  Cross-  Ownership  NPRM,  supra. 
 721  Notice,  17  FCC  Rcd  at  18506    7. 
 722  A  number  of  parties  raise  Constitutional  objections  to  the  rule.  See,  e.  g.,  NAA  Comments  at  102-  14.  To  the 
 extent  that  our  local  broadcast  ownership  regulatory  framework  may  prohibit  some  newspaper/  broadcast  combinations,  we  addressed  this  argument  in  the  Legal  Framework  section,  above.  We  address  the  comments  of 


 those  parties  who  have  argued  that  we  should  change  the  way  we  apply  the  rule  in  primarily  Spanish  language  markets  (e.  g.,  Arso  Comments  and  Caribbean  Comments  in  MM  Docket  No.  01-  235)  in  the  section  on  Cross-Media 
 Limits,  infra. 
 723  Newspaper/  Broadcast  Cross-  Ownership  NPRM,  16  FCC  Rcd  at  17292    19. 


 724  A  product  market  includes  identical  products,  products  with  such  negligible  differences  that  buyers  regard 
 them  as  substitutes,  and  other  products  that  buyers  regard  as  such  close  substitutes  that  a  slight  price  increase  in  one  will  induce  shifts  of  demand  to  the  other.  See  DOJ/  FTC  Merger  Guidelines. 
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 332.  We  conclude,  based  on  the  record  in  this  proceeding,  that  most  advertisers  do  not  view  newspapers,  television  stations,  and  radio  stations  as  close  substitutes.  To  begin  with,  the  Department  of 
 Justice  and  several  federal  courts  have  concluded  that  the  local  newspaper  market  is  distinct  from  the  local  broadcast  market.  725  This  conclusion  is  supported  by  a  number  of  commenters  and  MOWG  Study 
 No.  10,  by  Anthony  Bush,  which  found  weak  substitutability  between  various  local  media  outlets  for  purposes  of  local  advertising  sales.  726  Cox  argues,  for  instance,  that  advertisers  place  ads  in  television, 
 radio,  and  newspapers  for  different  reasons.  727  CWA  asserts  that  newspapers  and  television  are  separate  local  media  markets,  with  weak  substitution  by  consumers  and  advertisers.  728  Gannett  and  Hearst  argue 
 that  very  little  advertising  substitution  exists  between  daily  newspapers  and  broadcast  outlets.  They  claim  that  newspapers,  radio,  and  TV  attract  different  portions  of  local  advertising  dollars,  which  refutes  the 
 notion  that  common  ownership  has  any  adverse  impact  on  advertising  rates  or  any  other  competition  concerns.  729  Thus,  at  least  for  purchasers  of  advertising  time,  we  find  that  newspapers,  television,  and 
 radio  are  not  good  substitutes  and  therefore  make  up  distinct  product  markets.  A  newspaper/  broadcast  combination  therefore  is  not  a  horizontal  merger  and  cannot  adversely  affect  competition  in  any  product 
 market.  Neither  is  the  combination  a  vertical  merger,  because  neither  type  of  entity  sells  inputs  to  the  other  in  the  production  chain,  as  in  a  supplier-  customer  relationship.  730 


 333.  Some  commenters  criticize  MOWG  Study  No.  10  and  argue  that  radio,  TV,  and  newspapers,  compete  vigorously  for  advertising  dollars.  731  Both  Economists  Incorporated  (  EI)  and 


 725  See,  e.  g.,  United  States  v.  Jacor  Communications  Inc.,  1996  WL  784589  at  *10  (S.  D.  Ohio  1996);  Community 
 Pub.  Inc.  v.  Donrey  Corp.,  892  F.  Supp.  1146,  1155-  57  (W.  D.  Ark.  1995). 
 726  MOWG  Study  No.  10.  Bush  develops  a  model  of  business  behavior  in  purchasing  advertising  for  use  in  sales 
 activities.  He  estimates  elasticities  of  substitution  and  finds  weak  substitutability  for  advertising  between  newspaper,  broadcast  TV,  and  radio. 


 727  Cox  argues,  for  example,  that  while  television  is  used  to  build  and  maintain  a  brand,  newspapers  are  used  to 
 move  volumes  of  products.  See  Cox  Comments  at  17-  18. 
 728  See  CWA  Comments  at  9-  1;  AFL-  CIO  Comments,  Baker  Study,  at  5-  7. 


 729  See  Gannett  Comments  at  15-  17;  Hearst  Comments  at  8-  10;  Hearst  Comments  in  MM  Docket  No.  01-  235  at 
 14. 
 730  See  Hearst-  Argyle  Reply  Comments  at  4  n.  8  (citing  Missouri  Portland  Cement  Co.  v.  Cargill,  Inc.,  498  F.  2d  851 
 (2d  Cir.  1974);  Emhart  Corp.  v.  USM  Corp.,  527  F.  2d  177  (1  st  Cir.  1975)).  Although  the  merging  of  newspapers  and  television  stations  may  result  in  sharing  of  inputs,  sharing  of  inputs  is  distinct  from  vertical  integration,  which 


 involves  merging  of  firms  where  the  output  of  one  becomes  the  input  of  the  other. 
 731  Many  of  the  commenters  who  assert  that  there  is  vigorous  competition  and  strong  substitution  among  media 
 advocate  elimination  of  the  cross-  ownership  rules.  They  argue  that  consolidation  of  owners  between  any  two  media  will  not  result  in  a  significant  increase  in  advertising  prices  because  advertisers  substitute  across  virtually 


 all  media.  Hearst-  Argyle,  for  example,  asserts  that  its  own  analysis  of  prior  studies  show  that  local  advertisers  view  newspaper  and  broadcast  advertising  as  substitutes  for  one  another,  and  national  advertisers  may  view 
 newspaper  and  broadcast  advertising  similarly.  It  concludes  that  all  these  results,  combined  with  the  increase  in  the  number  of  media  outlets,  support  repeal  of  the  rule.  Hearst-  Argyle  at  1-  8  (referencing  Barry  J.  Seldon,  R.  Todd 
 Jewell,  &  Daniel  M.  OBrien,  Media  Substitution  and  Economies  of  Scale  in  Advertising,  18  INTL  J  OF  INDUS  ORG  1153  (2000);  Barry  J.  Seldon  &  Chulho  Jung,  Derived  Demand  for  Advertising  Messages  and 
 Substitutability  Among  the  Media,  33  Q.  REV  OF  ECON  AND  FIN  71  (1993)). 
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 Jerry  Hausman  argue  that  MOWG  Study  No.  10  contains  measurement  errors.  732  These  commenters  argue  that  there  are  two  sources  of  measurement  error:  (1)  the  SQAD  radio  and  television  advertising  rate 
 data  measures  national  and  regional,  but  not  local  advertisers;  733  and  (2)  the  study,  rather  than  measuring  actual  local  newspaper  ad  prices,  constructs  them.  Both  critiques  suggest  that  these  measurement  errors 
 lead  to  bias.  EI  does  not  explain  whether  it  believes  the  bias  is  in  the  direction  toward  too  little  or  too  much  substitution  among  media,  but  Hausman  argues  that  MOWG  Study  No.  10  is  biased  in  the  direction 
 of  too  little  substitution.  734  We  recognize  the  measurement  errors  associated  with  the  use  of  SQAD  data.  Bush  used  this  data  because  there  is  no  source  of  data  available  to  the  public  on  actual  local  advertising 
 prices.  As  the  best  public  data  available,  we  believe  the  SQAD  data  is  a  reasonable  proxy  for  actual  local  advertising  prices.  735  As  for  Hausmans  claim  that  use  of  SQAD  prices  biases  the  results  in  the  direction 
 of  too  little  substitution,  we  believe  that  Hausmans  arguments  apply  to  a  simple  linear  regression,  not  the  model  or  estimation  technique  used  by  Bush.  We  believe  that  the  effects  of  these  measurement  errors 
 may  cancel  out  such  that  the  estimates  of  Bush  are  unbiased.  Accurate  data  are  required  in  order  to  examine  this  possibility.  Bush  used,  however,  available  and  public  data  in  his  study.  Therefore,  we 
 recognize  the  limitations  of  the  data  in  the  Bush  study  and  assign  the  study  an  appropriate  weight  while  considering  other  evidence  on  the  record. 


 334.  Hausman  offers  as  evidence  regressions  that  show  significant  correlation  between  the  prices  of  advertising  on  various  media.  736  Hausman's  analysis  consists  of  regressing  the  price  of 
 advertising  on  radio  on  a  set  of  variables  that  include  the  price  of  advertising  on  two  other  media  (broadcast  TV  and  newspapers)  and  various  measures  of  ownership  concentration  in  a  market.  He  reports 
 no  significant  positive  relationship  between  radio  ad  pricing  and  concentration,  but  does  find  significant  correlation  between  the  prices  of  radio  advertising  on  the  price  of  advertising  on  other  media.  We  are 
 reluctant,  however,  to  conclude  that  this  correlation  implies  strong  substitution  in  the  advertising  market.  First,  Hausmans  regressions  omit  important  variables  that  may  result  in  bias.  737  Second,  the  data  used  for 
 Professor  Hausmans  study  were  not  made  available  in  the  record  of  this  proceeding.  As  a  result,  neither  the  Commission  nor  other  interested  parties  have  had  an  opportunity  to  perform  independent  analysis  of 
 the  data  to  either  confirm  or  refute  Professor  Hausmans  conclusions.  Third,  Hausman  studies  the  substitution  between  radio  and  other  forms  of  media  using  a  simple  linear  regression  model,  rather  than  a 


 732  See  Fox  Comments,  Appendix  C,  Economist  Incorporated;  Clear  Channel  Comments,  Hausman  Statement  at 
 11-  18.  See  Appendix  E  for  a  more  complete  summary  of  the  criticisms  by  Professor  Hausman  and  Dr.  Owen  and  our  response. 


 733  SQAD,  Inc.  is  an  independent  media  research  company  that  produces  measures  of  the  costs  of  purchasing 
 advertising  spots  on  radio  and  TV. 
 734  Clear  Channel  Comments,  Hausman  Statement  at  17.  (Professor  Hausmans  statement  is  part  of  Clear 
 Channels  filing,  which  advocates  relaxation  or  elimination  of  radio  ownership  rules  in  local  markets.) 
 735  Measurement  errors  due  to  use  of  SQAD  data  are  discussed  more  fully  in  Appendix  E. 


 736  See  Clear  Channel  October  15,  2002,  Ex  Parte,  Hausman  Statement,  Table  3  at  17. 
 737  See  Clear  Channel  Comments,  Hausman  Statement  at  Table  3.  Usually,  when  econometricians  estimate 
 equations  with  the  price  of  a  good  as  a  dependant  variable,  such  as  a  demand  or  supply  equation,  the  quantity  or  income  generated  by  that  good  is  included  as  an  independent  variable.  Hausman  includes  neither  the  quantity  nor 


 income  in  his  regressions.  Omission  of  such  a  key  variable  often  leads  to  bias  in  the  coefficients  of  the  included  independent  variables.  See  Peter  A.  Kennedy,  A  GUIDE  TO  ECONOMETRICS,  (3rd  ed.  1992)  at  91. 
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 simultaneous  equation  model.  738 
 335.  Further,  other  empirical  studies  confirm  our  conclusion  that  advertisers  do  not  view  ads  in  newspapers  and  broadcast  TV  as  substitutes.  Silk,  Klein,  and  Berndt  examine  advertising  substitution 


 among  eight  media  in  the  national  markets.  739  They  report  only  weak  substitution  between  newspapers  and  spot  TV;  they  also  report  that  advertising  on  network  TV  and  newspapers  are  complements,  not 
 substitutes.  Busterna  estimates  demand  functions  in  five  media  (including  network  and  spot  television)  and  concludes  that  cross-  elasticity  of  demand  between  newspapers  and  other  media  is  consistently  nil 
 across  all  media.  740  Reid  and  King  conduct  a  study  based  on  interviewing  and  surveying  advertising  managers  in  national  markets  and  conclude  that  these  managers  did  not  view  television  and  newspapers  to 
 be  good  substitutes  for  advertising.  741  Finally,  the  Department  of  Justice  and  several  federal  courts  have  concluded  that  the  local  newspaper  market  is  distinct  from  the  local  broadcast  market.  742 


 336.  Although  the  studies  discussed  in  the  paragraph  above  focus  on  national  advertising  markets,  not  local  ones,  the  results  likely  extend  to  local  markets.  We  see  no  evidence  that  local 
 advertisers  would  more  easily  substitute  between  TV  and  newspapers  than  national  advertisers.  Indeed,  evidence  suggests  that  local  advertisers  are  less  likely  to  substitute  among  media  than  national  advertisers. 
 For  example,  classified  ads,  an  important  component  of  local  advertising,  comprising  40%  of  newspaper  advertising  revenues,  offer  affordable  local  advertising  that  is  not  available  on  broadcast  TV.  743  In 
 addition,  newspapers  provide  unique  features  (e.  g.,  coupons  to  be  redeemed  with  local  retailers)  that  are  not  available  through  broadcast  TV  or  radio.  744  We  believe,  therefore,  that  findings  of  weak  substitution 
 between  newspapers  and  broadcast  TV  for  national  advertisers  likely  apply  to  local  buyers  as  well. 
 337.  Indeed,  Cox  states  that  aggregate  advertising  prices  in  markets  with  grandfathered  media  combinations  are  consistent  with  prices  in  other  markets  after  adjusting  for  market  size.  745  Gannett  states 


 that  the  combined  local  measurable  advertising  market  revenue  share  of  a  newspaper  and  television 
 738  Systems  of  equations,  such  as  a  group  of  demand  equations,  allow  more  efficient  estimation  than  regressing 
 one  equation,  especially  when  economic  theory  is  employed  to  constrain  estimates  across  equations.  By  efficient,  we  mean  here  that  the  uncertainty  of  the  parameter  estimates,  given  the  underlying  data,  is  reduced.  See,  e.  g., 


 Silk,  Klein,  and  Berndt,  supra  note  522,  and  MOWG  Study  No.  10.  For  more  discussion  on  estimating  systems  of  equations,  see  William  Greene,  ECONOMETRIC  ANALYSIS  (1990)  at  509-  542. 


 739  Silk,  Klein,  and  Berndt,  supra. 
 740  John  C.  Busterna,  The  Cross-  Elasticity  of  Demand  for  National  Newspaper  Advertising,  64  J  Q  349  (Summer/ 
 Autumn  1987). 
 741  Reid  and  King,  supra  note  520  at  292-  307. 


 742  Supra  note  725. 
 743  Newspaper  Association  of  America  website  (http://  www.  naa.  org).  The  NAA  estimates  that  48%  of  local 
 newspaper  advertising  dollars  are  allocated  to  classified  ads,  which  have  no  good  substitutes  on  television  or  radio  media.  NAA  Comments  at  55-  65. 


 744  Cox  asserts  that  advertisers  place  ads  in  television,  radio  and  newspapers  for  different  reasons.  See  Cox 
 Comments  at  16-  21. 
 745  Id.  at  16-  21  (citing  the  Media  Market  Guide  published  by  SQAD,  Inc.). 
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 station  it  now  owns  in  Phoenix,  Arizona,  was  nearly  the  same  prior  to  1999,  when  the  properties  came  under  common  ownership,  as  it  is  now.  746  Further,  the  synergies  and  cost  reductions  of  joint-  ownership 
 may  translate  into  increased,  rather  than  decreased  competition  within  each  service.  Media  General  provides  a  number  of  case  studies  that  suggest  increased  services  and  reduced  costs  through  newspaper 
 and  broadcast  TV  partnerships.  747  By  precluding  the  efficiencies  inherent  in  combinations,  the  rule  likely  harms  consumers  by  limiting  the  development  of  new,  innovative  media  services  that  would  flow  from  a 
 more  efficient,  combined  entity.  748 
 338.  A  number  of  commenters  believe  the  rule  is  necessary  to  protect  advertisers  that  substitute  between  newspapers  and  broadcast  TV.  UCC  argues  that  cross-  media  consolidation  will  likely  harm 


 advertisers  in  local  markets.  It  concludes  that  consumers  will  have  to  pay  more  for  products  in  a  market  with  commonly  owned  newspapers  and  broadcast  stations  because  advertisers  will  have  to  pay  more  to 
 advertise  and  these  increased  costs  will  be  passed  on  to  consumers.  749  Others,  such  as  Caribbean  International  News  Corp.,  assert  that  in  markets  where  there  are  newspaper/  broadcast  combinations,  the 
 commonly  owned  firms  aggressively  market  multimedia  advertising  packages,  creating  a  competitive  imbalance.  750  CFA  contends  that  a  review  of  the  literature  on  vertical  and  conglomerate  mergers  identifies 
 major  concerns  about  such  mergers  in  concentrated  markets  where  dominant  players  can  employ  a  range  of  anticompetitive  tactics  (e.  g.,  raising  entry  barriers,  cross-  subsidization,  price  squeezing,  price 
 discrimination,  market  foreclosure  and  exclusive  deals)  to  thwart  competition.  751 
 339.  Although  the  overall  evidence  appears  to  suggest  little  substitution  between  newspapers,  broadcast  TV,  and  radio,  we  agree  that  there  may  be  a  small  group  of  advertisers  that  benefit  from  using 


 various  media  to  advertise  their  products.  These  advertisers  could  be  harmed  if  owners  of  newspaper/  broadcast  combinations  can  identify  this  group  and  price  discriminate  --  charge  higher  prices 
 to  this  group  than  they  charge  to  other  advertisers  for  the  same  product.  752  As  explained  above,  however, 
 746  Gannett  Comments  at  14-  16  and  Exhibit  B.  Schurz  Communications,  Inc.  similarly  argues  that  two 
 grandfathered  combinations  in  South  Bend,  Indiana,  have  not  caused  the  percentage  of  local  advertising  dollars  spent  with  newspapers,  television  and/  or  radio  stations  to  differ  from  that  spent  by  national  advertisers.  Schurz 


 Comments  at  8-  10. 
 747  Media  General  Comments,  Appendix  3,  Statement  of  James  K.  Gentry. 


 748  NAB  Comments  at  63-  65,  101.  See  also  Belo  Comments  at  1-  8  (claiming  its  Dallas-  Fort  Worth  combination  has 
 increased  synergies  and  economies  of  scale  that  benefit  the  public);  Cox  Comments  at  70  (claiming  co-  ownership  benefits  the  operation  of  local  media  markets). 


 749  See  UCC  Comments  at  11-  13. 
 750  Caribbean  Comments  at  27-  35.  Caribbean  reports  that  such  cross-  ownership  has  created  a  situation  where  one 
 owner  (with  two  daily  newspapers)  garners  43%  of  the  advertising  revenues  for  traditional  media  outlets  in  Puerto  Rico. 


 751  CFA  Comments  at  96-  121;  see  also  Mid-  West  Comments  at  5-  6;  UCC  Comments  at  13. 
 752  DOJ/  FTC  Merger  Guidelines    1.  12  explains:  Existing  buyers  sometimes  will  differ  significantly  in  their 
 likelihood  of  switching  to  other  products  in  response  to  a  small  but  significant  and  non-  transitory  price  increase.  If  a  hypothetical  monopolist  can  identify  and  price  differently  to  those  buyers  (  targeted  buyers)  who  would  not 


 defeat  the  targeted  price  increase  by  substituting  to  other  products  in  response  to  a  small  but  significant  and  nontransitory  price  increase  for  the  relevant  product,  .  then  a  hypothetical  monopolist  would  profitably  impose  a 
 discriminatory  price  increase  on  sales  to  targeted  buyers.  This  is  true  regardless  of  whether  a  general  increase  in  (continued.) 
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 the  Commission  is  not  charged  with  protecting  competition  in  the  advertising  markets.  These  advertisers,  however,  are  not  without  remedy.  The  Department  of  Justice,  the  Federal  Trade  Commission,  as  well  as 
 state  attorney  generals,  review  mergers  generally  and  are  concerned  about  the  effects  in  the  advertising  market.  Further,  both  federal  and  state  antitrust  laws  allow  private  suits  to  be  brought.  The 
 Commissions  interest  in  advertising  markets  extends  only  so  far  as  issues  relating  to  advertisers  might  affect  the  ability  of  FCC  licensees  to  serve  the  public  interest,  convenience,  and  necessity.  Since  we  see 
 no  potential  harm  to  broadcasters,  television  viewers  or  radio  listeners,  the  concern  raised  regarding  harm  to  an  ill-  defined  subset  of  advertisers  does  not  justify  retaining  the  rule.  753 


 340.  In  any  event,  even  if  we  were  to  focus  exclusively  on  the  advertising  markets  alone,  the  potential  for  harm  to  advertisers  who  substitute  between  various  media  outlets  would  be  greatest  if  one 
 entity  owned  all  the  newspapers  and  all  the  broadcast  facilities.  Through  the  constraining  effect  of  our  local  radio  and  TV  ownership  rules,  we  expect  that  the  majority  of  the  potential  newspaper/  broadcast 
 combinations  would  continue  to  face  competition  from  separately  owned  media  outlets  in  the  local  market. 


 341.  Finally,  consumers  experience  print  and  electronic  media  in  very  different  ways.  754  Electronic  media  can  provide  real-  time  information  concerning  current  events,  sporting  contests,  or  other 
 time  sensitive  matters.  Electronic  media  also  can  be  experienced  more  passively,  as  users  may  engage  in  other  activities  simultaneously  while  enjoying  television  or  radio  programming.  Print  media,  on  the  other 
 hand,  require  a  higher  degree  of  engagement  by  the  consumer,  but  they  also  are  capable  of  delivering  greater  depth  of  coverage.  These  differences  are  significant  from  a  competitive  standpoint  both  for 
 consumers  and,  as  described  above,  for  advertisers.  For  consumers  this  means  that  the  programming  or  content  is  different  between  newspapers  and  broadcast  TV.  Advertisers  will  view  newspapers  and  TV 
 broadcast  as  imperfect  substitutes.  A  newspaper-  broadcast  combination,  therefore,  cannot  adversely  affect  competition  in  any  relevant  product  market.  Accordingly,  we  cannot  conclude  that  the  current 
 newspaper-  broadcast  cross-  ownership  rule  is  necessary  to  promote  competition. 
 b.  Localism 
 342.  The  record  indicates  that  the  newspaper/  broadcast  cross-  ownership  prohibition  is  not  necessary  to  promote  broadcasters  provision  of  local  news  and  information  programming.  Indeed, 


 evidence  suggests  that  the  rule  actually  works  to  inhibit  such  programming.  One  of  the  strengths  of  daily  newspapers  is  their  ability  to  provide  in-  depth  coverage  of  local  news  and  events.  755  Many  newspapers 
 provide  local  content  that  far  exceeds  that  provided  by  local  broadcast  outlets.  Newspapers  and  broadcast  stations    particularly  television  stations  --  continue  to  be  the  dominant  sources,  in  terms  of  consumer  use, 


 (Continued  from  previous  page)  price  would  cause  such  significant  substitution  that  the  price  increase  would  not  be  profitable. 
 753  There  is  nothing  in  the  record  regarding  the  number  of  advertisers  that  may  be  targeted  for  such  price 
 discrimination,  nor  the  magnitude  of  the  potential  price  increases.  We  believe,  however,  that  the  number  of  advertisers  that  may  be  potential  targets  of  price  discrimination  would  be  very  small  for  most  newspaper/  broadcast 


 combinations. 
 754  For  a  summary  table  that  compares  the  characteristics  of  print  with  electronic  media,  see  David  W.  Stewart  and 
 Scott  Ward,  Media  Effects  on  Advertising,  MEDIA  EFFECTS:  ADVANCES  IN  THEORY  AND  RESEARCH  (1994)  at  328.  755  E.  g.,  Tribune  Comments  in  MM  Docket  No.  01-  235  at  43-  52  (core  mission  of  daily  newspapers  is  to  provide 


 local  news). 
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 for  news  and  information  to  local  communities.  756  Our  rules  should  promote  the  ability  of  newspapers,  television  stations,  and  all  other  sources  of  local  news  and  information  to  serve  their  communities. 
 343.  Although  the  Commission  does  not  regulate  quality  of  programming,  and,  indeed,  such  regulation  of  content  would  raise  significant  First  Amendment  concerns,  we  have  historically  sought  to 
 promote  the  ability  of  local  stations  to  serve  their  communities  through  news  and  public  affairs  programming.  Our  MOWG  studies  suggest  a  direct  correlation  between  the  association  of  a  broadcast 
 outlet  with  a  published  daily  newspaper  and  the  quality  of  the  local  broadcast  news.  In  MOWG  Study  No.  7,  The  Measurement  of  Local  Television  News  and  Public  Affairs  Programs,  the  authors  found  that 
 television  broadcast  stations  affiliated  with  a  major  broadcast  television  network  that  are  co-  owned  with  newspapers  experience  noticeably  greater  success  [in  terms  of]  quality  and  quantity  of  local  news 
 programming  than  other  network  affiliates.  757  Co-  ownership,  the  authors  explain,  refers  to  a  company  that  owns  at  least  one  television  station  and  one  daily  newspaper;  the  two  need  not  necessarily  serve  the 
 same  market.  758  Accordingly,  while  eliminating  the  rule  may  not  be  essential  to  achieve  the  efficiencies  of  common  ownership  --  because  the  rule  prohibits  only  ownership  of  newspapers  and  broadcast  stations 
 serving  the  same  market  --  the  breadth  and  depth  of  news  coverage  can  be  enhanced  by  collocation  and  the  rules  elimination  will  increase  the  opportunities  to  realize  these  benefits  by  permitting  combinations 
 in  areas  where  the  rule  currently  prohibits  them. 
 344.  Specifically,  MOWG  Study  No.  7  found  that  while  non-  network  owned  but  network-affiliated  stations  provide,  on  average,  14.9  hours  per  week  of  local  news  and  public  affairs  programming, 


 newspaper-  owned  affiliated  stations  provide  almost  50%  more  such  programming,  averaging  21.9  hours  per  week.  759  In  addition,  the  study  found  that  the  average  number  of  hours  of  local  news  and  public 
 affairs  programming  provided  by  the  same-  market  cross-  owned  television-  newspaper  combinations  was  25.6  hours  per  week,  compared  to  16.3  hours  per  week  for  the  sample  of  television  stations  owned  by  a 
 newspaper  that  is  not  in  the  same  market  as  the  station.  760  Not  only  do  newspaper-  owned  stations  provide  more  news  and  public  affairs  programming,  they  also  appear  to  provide  higher-  quality 
 programming,  on  average,  at  least  as  measured  by  ratings  and  industry  awards.  The  ratings  for  newspaper-  owned  stations  5:  30  and  6:  00  pm  newscasts  during  the  November  2000  sweeps  period 
 averaged  8  compared  to  an  average  rating  of  6.2  for  non-  newspaper-  affiliated  stations.  761  More  dramatically,  newspaper-  owned  stations  received  319  percent  of  the  national  average  per  station  Radio 
 and  Television  News  Directors  Association  (  RTNDA)  awards,  and  200  percent  of  the  national  average 


 756  MOWG  Studies  No.  8;  MOWG  Study  No.  3,  Consumer  Substitution  Among  Media  by  Joel  Waldfogel  (Sept. 
 2002)(  MOWG  Study  No.  3);  see  also  AFL-  CIO  Comments  at  34-  36;  AFTRA  Comments  at  26-  28;  Comments  of  CWA  at  5-  9. 


 757  MOWG  Study  No.  7,  The  Measurement  of  Local  Television  News  and  Public  Affairs  Programs,  by  Thomas  C. 
 Spavins,  Loretta  Denison,  Jane  Frenette  and  Scott  Roberts  (Sept.  2002)  at  1  (  MOWG  Study  No.  7). 
 758  Id.  at  3,  note  1. 


 759  Id.  at  3. 
 760  This  information  was  derived  from  an  examination  of  the  data  included  in  the  appendices  of  MOWG  Study 
 No.  7,  as  well  as  information  in  the  record  of  this  proceeding  regarding  the  same  market  television/  newspaper  combinations.  See  NAA  Comments  at  14-  15. 


 761  Id. 
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 A.  I.  DuPont  Awards  (in  association  with  the  School  of  Journalism  of  Columbia  University)  in  2000-  2001.  762  During  that  same  period,  non-  newspaper-  owned  stations  received  RTNDA  Awards  at  a  rate  of 
 only  22  percent  of  the  national  average.  763  They  received  DuPont  Awards  at  a  rate  of  39  percent  of  the  national  average  per  station.  764  The  authors  conclude  that,  within  the  overall  category  of  network 
 affiliates,  there  appears  to  be  a  systematic  divergence  between  stations  that  are  co-  owned  with  a  newspaper  publisher  relative  to  all  other  affiliates.  For  each  quality  and  quantity  measure  in  our  analysis, 
 the  newspaper  network-  affiliated  stations  exceed  the  performance  of  other,  non-  newspaper-  owned  network  affiliates.  765 


 345.  These  conclusions  are  supported  by  a  study  done  by  the  Project  for  Excellence  in  Journalism  (  PEJ)  in  which  PEJ  analyzed  five  years  of  data  on  ownership  and  news  quality.  PEJ 
 concluded  that  cross-  owned  stations  in  the  same  Nielsen  Designated  Market  Area  were  more  than  twice  as  likely  to  receive  an  A  grade  as  were  other  stations.  766  On  the  whole,  cross-  owned  stations  were  more 
 likely  to  do  stories  focusing  on  important  community  issues  and  to  provide  a  wide  mix  of  opinions,  and  they  were  less  likely  to  do  celebrity  and  human-  interest  features.  767 


 346.  The  benefits  of  combined  ownership  are  not  likely  to  be  achieved  through  joint  ventures  as  opposed  to  combined  ownership.  Besen  and  OBrien  present  a  persuasive  theoretical  argument  that  the 
 efficiencies  of  joint  ownership  of  newspaper  and  television  will  likely  exceed  the  efficiencies  of  joint  ventures  between  the  two.  768  The  authors  argue  that  joint  ventures  confront  three  classes  of  issues  that 
 hinder  their  ability  to  achieve  efficient  joint  production:  (1)  the  costs  of  reaching  the  agreement;  (2)  incentives  to  withhold  private  information;  and  (3)  incentives  to  take  actions  that  are  not  in  the  best 
 interests  of  the  joint  venture.  Besen  and  OBrien  maintain  that  joint  ownership  mitigates  these  possible  hindrances.  The  prospective  benefit  of  some  media  consolidation  in  the  form  of  non-  trivial  efficiencies   
 and,  conversely,  the  opportunity  cost  from  the  loss  of  such  benefits  through  a  rule  prohibiting  certain  combinations    weigh  against  retention  of  our  newspaper/  broadcast  cross-  ownership  rule.  The  authors 
 provide  no  estimate  of  the  value  of  these  benefits. 
 347.  Many  commenters  illustrate  how  combining  a  newspapers  local  news-  gathering  resources 
 762  Id.  at  4. 


 763  Id. 
 764  Id.  While  there  is  controversy  in  the  record  about  some  aspects  of  this  study,  no  commenter  has  critiqued  the 
 newspaper-  related  evidence. 
 765  Id. 


 766  Project  for  Excellence  in  Journalism,  Does  Ownership  Matter  in  Local  Television  News:  A  Five-  Year  Study  of 
 Ownership  and  Quality  (Feb.  17,  2003)  at  10  (  PEJ  Study).  Elsewhere  in  this  Report  and  Order,  we  determine  that  the  results  of  the  PEJ  study  are  statistically  insignificant  and  cannot  be  considered  reliable  or  convincing 


 evidence.  See  National  TV  Ownership  Rule  Section  VII(  A),  infra.  We  use  PEJ's  filing  here  solely  as  a  source  of  anecdotal  evidence,  not  as  a  statistical  study,  and  do  not  base  our  conclusions  regarding  the  newspaper/  broadcast 
 cross-  ownership  rule  upon  it. 
 767  Id. 


 768  Gannett  Comments  in  MM  Docket  No.  01-  235,  Exhibit  C,  Besen  and  OBrien,  An  Economic  Analysis  of  the 
 Efficiency  Benefits  from  Newspaper/  Broadcast  Station  Cross-  Ownership. 
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 with  a  broadcast  platform  contributes  to,  rather  than  detracts  from,  the  production  of  local  news  programming  that  serves  the  community.  These  results  follow  from  the  particular  journalistic  experience 
 associated  with  local  daily  newspapers,  as  well  as  the  tangible  economic  efficiencies,  such  as  sharing  of  technical  support  staff,  which  can  be  realized  through  common  ownership  of  two  media  outlets.  Such 
 efficiencies  may  increase  the  amount  of  diverse,  competitive  news  and  local  information  available  to  the  public,  and  allow  the  combined  entities  to  compete  more  effectively  in  an  increasingly  fragmented  and 
 competitive  market.  769 
 348.  There  are  several  anecdotes  in  the  record  that  illustrate  how  efficiencies  resulting  from  cross-  ownership  translate  into  better  local  service.  These  efficiencies  are  particularly  important  as 


 consumers  demand  almost  instantaneous  delivery  of  news    both  locally  and  nationally    and  even  more  in-  depth  coverage  of  complex  issues.  770  Gannett,  which  owns  a  newspaper/  television  combination  in 
 Phoenix,  Arizona,  771  reports  that  the  quantity  and  diversity  of  area  news  coverage  it  provides  has  increased  as  a  result  of  its  ability  to  leverage  the  combined  resources  of  the  two  outlets.  According  to 
 Gannett,  media  integration  has  improved  efficiency,  particularly  in  situations  characterized  by  fast-breaking  news  such  as  the  massive  wildfires  near  Phoenix  last  year,  while  the  journalists  at  each  outlet 
 retain  discretion  and  exercise  independent  judgment.  772  Similarly,  in  Dallas,  Texas,  where  Belo  owns  a  newspaper/  television  combination,  773  both  outlets  have  been  able  to  cover  a  wider  range  of  stories 
 through  information  sharing  between  the  separate  newspaper  and  television  news  staffs.  774  Belo  also  operates  TXCN,  a  24-  hour  local  cable  news  network,  which  uses  its  own  news-  gathering  sources  as  well 
 as  those  of  Belos  other  media  properties  in  the  market.  This  aggregation  of  news  gathering  and  production  resources,  Belo  asserts,  has  allowed  it  to  provide  more  content,  to  innovate  more  in  its 


 769  See  The  Times  Comments  in  MM  Docket  No.  01-  235  at  7-  10,  Ex.  3  (efficiencies  in  the  Times  grandfathered 
 combination  reduce  costs  for,  e.  g.,  training  and  employee  benefits,  which  reduces  pressure  on  advertising  rates  and  frees  up  resources  for  programming  efforts);  see  also  ALTV  Comments  in  MM  Docket  No.  01-  235  at  7-  8; 


 Hearst  Comments  in  MM  Docket  No.  01-  235  at  16-  18. 
 770  Compare  Edwin  Emery  &  Michael  Emery,  THE  PRESS  AND  AM.  (5th  ed.  1984)  at  82  (reporting  that  it  took  six 
 weeks  for  the  news  of  the  fighting  at  Lexington  and  Concord  to  reach  Savannah,  Georgia).  Coverage  of  news  events  in  the  early  press  also  tended  to  be  brief,  sometimes  painfully  so.  One  cannot  but  feel  for  the  citizens  of 


 Philadelphia,  for  example,  who  were  afforded  only  43  words  by  the  Freemans  Journal  conveying  the  entire  account  of  the  final  battle  of  the  revolutionary  war:  Be  it  remembered  that  on  the  17th  day  of  October,  1781, 
 Lieut.  Gen.  Charles  Earl  Cornwallis,  with  about  5,000  British  troops,  surrendered  themselves  prisoners  of  war  to  His  Excellency,  Gen.  George  Washington,  Commander-  in-  Chief  of  the  allied  forces  of  France  and  America.  See 
 Emery  &  Emery,  THE  PRESS  AND  AM.  at  83  (citing  Laurence  Greene,  AM.  GOES  TO  PRESS  (1936)). 
 771  Gannett  holds  this  combination  pursuant  to  the  retention  period  formula  we  instituted  when  we  originally 
 adopted  the  rule.  See  1975  Multiple  Ownership  Second  Report  and  Order,  50  F.  C.  C.  2d  at  1076  n.  25. 
 772  Gannett  Comments  at  8-  11,  Ex.  A;  Gannett  Comments  at  4-  8,  18  (citing  MOWG  Study  No.  7)  and  Exh.  A  (an 
 affidavit  from  two  local  managers  explaining  the  working  relationships  between  commonly  owned  newspapers  and  broadcast  stations  in  Phoenix,  Arizona). 


 773  This  combination  was  grandfathered  at  the  time  of  the  rules  adoption. 
 774  Belo  Comments  in  MM  Docket  No.  01-  235  at  4-  7. 
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 reporting,  and  to  provide  more  in-  depth  coverage  of  locally  important  issues  than  it  otherwise  could.  775 
 349.  Efficiencies  not  involving  the  sharing  of  news  staffs  may  also  be  realized  through  cross-ownership.  For  example,  Gannett  explains  that,  if  the  restriction  on  newspaper/  broadcast  cross-  ownership 


 were  removed,  combinations  could  share  back  office  expenses,  such  as  accounting,  marketing,  and  human  resource  functions.  776  Further,  once  a  story  has  been  assembled,  the  cost  of  distribution  for  another  use  is 
 minimal,  but  the  gains  from  incremental  additional  distribution  can  be  large.  This  differential  increases,  rather  than  reduces,  the  incentives  to  create  and  expand  the  product  sold  --  in  this  case  information.  777  As 
 Cox  argues,  combinations  at  the  local  level  result  in  efficiencies  that  allow  media  companies  to  serve  their  localities  better  and  increase  investment  in  local  programming.  778 


 350.  Although  our  conclusions  pertain  to  markets  of  all  sizes,  newspaper-  broadcast  combinations  may  produce  tangible  public  benefits  in  smaller  markets  in  particular.  In  this  regard,  West 
 Virginia  Media  contends  that  the  cross-  ownership  restriction  impairs  coverage  of  local  news  and  public  affairs  in  small  markets  by  prohibiting  combinations  that  would  produce  efficiencies  and  synergies 
 particularly  necessary  in  smaller  markets.  779  It  argues  that  the  rule  may  have  the  unintended  effect  of  stifling  local  news  by  prohibiting  efficient  combinations  that  would  produce  better  output.  780  We  assume 
 that  the  efficiencies  cited  by  West  Virginia  Media  can  benefit  small  businesses  with  respect  to  the  production  of  news  and  public  affairs  programming.  781 


 351.  We  disagree  with  those  who  argue  that  the  relaxation  or  elimination  of  the  newspaper/  broadcast  cross-  ownership  rule  will  create  additional  pressures  on  local  news  editors  and 
 directors  to  curtail  coverage  of  public  interest  news.  782  For  example,  according  to  AFL-  CIO,  CanWest, 
 775  Id.  See  also  NAA  Comments  in  MM  Docket  No.  01-  235  at  23-  24,  29-  30,  34  (co-  owned  broadcast  stations  and 
 newspapers  have  won  multiple  awards  for  their  reporting);  Bonneville  Comments  in  MM  Docket  No.  01-  235  at  5-  6  (joint  operation  will  result  in  better  content  and  greater  public  service);  Morris  Comments  in  MM  Docket  No. 


 01-  235  at  6-  12  (co-  owned  outlets  provide  superior  service);  NAB  Comments  in  MM  Docket  No.  01-  235  at  34-  43  (combinations  are  beneficial  because,  as  operations  in  both  entities  are  strengthened,  they  can  provide  better  and 
 more  innovative  media  services). 
 776  Gannett  Comments  in  MM  Docket  No.  01-  235  at  13-  14. 


 777  Id.  at  16-  19,  Exhibit  C;  see  also  NAA  Comments  in  MM  Docket  No.  01-  235  at  16-  22. 
 778  Cox  Comments  at  73-  74  (citing,  e.  g.,  Schurz  Comments  in  MM  Docket  No.  01-  235  at  8;  Gannett  Comments  in 
 MM  Docket  No.  01-  235  at  7). 
 779  West  Virginia  Media  Comments  in  MM  Docket  No.  01-  235  at  7  (citing  Bond  &  Pecaro,  Inc.,  A  Study  to 
 Determine  Certain  Economic  Implications  of  Broadcasting/  Newspaper  Cross-  Ownership  (July  21,  1998)  at  1);  Bonneville  Comments  at  7-  8. 


 780  West  Virginia  Media  Comments  at  1-  14  (citing  Bond  &  Pecaro,  Inc.,  supra);  NAB  Comments  in  MM  Dkt. 
 No.  98-  35  at  Appendix  B  ;  see  also  Media  General  Comments  at  71-  75. 
 781  In  the  Grandfathering  and  Transition  Procedures  Section  VI(  D),  below,  we  adopt  special  provisions  with 
 respect  to  small  businesses  to  further  assist  them. 
 782  AFL-  CIO  Comments  in  MM  Docket  No.  01-  235  at  8-  14  (citing  Kunkel  and  Roberts,  Leaving  Readers  Behind: 
 The  Age  of  Corporate  Newspapering,  23(  4)  AM.  J.  R.  (May  1,  2001));  Consumers  Union  Comments  in  MM  Docket  No.  01-  235  at  52-  58;  Mid-  West  Comments  in  MM  Docket  No.  01-  235  at  3;  AFL-  CIO  Comments  at  44-  46;  NAHJ 


 (continued.) 
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 whose  daily  newspapers  comprise  30%  of  Canadas  daily  newspaper  circulation,  requires  its  big  city  newspapers  to  publish  weekly  editorials  that  are  written  by,  and  issued  from,  headquarters,  and  does  not 
 permit  unsigned  local  editorials  to  contradict  the  headquarters  editorials.  783 
 352.  As  an  initial  matter,  the  issue  raised  by  AFL-  CIO  regarding  CanWest  does  not  address  cross-  ownership  within  a  market  but,  instead,  addresses  the  perceived  problems  of  national  ownership  and 


 corporate  centralization.  Since  our  cross-  ownership  rule  is  not  intended  to  address  such  problems,  we  need  not  address  this  argument.  Moreover,  it  is  hardly  surprising,  nor  do  we  find  it  troubling,  that 
 newspaper  owners  use  their  media  properties  to  express  or  advocate  a  viewpoint.  To  the  contrary,  since  the  beginning  of  the  Republic,  media  outlets  have  been  used  by  their  owners  to  give  voice  to,  among 
 others,  opinions  unpopular  or  revolutionary,  784  to  advocate  particular  positions,  785  or  to  defend,  sometimes  stridently,  social  or  governmental  institutions.  786  Our  broadcast  ownership  rules  may  not  and  should  not 
 discourage  such  activity.  Nor  is  it  particularly  troubling  that  media  properties  do  not  always,  or  even  frequently,  avail  themselves  to  others  who  may  hold  contrary  opinions.  Nothing  requires  them  to  do 


 (Continued  from  previous  page)  Comments  at  16-  17. 
 783  AFL-  CIO  Comments  at  44-  46. 
 784  Concerning  the  role  of  spokespersons  in  the  media  in  the  American  Revolution,  see  Philip  Davidson, 
 PROPAGANDA  &  THE  AMERICAN  REVOLUTION  (UNC  Press,  1941);  in  the  abolitionist  movement,  see  Edwin  &  Michael  Emery,  THE  PRESS  &  AMERICA:  AN  INTERPRETIVE  HISTORY  OF  THE  MASS  MEDIA  (Prentice  Hall  1992)  at 


 121-  27  (  Emery  &  Emery);  in  the  muck-  raking  movement,  see  Ron  Chernow,  TITAN:  THE  LIFE  OF  JOHN  D.  ROCKEFELLER,  SR.  (Random  House  1998)  at  116-  17,  435-  53;  in  the  rural  populist  movement,  see  Howard  Zinn,  A 
 PEOPLES  HISTORY  OF  THE  UNITED  STATES:  1492    PRESENT  (Harper  Collins  2003)  at  292  (  Zinn);  in  the  labor  movement,  see  The  Labor  Press  Project,  http://  faculty.  washington.  edu/  gregoryj/  laborpress/  (visited  May  21,  2003); 
 in  the  prohibition  movement,  see  John  Kobler,  ARDENT  SPIRITS:  THE  RISE  AND  FALL  OF  PROHIBITION  (G.  P.  Putnams  Sons,  1973)  at  42-  47,  55-  57,  98-  101,  138-  40,  153,  155,  158,  183;  in  the  post-  World  War  II  conservative 
 movement,  see  George  H.  Nash,  THE  CONSERVATIVE  INTELLECTUAL  MOVEMENT  IN  AMERICA  SINCE  1945  (Basic  Books  1976)  at  148-  60,  and  Rick  Perlstein,  BEFORE  THE  STORM:  BARRY  GOLDWATER  &  THE  UNMAKING  OF  THE 
 AMERICAN  CONSENSUS  (Hill  &  Wang  2001)  at  114;  in  the  counterculture  and  anti-  Vietnam  War  movements  of  the  1960s  and  1970s,  see  Ellen  Frankfort,  THE  VOICE:  LIFE  AT  THE  VILLAGE  VOICE  (Morrow  1976),  Kevin  McAuliffe, 
 THE  GREAT  AMERICAN  NEWSPAPER:  THE  RISE  &  FALL  OF  THE  VILLAGE  VOICE  (Charles  Scribners  Sons,  1978);  and  Zinn,  at  494;  and  in  contemporary  protest  movements,  see  Greg  Ruggiero  &  Stuart  Sahulka  (Eds.),  THE 
 PROGRESSIVE  GUIDE  TO  ALTERNATIVE  MEDIA  &  ACTIVISM  (Seven  Stories  Press  1999);  see  also  Ward  L.  Miner,  WILLIAM  GODDARD,  NEWSPAPER-  MAN  (Duke  U.  Press  1962);  Arthur  Schlesinger,  PRELUDE  TO  INDEPENDENCE,  THE 
 NEWSPAPER  WAR  ON  BRITAIN,  1764-  1776  (Knopf  1958);  Walett,  MASSACHUSETTS  NEWSPAPERS  AND  THE  REVOLUTIONARY  CRISIS,  1763-  1776  (Boston,  MA  Bicentennial  Comm.,  1974). 


 785  Catherine  D.  Bowen,  JOHN  ADAMS  AND  THE  AMERICAN  REVOLUTION  (Little  Brown  1950);  Milton  Flower,  John 
 Dickinson,  CONSERVATIVE  REVOLUTIONARY  (UVA  Press,  1983);  Robert  Middlekauff,  THE  GLORIOUS  CAUSE:  THE  AMERICAN  REVOLUTION,  1763-  1789  (Oxford  U.  Press,  1982);  Clinton  Rossiter,  POLITICAL  THOUGHT  OF  THE 


 AMERICAN  REVOLUTION  (Harcourt  Brace  Jovanovich  1963);  Maurice  R.  Cullen,  Jr.,  Benjamin  Edes:  Scourge  of  Tories,  J.  Q.  (Summer  1974)  at  214. 


 786  Edwin  &  Emery,  supra  at  42-  44  (concerning  Tory  newspaper  publisher  James  Rivington).  Other  newspaper 
 editors  who  championed  causes  passionately  include  William  Randolph  Hearst  concerning  many  causes  (see  David  Nasaw,  THE  CHIEF:  THE  LIFE  OF  WILLIAM  RANDOLPH  HEARST  (Houghton  Mifflin  2001))  and  the  late 


 Katherine  Graham  of  the  Washington  Post  concerning  the  Watergate  scandal  (see  Carl  Bernstein  &  Bob  Woodward,  ALL  THE  PRESIDENTS  MEN  (Touchstone/  Simon  &  Schuster,  New  York,  1974)). 
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 so,  787  nor  is  it  necessarily  healthy  for  public  debate  to  pretend  as  though  all  ideas  are  of  equal  value  entitled  to  equal  airing.  The  media  are  not  common  carriers  of  speech.  788  It  is  hardly  an  indictment  of  the 
 media  to  point  out  that  an  outlet  may  be  a  proponent  of  an  identifiable  editorial  viewpoint.  And  the  fact  that  such  viewpoints  may  reflect  popular  opinion  or  have  widespread  appeal  is  not  a  ground  for 
 government  intervention  in  the  marketplace  of  ideas.  Indeed,  the  very  notion  of  a  marketplace  of  ideas  presupposes  that  some  ideas  will  attract  a  following  and  achieve  wide  currency,  while  others  quietly 
 recede  having  failed  to  conquer  the  hearts  and  minds  of  the  citizenry.  Our  Constitution  forbids  government  action  to  pre-  select  the  winners  in  this  competition  or  to  guarantee  the  circulation  of  any 
 particular  set  of  ideas. 
 353.  Nor  is  it  troubling  that  media  properties  may  allow  their  news  and  editorial  decisions  to  be  driven  by  the  bottom  line.  789  Again,  the  need  and  desire  to  produce  revenue,  to  control  costs,  to  survive 


 and  thrive  in  the  marketplace  is  a  time  honored  tradition  in  the  American  media.  Indeed,  it  was  not  until  newspaper  publishers  learned  to  market  their  papers  as  tools  of  commerce  that  the  press  became  a  force  in 
 the  public  debate  that  lead  to  the  framing  of  our  Constitution.  790  Impair  the  ability  of  media  outlets  to  profit  and  you  choke  off  the  capital  to  which  their  tap  roots  reach;  strangle  the  press  and  the  balance  of 
 our  familiar  rights  and  privileges  wither  and  fall. 
 354.  In  short,  to  assert  that  cross-  owned  properties  will  be  engaged  in  profit  maximizing  behavior  or  that  they  will  provide  an  outlet  for  viewpoints  reflective  of  their  owners  interests  is  merely  to 


 state  truisms,  neither  of  which  warrants  government  intrusion  into  precious  territory  bounded  off  by  the  First  Amendment.  To  the  contrary,  we  are  engaged  in  this  exercise  precisely  because  we  seek  to 
 encourage  the  airing  of  diverse  and  antagonistic  viewpoints.  It  would  be  odd  indeed  if  our  rules  were  structured  to  inhibit  the  expression  of  viewpoints  or  to  promote  only  an  accepted  set  of  ideas.  In  light  of 
 the  overwhelming  evidence  that  combinations  can  promote  the  public  interest  by  producing  more  and  better  overall  local  news  coverage,  we  conclude  that  the  current  rule  is  not  necessary  to  promote  our 
 localism  goal  and  that  it,  in  fact,  is  likely  to  hinder  its  attainment. 


 787  See  Miami  Herald  Publishing  Co.  v.  Tornillo,  418  U.  S.  241  (1974).  Broadcasters,  however,  are  subject  to 
 certain  statutory  political  broadcasting  requirements.  See  47  U.  S.  C.    312(  a)(  7)  (broadcast  and  DBS  licensees  must  make  available  reasonable  access  to  all  legally  qualified  candidates  for  federal  elective  office);  47  U.  S.  C.   


 315  (  equal  opportunities  to  competing  legally  qualified  candidates).  The  Bipartisan  Campaign  Reform  Act  of  2002  contains  several  content-  related  provisions  applicable  to  certain  FCC  regulatees.  This  Act  is  now  being 
 challenged  before  a  special  three  Judge  panel  of  the  United  States  District  Court  for  the  District  of  Columbia  McConnell  v.  FEC,  Civ.  No.  02-  0582  (D.  D.  C.  2003). 


 788  See,  e.  g.,  47  U.  S.  C.    153(  10)  (  a  person  engaged  in  radio  broadcasting  shall  not,  insofar  as  such  person  is  so 
 engaged,  be  deemed  a  common  carrier). 
 789  See  CFA  Comments  at  255  (citing  Cranberg,  Gilbert,  Randal  Bezanson,  John  Soloski,  TAKING  STOCK: 
 JOURNALISM  AND  THE  PUBLICLY  TRADED  NEWSPAPER  COMPANY,  (Ames:  Iowa  State,  2001)  at  89;  and  The  Business  of  News,  the  News  About  Business,  Neiman  Reports,  Summer  1999).  It  appears  that  by  [  feeling] 


 pressure  from  the  bottom  line,  CFA  means  that  editors  are  spending  less  time  on  the  news  and  more  of  their  time  is  being  taken  up  with  business  concerns  such  as  plotting  marketing  strategies  or  cost-  cutting  campaigns.  Id. 


 790  Edwin  and  Michael  Emery,  THE  PRESS  AND  AMERICA  (5th  Ed.  1984)  51-  72. 
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 c.  Diversity 
 355.  The  Commission  adopted  the  newspaper/  broadcast  cross-  ownership  rule  because  it  believed  that  diversification  of  ownership  would  promote  diversification  of  viewpoint.  791  This 


 proposition  has  been  both  defended  and  called  into  question.  The  Supreme  Court  found  that  the  newspaper/  broadcast  cross-  ownership  rule  could  be  sustained  so  long  as  the  regulations  are  not  an 
 unreasonable  means  for  seeking  to  achieve  these  [public  interest]  goals.  792  Against  the  backdrop  of  the  last  27  years  growth  in  the  number,  breadth,  and  scope  of  informational  and  entertainment  media 
 available  and  the  benefits  that  may  accrue  from  common  ownership,  we  conclude  that  a  blanket  prohibition  on  the  common  ownership  of  broadcast  stations  and  daily  newspapers  in  all  communities  and 
 in  all  circumstances  can  no  longer  be  justified  as  necessary  to  achieve  and  protect  diversity.  Although  we  continue  to  believe  that  diversity  of  ownership  can  advance  our  goal  of  diversity  of  viewpoint,  the  local 
 rules  that  we  are  adopting  herein  will  sufficiently  protect  diversity  of  viewpoint  while  permitting  efficiencies  that  can  ultimately  improve  the  quality  and  quantity  of  news  and  informational  programming. 
 Accordingly,  we  will  eliminate  the  newspaper/  broadcast  cross-  ownership  prohibition  and  consider  any  such  proposed  merger  in  light  of  our  new  rules. 


 356.  Benefits  of  Common-  Ownership.  As  discussed  above  in  connection  with  localism,  the  record  indicates  that  cross-  ownership  of  newspapers  and  broadcast  outlets  creates  efficiencies  and 
 synergies  that  enhance  the  quality  and  viability  of  media  outlets,  thus  enhancing  the  flow  of  news  and  information  to  the  public.  793  Cox  argues  that  co-  ownership  increases  source  diversity  because  it  enables 
 broadcasters  to  enhance  their  delivery  of  local  programming,  news,  and  information.  794  Others  assert  that  the  various  synergies  and  profitable  ventures  between  TV  broadcasts  and  newspapers  suggest  that 
 relaxing  the  newspaper  cross-  ownership  rule  could  conceivably  help  struggling  newspapers  in  some  markets  and  perhaps  provide  economic  justification  for  creation  of  newspapers.  795  Thus,  relaxing  the 
 cross-  ownership  rule  could  lead  to  an  increase  in  the  number  of  newspapers  in  some  markets  and  foster  the  development  of  important  new  sources  of  local  news  and  information.  796 


 791  1975  Multiple  Ownership  Second  Report  and  Order,  supra  note  33. 
 792  NCCB,  436  U.  S.  at  796. 
 793  See,  e.  g.,  News  Corp.  Comments  in  MM  Docket  No.  01-  235  at  35-  37  (since  waiver  of  the  rule  in  1993,  News 
 Corp.  has  sustained  the  continued  publication  and  expansion  of  the  New  York  Post);  BIC  Comments  in  MM  Docket  No.  01-  235  at  5-  6  (broadcasters  must  grow  and  consolidate  in  order  to  survive  and  effectively  serve  the 


 public);  Norwell  Comments  in  MM  Docket  No.  01-  235  at  5-  6  (economies  of  scale  of  combining  a  broadcast  station  and  a  daily  newspaper  are  driven  by  marketplace  realities  of  competing  for  limited  advertising  dollars); 
 Can  West  Comments  at  6  (print  journalists  can  reach  a  wider  audience  over  TV);  Cox  Comments  at  71-  72;  of  NAA  Comments  at  11-  20  (co-  owned  affiliates  offer  superior  news  and  informational  content  over  non-  co-  owned 
 affiliates). 
 794  Cox  does  not  address  program  diversity  because  it  believes  that  program  diversity  is  irrelevant  to  newspapers 
 since  they  do  not  offer  programming.  Cox  Comments  at  71-  72. 
 795  Bear  Stearns  Comments  at  40. 


 796  Media  General  Comments  at  13-  21  (arguing  that  its  convergence  model  has  enabled  it  to  deliver  better,  faster, 
 and  deeper  local  news  in  Tampa,  Florida;  Roanoke/  TriCities,  Virginia;  Florence,  South  Carolina;  Columbus,  Ohio;  and  Panama  City,  Florida). 
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 357.  Evidence  that  common  ownership  can  enhance  the  flow  of  news  and  information  to  the  public  can  be  found  in  grandfathered  newspaper-  television  combinations  of  which  there  are  21.  Our 
 review  of  the  record  indicates  that  such  combinations  often  serve  the  public  interest  by  adding  information  outlets  and  creating  high  quality  news  product.  A  recent  study,  for  example,  determined  that, 
 on  average  grandfathered  newspaper-  owned  television  stations,  during  earlier  news  day  parts,  led  the  market  and  delivered  43%  more  audience  share  than  the  second  ranked  station  in  the  market  and  193% 
 more  audience  than  the  third  ranked  station  in  the  market.  These  grandfathered  structures  also  have  created  new  information  outlets  in  their  market,  such  as  Internet  sites  and  local  news-  oriented  cable 
 networks.  797 
 358.  Moreover,  empirical  research  confirms  that  newspaper/  television  combinations  frequently  do  a  superior  job  of  providing  news  and  informational  programming.  MOWG  Study  No.  7  found  that 


 network  affiliated  TV  stations  that  are  co-  owned  with  a  newspaper  experience  noticeably  greater  success  under  our  measures  of  quality  and  quantity  of  local  news  programming  than  other  network  affiliates.  798 
 Similarly,  as  described  above,  the  Project  for  Excellence  in  Journalisms  five-  year  study  on  local  television  news  found  [  s]  tations  with  [newspaper]  cross-  ownership  .  .  .  were  more  than  twice  as  likely  as 
 stations  overall  to  generate  A  quality  newscasts.  799  None  of  the  cross-  owned  stations  in  the  sample  received  an  F  grade  in  quality,  as  compared  with  8%  of  all  other  stations.  800  It  appears  that  the 
 synergies  and  efficiencies  that  can  be  achieved  by  commonly  located  newspaper/  broadcast  combinations  can  and  do  lead  to  the  production  of  more  and  qualitatively  better  news  programming  and  the  presentation 
 of  diverse  viewpoints,  as  measured  by  third-  parties.  801 
 359.  Harm  to  Diversity  Caused  by  the  Rule.  The  newspaper/  broadcast  cross-  ownership  rule,  as  noted  above,  may  be  preventing  efficient  combinations  that  would  allow  for  the  production  of  high 


 quality  news  coverage  and  broadcast  programming,  including  coverage  of  local  issues,  thereby  harming  diversity.  802  Newspapers  and  local  over-  the-  air  television  broadcasters  alike  have  suffered  audience 


 797  Miller  Comments  in  MM  Docket  No.  01-  235  at  24-  28,  Ex.  8.  The  Miller  study  looked  at  only  a  few  of  the  cross-owned 
 newspaper/  broadcast  combinations,  not  all  of  them.  Some  commenters  discount  the  importance  of  these  new  voices  claiming  that  commonly-  owned  outlets  do  not  contribute  to  viewpoint  diversity.  We  address  these 


 arguments  in  the  Common  Ownership/  Common  Viewpoint  section,  infra. 
 798  MOWG  Study  No.  7  at  2. 


 799  PEJ  Study,  supra  note  766  at  4,  10. 
 800  Id.  at  10. 
 801  We  recognize  that  quality  can  be  subjective.  However,  both  MOWG  Study  No.  7  and  the  PEJ  Study  attempted 
 to  use  objective  measurements  of  quality.  In  the  case  of  the  former,  the  number  of  Radio  and  Television  News  Directors  Awards  and  A.  I.  DuPont  Awards  was  measured.  In  the  latter,  a  Design  Team  of  14  respected  local 


 television  news  professionals  from  a  diverse  cross-  section  of  companies  and  regions  around  the  country  was  assembled.  This  panel,  through  the  use  of  survey  questionnaires  and  long-  form  open-  ended  discussions  developed 
 6  criteria  for  assessing  the  quality  of  newscasts  including  story  balance  via  multiple  sources  and  story  balance  via  multiple  viewpoints.  Project  for  Excellence  in  Journalism,  Does  Ownership  Matter  in  Local  Television  News:  A 
 Five-  Year  Study  of  Ownership  and  Quality  (Feb.  17,  2003)  at  2,  21  (Appendix  III).  See  also  PEJs  March  20,  2003,  reply  to  Networks  response. 


 802  FOEF  Comments  in  MM  Docket  No.  01-  235  at  22,  Table  1,  and  29-  31;  Herald  Reply  Comments  in  MM 
 Docket  No.  01-  235  at  4-  5. 
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 declines  in  recent  years.  803  In  the  broadcast  area,  commenters  have  reported  declines  in  the  ratings  of  existing  outlets  as  more  media  enter  the  marketplace.  For  example,  the  number  of  television  stations  in 
 the  Miami-  Ft.  Lauderdale  and  the  adjacent  West  Palm  Beach  markets  has  increased  from  10  to  25  from  1975  to  2001.  804  As  more  stations  have  begun  to  program  local  news,  however,  the  ratings  for  individual 
 stations  have  dropped.  805  Broadcast  groups  owned  by  GE,  Disney,  Gannett,  Hearst-  Argyle  and  Belo  have  lost  10  to  15%  of  their  aggregate  audience  in  the  past  five  years.  806  Local  over-  the-  air  broadcast  TVs 
 share  of  total  television  advertising  dollars,  which  includes  the  new  broadcast  networks,  new  cable  networks  and  syndication  providers,  has  fallen  from  56%  in  1975  to  44%  in  2000.  807  E.  W.  Scripps 
 Company  argues  that  consolidation  among  established  media  outlets  and  the  proliferation  of  new  media  outlets  since  1975  requires  broadcasters  and  newspapers  to  grow,  consolidate,  and  achieve  critical  scale  in 
 their  local  markets  to  survive  and  effectively  serve  the  public.  808 
 360.  Given  the  decline  in  newspaper  readership  and  broadcast  viewership/  listenership,  both  newspaper  and  broadcast  outlets  may  find  that  the  efficiencies  to  be  realized  from  common  ownership 


 will  have  a  positive  impact  on  their  ability  to  provide  news  and  coverage  of  local  issues.  809  We  must  consider  the  impact  of  our  rules  on  the  strength  of  media  outlets,  particularly  those  that  are  primary 
 sources  of  local  news  and  information,  as  well  as  on  the  number  of  independently  owned  outlets.  As  West  Virginia  Media,  states,  for  example,  maximizing  the  number  of  independent  voices  does  not  further 
 diversity  if  those  voices  lack  the  resources  to  create  and  publish  news  and  public  information.  810 
 361.  Common  Ownership/  Common  Viewpoint.  As  suggested  by  MOWG  Study  No.  2,  811  authored  by  David  Pritchard,  commonly-  owned  newspapers  and  broadcast  stations  do  not  necessarily 


 speak  with  a  single,  monolithic  voice.  812  Although  limited  in  scope,  the  Pritchard  study  found  that  in  half  of  the  10  newspaper-  television  combinations  studied,  the  overall  slant  of  the  coverage  of  a  companys 
 television  station  was  noticeably  different  from  the  overall  slant  813  of  the  coverage  provided  by  the  same 
 803  Id.  at  1-  2;  see  also  NAB  Comments  in  MM  Docket  No.  01-  235  at  9-  16,  Att.  1  (audience  share  of  traditional 
 media  has  declined  as  the  share  of  new  outlets,  particularly  cable  systems,  DBS  and  MVPDs  has  increased). 
 804  Tribune  Comments  in  MM  Docket  No.  01-  235  at  25-  26.  Tribune  publishes  the  South  Florida  Sun-  Sentinel. 


 805  Id.  at  26-  27. 
 806  Miller  Comments  in  MM  Docket  No.  01-  235  at  19-  21,  Exhibits  5,  6. 
 807  Id.  at  21-  22,  Exhibit  7. 
 808  Scripps  Comments  in  MM  Docket  No.  01-  235  at  2. 
 809  See  West  Virginia  Media  Comments  at  14-  23;  Bonneville  Comments  at  7;  Cox  Comments  at  71-  72;  Dispatch 
 Comments  at  7-  9;  Stapleton  Comments  at  14-  15. 
 810  West  Virginia  Media  Comments  in  MM  Docket  No.  01-  235  at  13-  15. 


 811  MOWG  Study  No.  2. 
 812  Fox  Comments  at  54-  55;  NAB  Comments  at  62-  63.  See  also  Fox  Comments  in  MM  Docket  No.  01-  235  at  20- 
 23;  Gannett  Comments  at  9-  14;  Morris  Comments  at  8-  9;  NAA  Comments  at  11-  20;  Tribune  Comments  in  MM  Docket  No.  01-  235  at  42-  47.  Indeed,  few  broadcast  stations  overtly  editorialize. 
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 companys  newspaper  in  the  same  market.  While  this  does  not  permit  us  to  conclude  that  common  ownership  never  results  in  common  slant,  it  does  suggest  that  common  ownership  does  not  result  in  a 
 predictable  pattern  of  news  coverage  and  commentary  about  important  political  events  in    commonly  owned  outlets.  814  The  results  of  the  Prichard  study  are  consistent  with  other  anecdotal  information 
 supplied  by  commenters.  815 
 362.  Several  parties  assert  that  ownership  affects  editorial  decisions  and,  ultimately,  viewpoints  expressed  by  media  outlets.  816  As  evidence,  CFA  points  to  Kim  Fridkin  Kahn  and  Patrick  J.  Kennys 


 paper,  The  Slant  of  the  News:  How  Editorial  Endorsements  Influence  Campaign  Coverage  and  Citizens  View  of  Candidates,  817  which  concludes  that  information  on  news  pages  is  slanted  in  favor  of  the 
 candidate  endorsed  on  the  newspapers  editorial  page.  CFA  argues  that  combined  entities  are  more  likely  to  engage  in  biased  reporting  that  goes  unchecked  by  a  disinterested  rival.  Issues  affecting  TV 
 stations  but  not  newspapers,  it  claims,  might  be  discussed  differently  by  independent  newspapers  and  newspaper/  TV  combinations.  It  argues  that,  due  to  excessive  influence  and  conflicts  of  interest,  cross-owned 
 media  fail  repeatedly  to  exercise  their  watchdog  function,  as  documented  by  experiences  in  a  variety  of  communities.  818  Some  opponents  of  elimination  of  the  rule,  arguing  that  common  ownership 
 will  result  in  the  common  expression  of  viewpoint,  attack  the  motives  and  objectivity  of  Dr.  David  Pritchard,  author  of  MOWG  Study  No.  2.  819  Dr.  Dean  Baker  asserts  that  MOWG  Study  No.  2  has  serious 
 methodological  flaws  and  that  when  the  results  are  properly  analyzed  seven  of  the  ten  combinations  had  a  common  slant.  820  CFA  argues  that  this  is  a  remarkably  high  bias  and  underscores  the  problem  of 
 common  ownership  across  the  media.  821  Other  critics  of  MOWG  Study  No.  2  claim  that  its  results  cannot  be  generalized  to  all  broadcast/  newspaper  combinations  because  the  study  examined  only  a  small 
 sample  of  cases  and  the  author  failed  to  include  a  control  group  of  independently-  owned  broadcast  (Continued  from  previous  page) 
 813  In  MOWG  Study  No.  2,  Pritchard  defines  the  slant  of  a  published  or  broadcast  item  about  the  presidential 
 campaign  from  the  point  of  view  of  a  hypothetical  interested  but  undecided  voter.  If  the  coders  judged  an  item  to  be  likely  to  make  such  a  voter  more  inclined  to  vote  for  a  candidate,  the  item  was  coded  as  favorable  to  that 


 candidate.  Slant  was  not  a  judgment  about  whether  a  candidate  or  his  staff  would  have  been  happy  with  publication  or  broadcast  of  the  item,  about  whether  an  item  was  somehow  biased,  or  about  a  journalists  intent.  It 
 was  simply  an  assessment  of  whether  an  item  would  have  made  a  typical  undecided  voter  more  likely  to  vote  for  a  candidate. 


 814  MOWG  Study  No.  2. 
 815  See  Tribune  Comments  in  MM  Docket  No.  01-  235  at  43;  see  also  Gannett  Comments  in  MM  Docket  No.  01- 
 235  at  11-  13;  Gannett  Comments  at  9-  14;  NAB  Comments  at  62-  63  (citing  e.  g.,  Hicks  and  Featherston,  Duplication  of  Newspaper  Content  at  551-  53). 


 816  See  AFL-  CIO  Reply  Comments  in  MM  Docket  No.  01-  235  at  13-  20;  UCC  Comments  in  MM  Docket  No.  01- 
 235  at  11. 
 817  96(  2)  AMERICAN  POLITICAL  SCIENCE  REVIEW  (June  2002). 


 818  CFA  Comments  at  225-  34. 
 819  See,  e.  g.,  AFL-  CIO  Comments  at  36-  43;  AFTRA  Comments  at  28-  32;  CFA  Comments  at  221-  24;  CWA 
 Comments  at  29-  34. 
 820  AFL-  CIO  Comments,  Democracy  Unhinged  at  5-  7. 


 821  CFA  Comments  at  47-  48  n.  68. 
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 stations  and  newspapers  for  comparison.  822 
 363.  Various  parties  submit  anecdotal  evidence  purporting  to  show  that  ownership  either  does  or  does  not  influence  viewpoint.  For  example,  in  an  effort  to  show  that  ownership  does  influence  viewpoint, 


 AFL-  CIO  reports  that  Pulitzer  winner  Sydney  Schanbergs  column  in  The  New  York  Times  was  canceled  when  he  criticized  the  press  for  ignoring  a  major  real  estate  scandal  in  New  York;  823  the  publisher  of 
 Hearsts  San  Francisco  Examiner  allegedly  promised  to  stem  his  papers  criticism  of  Mayor  Willie  Brown  if  the  mayor  did  not  oppose  Hearsts  takeover  of  its  rival,  the  Chronicle;  824  and  the  Los  Angeles 
 Times  failed  to  report  a  controversial  real  estate  and  recreational  project  that  benefited  the  Times  parent,  Times-  Mirror,  although  the  story  was  reported  by  other  papers,  including  The  New  York  Times  and  The 
 Bakersfield  Californian.  825  CWA  argues  that  ownership  influences  viewpoint,  and  even  reduces  viewpoint  diversity.  826  The  record  also  includes  anecdotes  to  the  contrary,  and  those  supplying  these 
 anecdotes  are  equally  adamant  that  ownership  does  not  influence  viewpoint.  For  example,  Tribune  states  that  all  of  its  newspapers  did  not  endorse  the  same  candidate  in  the  2000  presidential  election.  827 


 364.  Suffice  to  say,  although  there  is  evidence  to  suggest  that  ownership  influences  viewpoint,  the  degree  to  which  it  does  so  cannot  be  established  with  any  certitude.  In  order  to  sustain  a  blanket 
 prohibition  on  cross-  ownership,  we  would  need,  among  other  things,  a  high  degree  of  confidence  that  cross-  owned  properties  were  likely  to  demonstrate  uniform  bias.  The  record  does  not  support  such  a 
 conclusion.  Indeed,  as  the  market  becomes  more  fragmented  and  competitive,  media  owners  face  increasing  pressure  to  differentiate  their  products,  including  by  means  of  differing  viewpoints.  While 
 such  differentiation  may  occur,  however,  our  analysis  does  not  turn  on  that  premise,  and  it  is  not  determinative  of  our  decision  with  respect  to  our  current  newspaper/  broadcast  cross-  ownership  rule.  Our 
 analysis  turns,  rather,  on  the  availability  of  other  news  and  informational  outlets.  Thus,  while  we  do  not  dispute  that  a  particular  outlet  may  betray  some  bias,  particularly  in  matters  that  may  affect  the  private  or 
 pecuniary  interest  of  its  corporate  parent  (e.  g.,  such  as  when  an  outlet  has  an  interest  in  a  real  estate  transaction  or  is  being  criticized  in  an  op-  ed),  such  anecdotes  do  not  show  a  pattern  of  bias  in  the  vast 
 majority  of  news  comment  and  coverage  where  such  self-  interest  is  not  implicated.  Nor,  moreover,  do  such  incidents  mean  that  the  public  was  left  uninformed  about  the  situation  by  other  available  media. 
 Therefore,  it  would  seem  that  the  remedy  for  any  such  bias  is  the  provision  of  antagonistic  viewpoint  we  seek  to  advance. 


 822  See,  e.  g.,  Democracy  Unhinged. 
 823  AFL-  CIO  Comments  at  22  (citing  Northwest  Passage  Productions  in  association  with  KTEH,  Fear  and  Favor 
 in  the  Newsroom). 
 824  Id.  (citing  Thomas  Kunkel  and  Gene  Roberts,  Leaving  Readers  Behind:  The  Age  of  Corporate  Newspapering, 
 23(  4)  AM  J  R  36  (May  1,  2001). 
 825  Id.  (citing  Ben  Bagdikian,  THE  MEDIA  MONOPOLY  (6th  ed.)  (Boston:  Beacon  Press  2000)  at  39-  41). 


 826  CWA  Comments  at  29-  40  (citing  Marion  Just  and  Rosalind  Levine,  News  for  Sale.  Special  Report:  Local 
 TV  News,  COL  J.  REV./  PEJ  (Nov./  Dec.  2001)  at  2-  3;  DeNeen  L.  Brown,  Canadian  Publisher  Raises  Hackles:  Family  is  Accused  of  Trying  to  Restrict  Local  Newspapers  Autonomy,  WASHINGTON  POST  (Jan.  27,  2002)  at 


 A25);  see  also  CFA  Comments  at  34-  40,  225-  34. 
 827  Tribune  Comments  in  MM  Docket  No.  01-  235  at  43.  See  also  Gannett  Comments  in  MM  Docket  No.  01-  235 
 at  11-  13;  Gannett  Comments  at  9-  14. 
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 365.  Available  Media.  The  record  in  this  proceeding  provides  ample  evidence  that  competing  media  outlets  abound  in  markets  of  all  sizes    each  providing  a  platform  for  civic  discourse.  828  Television 
 and  radio  stations,  both  commercial  and  noncommercial,  are  important  media  for  news,  information,  entertainment,  and  political  speech.  829  Cable  television  systems,  which  originated  as  passive  conduits  of 
 broadcast  programming,  have  expanded  to  carry  national  satellite-  delivered  networks.  Many  also  carry  local  public,  educational,  and  governmental  channels.  Cable  systems  in  larger  markets  are  now  evolving 
 into  platforms  for  original  local  news  and  public  affairs  programming.  830  Daily  newspapers,  while  declining  in  number,  continue  to  provide  an  important  outlet  for  local  and  national  news  and 
 expression.  831  The  Internet,  too,  is  becoming  a  commonly-  used  source  for  news,  commentary,  community  affairs,  and  national/  international  information.  832  Seventy-  two  percent  of  Americans  are  now  online  and 
 spend  an  average  of  nine  hours  weekly  on  the  Internet.  833  MOWG  Study  No.  3  suggests  that  consumers  generally  view  Internet  news  sources  as  a  substitute  for  daily  newspapers  and  broadcast  news.  834  We 
 cannot  but  conclude  that,  notwithstanding  the  claims  of  supporters  of  retention  of  the  newspaper/  broadcast  rule,  835  the  Internet  does  play  an  important  role  in  the  available  media  mix.  836 


 828  See  Media  Marketplace  Section  IV,  supra;  see  also  MOWG  Study  No.  1;  MOWG  Study  No.  3  at  3,  18; 
 MOWG  Study  No.  8  at  Table  1;  Appendix  D;  Gannett  Comments  at  9-  14  (consumers  use  a  variety  of  media  to  obtain  news  and  information). 


 829  Gannett  Comments  at  10-  11.  See  also  Andrea  M.  L.  Perrella,  THE  POLITICAL  INFLUENCE  OF  TALK  RADIO 
 (Universit  de  Montral,  1995)  (  Talk  radio  has  grown  .  .  .  from  a  fringe  radio  format  to  a  lucrative  industry  and  a  noticeable  actor  in  recent  American  politics.  Talk  radio  has  played  a  vocal  role  during  the  1992  presidential 


 election  and  the  1994  mid-  term  elections,  with  many  people  both  in  and  out  of  politics  attributing  the  Republican  Party's  1994  election  sweep  to  buoyant  conservative  talk-  radio  hosts.);  Amy  Ridenour,  President  of  The  National 
 Center  for  Public  Policy  Research,  Press  Release  (Nov.  20,  2002)  (  Talk  radio  is  America's  town  hall).  But  see  Consumers  Union/  MAP  Reply  Comments  at  21-  23  (claiming  that  radio  stations  are  no  longer  a  major  voice  in 
 civic  discourse). 
 830  The  first  local/  regional  cable  news  channels  began  in  the  mid-  1980s;  today  there  are  32  cable  news  channels. 
 See  NCTA,  Regional  Cable  Networks,  Cable  Developments  (2002)  at  171-  94. 
 831  CFA  Comments  at  159-  62. 


 832  See,  e.  g.,  Media  General  Reply  Comments  in  MM  Docket  No.  01-  235  at  8-  11  (Internet  a  surrogate  for  local 
 newspapers  with  over  half  of  the  nation  having  access  to  the  Internet)  (citing,  NTIA,  A  Nation  Online:  How  Americans  are  Expanding  Their  Use  of  the  Internet  (Feb.  2002));  see  also  NAB  Reply  Comments  in  MM  Docket 


 No.  01-  235  at  8-  10;  Hearst  Comments  in  MM  Docket  No.  01-  235  at  10-  11. 
 833  See,  e.  g.,  Hearst  Comments  in  MM  Docket  No.  01-  235  at  10-  11. 


 834  See  MOWG  Study  No.  3.  We  recognize,  however,  that  many  television  stations  and  newspapers  also  distribute 
 their  content  via  the  Internet. 
 835  UCC  Comments  in  MM  Docket  No.  01-  235  at  17-  19,  Att.  10  (Internet  not  effective  news  or  advertising 
 substitute  for  broadcast  stations  or  daily  newspapers);  CU  Comments  in  MM  Docket  No.  01-  235  at  65-  96  (diversity  not  assured  by  competition  across  media  products);  AFL-  CIO  Comments  at  34-  36  (arguing  that  more 


 than  60%  of  Americans  watch  broadcast  news,  and  about  62  percent  of  Americans  read  a  daily  newspaper,  while  other  media  do  not  have  comparable  reach,  and  half  of  all  Americans  do  not  have  Internet  connections  at  home); 
 CWA  Comments  at  5-  9,  citing  MOWG  Studies  Nos.  3  and  8  (Internet  not  a  mass  medium  and  most  people  use  Internet  news  sites  for  non-  local  news). 
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 366.  We  disagree  with  parties  that  assert  that  there  is  little  diversity  in  media  markets.  837  The  average  American  has  a  far  richer  and  more  varied  range  of  media  voices  from  which  to  choose  today 
 than  at  any  time  in  history.  Given  the  growth  in  available  media  outlets,  the  influence  of  any  single  viewpoint  source  is  sharply  attenuated.  AFL-  CIO  argues  to  the  contrary,  asserting  that  the  growth  rate  of 
 media  outlets  is  slowing.  838  The  slowing  of  the  growth  rate  is  attributable,  at  least  in  part  however,  to  the  lack  of  available  spectrum  to  maintain  the  tremendous  growth  in  broadcast  outlets  recently  experienced. 
 CFA  argues  that  only  a  large  number  of  independent  owners    diverse  and  antagonistic  sources    will  provide  sufficiently  diverse  viewpoints  for  effective  public  discourse.  839  It  estimates  that  elimination  of 
 the  rule  would  result  in  approximately  200  newspapers  merging  with  broadcasters,  reducing  the  number  of  independent  outlets  available.  840  This,  some  commenters  allege,  will  cause  a  reduction  in  viewpoint 
 diversity.  841  We  agree  that  diversity  of  ownership  can  promote  a  diversity  of  viewpoints  and  recognize  that  absent  the  current  rule  there  will  be  some  consolidation.  We  conclude,  however,  that  our  new  local 
 rules  will  protect  the  diversity  of  voices  essential  to  achieving  our  policy  objectives.  A  blanket  prohibition  on  newspaper-  broadcast  combinations,  however,  can  no  longer  be  sustained. 


 367.  In  short,  the  magnitude  of  the  growth  in  local  media  voices  shows  that  there  will  be  a  plethora  of  voices  in  most  or  all  markets  absent  the  rule.  Indeed,  the  question  confronting  media 
 companies  today  is  not  whether  they  will  be  able  to  dominate  the  distribution  of  news  and  information  in  any  market,  but  whether  they  will  be  able  to  be  heard  at  all  among  the  cacophony  of  voices  vying  for  the 
 attention  of  Americans.  842  Our  rules  should  account  for  these  changes  and  promote,  rather  than  inhibit,  the  ability  of  media  outlets  to  survive  and  thrive  in  this  evolving  media  landscape.  843  They  must  give 
 recognition  to  the  changes  which  have  taken  place  and  to  see  to  it  that  [they]  adequately  reflect  the  situation  as  it  is,  not  was.  844 


 (Continued  from  previous  page)  836  Major  media  providers  need  no  convincing,  as  virtually  all  of  them  have  rushed  to  create  webpages  in  an  effort 
 to  capture  a  segment  of  this  incipient  market.  For  example,  MSNBC,  Fox  News,  CNN,  the  major  broadcast  television  networks  and  many  newspapers  all  now  maintain  websites. 


 837  See,  e.  g.,  AFL-  CIO  Reply  Comments  in  MM  Docket  No.  01-  235  at  11-  12;  UCC  Comments  in  MM  Docket  No. 
 01-  235  at  2-  8,  Attachments  2,  3  (purporting  to  show  that  local  broadcast  media  have  become  less  diverse  and  more  concentrated  between  1993  and  2001);  UCC  Reply  Comments  in  MM  Docket  No.  01-  235  at  24-  26, 


 Attachments. 
 838  AFL-  CIO  Comments  at  1-  3. 


 839  CFA  Comments  at  283. 
 840  Id.  at  244-  46. 
 841  See,  e.  g.,  AFL-  CIO  Comments  at  36-  43;  AFTRA  Comments  at  28-  32;  CFA  Comments  at  221-  24;  CWA 
 Comments  at  29-  40  (citing,  e.  g.,  Brown,  supra  note  826. 
 842  Tribune  Comments  in  MM  Docket  No.  01-  235  at  36-  38. 


 843  See,  e.  g.,  S.  Rep.  No.  104-  23,  104th  Cong.,  1st  Sess.  at  64  (1995)  (statement  of  Sen.  Burns)  (the  industry  is 
 now  operating  under  archaic  rules  that  are  better  suited  the  1950s  than  the  1990s). 
 844  1975  Multiple  Ownership  Second  Report  and  Order,  50  F.  C.  C.  2d  at  1075. 
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 d.  Conclusion 
 368.  As  discussed  above,  we  find  that  a  newspaper-  broadcast  combination  cannot  adversely  affect  competition  in  any  relevant  product  market  and,  thus,  we  cannot  conclude  that  the  current 


 newspaper-  broadcast  cross-  ownership  rule  is  necessary  to  promote  competition.  Similarly,  we  conclude  that  the  evidence  in  the  record  of  this  proceeding  demonstrates  that  combinations  can  promote  the  public 
 interest  by  producing  more  and  better  overall  local  news  coverage  and  that  the  current  rule  is  thus  not  necessary  to  promote  our  localism  goal.  Instead,  we  find  that  it,  in  fact,  is  likely  to  hinder  its  attainment. 
 Finally,  the  record  does  not  contain  data  or  other  information  demonstrating  that  common  ownership  of  broadcast  stations  and  daily  newspapers  in  the  same  community  poses  a  widespread  threat  to  diversity  of 
 viewpoint  or  programming.  845 
 369.  As  outlined  above,  the  types  of  media  and  the  number  of  outlets  within  each  media,  except  daily  newspapers,  have  increased  dramatically  in  the  past  twenty  years.  In  addition,  evidence  shows  that 


 the  link  between  common  ownership  of  newspapers  and  broadcast  outlets  and  common  viewpoint  is  tenuous,  ill-  defined,  and  difficult  to  measure.  In  any  event,  we  do  not  think  that  the  current  rule  is 
 necessary  to  preserve  diversity  of  viewpoint.  The  local  cross-  media  limits  adopted  herein  are  more  precisely  targeted  at  specific  types  of  markets  in  which  particular  combinations  are  most  likely  to  harm 
 diversity.  We  conclude,  therefore,  that  the  current  rule  is  no  longer  necessary  in  the  public  interest.  846 
 2.  Radio/  Television  Cross-  Ownership  Rule 
 370.  The  radio/  television  cross-  ownership  rule  limits  the  number  of  commercial  radio  and  television  stations  an  entity  may  own  in  a  local  market.  Currently,  the  rule  allows  a  party  to  own  up  to 


 two  television  stations  (provided  it  is  permitted  under  the  television  duopoly  rule)  and  up  to  six  radio  stations  (to  the  extent  permitted  under  the  local  radio  ownership  rule)  in  a  market  where  at  least  20 
 independently  owned  media  voices  847  would  remain  post-  merger.  Where  parties  may  own  a  combination  of  two  television  stations  and  six  radio  stations,  the  rule  allows  a  party  alternatively  to  own  one  television 


 845  See  CanWest  Comments  in  MM  Docket  No.  01-  235  at  Appendix  A  (no  structural  link  between  the  number  of 
 owners  and  the  degree  of  diversity);  NAB  Comments  in  MM  Docket  No.  01-  235  at  20-  26  (citing  David  Haddock  and  Daniel  Polsby,  Bright  Lines,  the  Federal  Communications  Commissions  Duopoly  Rule  and  the  Diversity  of 


 Voices,  42  FED  COMM  L.  J.  331  (1990);  Benjamin  Compaine,  The  Impact  of  Ownership  on  Content:  Does  It  Matter?,  13  CARDOZO  ARTS  &  ENT.  L.  J.  755  (1995)). 


 846  On  March  11,  2003,  Media  General,  Inc.,  filed  a  Motion  to  Bifurcate  and  Repeal.  That  Motion  asked  the 
 Commission  to  break  the  newspaper/  broadcast  cross-  ownership  rule  out  of  the  biennial  review,  and  repeal  the  rule,  if  it  could  not  act  in  the  biennial  review  in  the  spring  of  2003.  Because  we  are  acting  in  the  biennial  review 


 in  the  spring  of  2003  and  are  repealing  the  subject  rule,  we  dismiss  Media  Generals  Motion  as  moot. 
 847  Media  voices  include  (1)  independently  owned  and  operating  full-  power  broadcast  television  stations  within 
 the  DMA  of  the  television  stations  community  of  license  that  have  Grade  B  signal  contours  that  overlap  with  the  Grade  B  signal  contour  of  the  television  station  at  issue;  (2)  independently  owned  and  operating  broadcast  radio 


 stations  that  are  in  the  radio  metro  market  of  the  television  stations  community  of  license  or  the  radio  stations  community  of  license;  (3)  independently  owned  out-  of-  market  broadcast  radio  stations  with  a  minimum  share  as 
 reported  by  Arbitron;  (4)  English-  language  newspapers  that  are  published  at  least  four  days  a  week  within  the  television  stations  DMA  and  that  have  a  circulation  exceeding  5  percent  of  the  households  in  the  DMA;  and  (5) 
 one  cable  system,  if  cable  television  is  generally  available  to  households  in  the  DMA.  Cable  television  counts  as  only  one  voice  in  the  DMA,  regardless  of  how  many  individual  cable  systems  operate  in  the  DMA.  47  C.  F.  R.   
 73.3555(  c)(  3). 
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 station  and  seven  radio  stations.  A  party  may  own  up  to  two  television  stations  (as  permitted  under  the  current  television  duopoly  rule)  and  up  to  four  radio  stations  (as  permitted  under  the  local  radio 
 ownership  rule)  in  markets  where,  post-  merger,  at  least  ten  independently  owned  media  voices  would  remain.  A  combination  of  one  television  station  and  one  radio  station  is  allowed  regardless  of  the  number 
 of  voices  remaining  in  the  market.  848 
 371.  Based  on  the  record  in  this  proceeding,  we  do  not  find  that  the  radio/  television  cross-ownership  rule  remains  necessary  in  the  public  interest  to  ensure  competition,  diversity  or  localism.  Our 


 decision  reflects  the  substantial  growth  and  availability  of  media  outlets  in  local  markets,  as  well  as  the  potential  for  significant  efficiencies  and  public  interest  benefits  to  be  realized  through  joint  ownership. 
 We  find  that  our  diversity  and  competition  goals  will  be  adequately  protected  by  the  local  ownership  rules  adopted  herein. 


 372.  Background.  In  1970,  the  Commission  restricted  the  combined  ownership  of  radio  and  television  stations  in  local  markets.  849  The  purpose  of  the  rule  (originally  referred  to  as  the  one-  to-  a-market 
 rule)  was  twofold:  (1)  to  foster  maximum  competition  in  broadcasting,  and  (2)  to  promote  diversification  of  programming  sources  and  viewpoints.  850  In  1995,  the  Commission  requested  comment 
 to  determine  whether  the  cross-  ownership  limitations  were  still  warranted  in  light  of  the  then  current  market  conditions.  851  Before  the  Commission  issued  a  decision,  Congress  passed  the  1996  Act.  852 
 Section  202(  d)  of  the  1996  Act  required  the  Commission  to  extend  the  radio-  television  cross-  ownership  presumptive  waiver  policy  to  the  top  50  television  markets  consistent  with  the  public  interest, 
 convenience  and  necessity.  Prior  to  implementing  the  statutory  change,  we  issued  a  Second  Further  Notice  requesting  comment  on  whether  modification  of  the  rule  was  warranted  beyond  the  Section  202(  d) 
 requirements.  853  We  asked  whether,  instead  of  just  extending  the  waiver  policy  to  the  top  50  markets,  we  should  eliminate  the  rule  in  its  entirety  based  on  a  finding  that  radio  and  television  do  not  compete  in  the 
 same  market.  We  also  asked  whether  television  and  radio  stations  should  be  considered  competitors,  and  if  the  radio/  television  cross-  ownership  rule  could  be  eliminated  because  the  respective  radio  and 
 television  ownership  rules  alone  sufficed  to  ensure  sufficient  diversity  and  competition  in  the  local  market.  854  In  the  event  we  found  that  the  cross-  ownership  rule  was  necessary,  we  sought  comment  on 


 848  47  C.  F.  R.    73.3555(  c). 
 849  Originally,  the  rule  prohibited  the  common  ownership  of  commercial  radio  and  television  stations  in  the  same 
 market  if  the  2  mV/  m  contour  of  an  AM  station  or  the  1  mV/  m  contour  of  an  FM  station  encompassed  the  entire  community  of  license  of  a  television  station  or,  if  the  Grade  A  contour  of  a  television  station  encompassed  the 


 entire  community  of  license  of  an  AM  or  FM  station.  Amendment  of  Section  73.35,  73.340  and  73.630  of  the  Commissions  Rule  Relating  to  Multiple  Ownership  of  Standard,  FM  and  TV  Broadcast  Stations,  22  F.  C.  C.  2d 
 306,  308    8  (1970)  (  1970  Multiple  Ownership  First  Report  and  Order). 
 850  Id.  at  307    3. 


 851  TV  Ownership  FNPRM,  supra. 
 852  See  note  1,  supra. 
 853  Review  of  the  Commissions  Regulations  Governing  Television  Broadcasting,  Television  Satellite  Stations 
 Review  of  Policy  and  Rules,  11  FCC  Rcd  21655,  21682-  89    59-  89  (1996)  (  TV  Second  FNPRM). 
 854  Id.  at  21684    63. 
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 specific  options  for  modification  of  the  rule.  855 
 373.  In  1999,  the  Commission  modified  the  rule  to  its  current  form.  856  We  found  that  the  growth  of  media  outlets  and  cable  systems,  the  efficiencies  of  joint  ownership,  and  the  public  service  benefits 


 obtained  from  joint  operations  all  supported  our  decision  to  allow  additional  common  ownership  of  radio  and  television  stations.  857  Although  we  decided  not  to  eliminate  the  rule,  we  stated  that  we  would 
 continue  to  monitor  the  impact  of  the  broadcast  ownership  rules  on  the  industry  and  that  we  would  further  consider  relaxation  of  the  radio/  television  cross-  ownership  rule  in  future  biennial  reviews.  858  In  June 
 2000,  we  released  the  1998  Biennial  Report,  where  we  concluded  that  further  relaxation  of  the  broadcast  ownership  rules  was  not  then  warranted.  859  In  light  of  the  1999  relaxation  of  the  broadcast  ownership 
 rules,  we  decided  to  proceed  cautiously  and  monitor  the  impact  of  the  new  rules  on  diversity  and  competition.  860 


 374.  Under  our  statutory  mandate  pursuant  to  Section  202(  h)  of  the  1996  Act,  we  are  required  to  consider  biennially  whether  to  repeal  or  modify  any  rule  that  is  not  necessary  in  the  public 
 interest.    861  In  determining  whether  the  rule  meets  this  standard,  we  consider  whether  it  is  necessary  to  promote  any  of  our  public  interest  objectives.  862  With  respect  to  cross-  ownership  of  radio  and  television 
 stations  in  the  same  market,  we  reexamine  the  impact  of  the  rule  on  competition,  localism  and  diversity. 
 a.  Competition 
 375.  The  Product  Market.  To  assess  the  competitive  impact  of  our  radio/  television  cross-ownership  rule,  we  need  to  determine  whether  radio  and  television  stations  compete  for  sources  of 


 revenue  generation    in  this  case,  advertising.  863  If  we  find  that  they  do,  i.  e.,  that  a  significant  number  of 


 855  Id.  at  21685-  87    65-  71. 
 856  Local  TV  Ownership  Report  and  Order,  supra  note  96.  Also  in  the  Local  TV  Ownership  Report  and  Order  we 
 eliminated  the  five  factor  case-  by-  case  waiver  standard.  Currently,  waivers  are  granted  only  in  situations  involving  a  failed  station  or  other  extraordinary  circumstances. 


 857  Id.  at  12948    102. 
 858  Id.  at  12949    106. 
 859  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11073    26. 
 860  In  the  2000  Biennial  Review  proceeding,  the  Commission  did  not  alter  the  recommendations  it  had  made  in  the 
 1998  Biennial  Review  proceeding  with  respect  to  the  radio/  television  cross-  ownership  rules.  See  2000  Biennial  Regulatory  Review,  supra,  note  509. 


 861  Fox  Television,  280  F.  3d  at  1042. 
 862  Id. 
 863  The  competitive  analysis  for  both  the  local  radio  and  the  local  television  ownership  rules  focuses  on  two 
 additional  markets,  delivered  programming  and  programming  production.  However,  in  analyzing  the  effects  of  combined  ownership  of  radio  and  television  stations  in  a  local  market,  neither  of  the  latter  product  markets  is 


 relevant.  Radio  and  television  broadcasting  are  distinct  programming  markets  with  little  overlap.  The  bulk  of  video  entertainment  and  news  programming  available  on  commercial  television  is  not  suitable  for  radio.  Similarly,  audio 
 radio  programming,  which  is  predominately  music  and  talk  show  formats,  cannot  be  replicated  on  television.  Thus,  (continued.) 
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 advertisers  consider  radio  and  television  to  be  good  substitutes,  then  our  concern  would  be  that  elimination  or  relaxation  of  the  cross-  ownership  restrictions  may  enable  a  single  firm  to  acquire  sufficient 
 market  power  to  hinder  small  and  independent  broadcasters  efforts  to  generate  revenue,  and  thereby  put  their  continued  viability  at  risk.  However,  if  radio  and  television  are  not  in  the  same  product  market,  then 
 we  would  have  little  concern  that  elimination  or  relaxation  of  the  rule  would  have  any  negative  effects  on  competition.  Broadcasters  compete  with  each  other  for  audience  share  by  offering  quality  programming 
 of  interest  to  local  communities.  Higher  audience  shares,  in  turn,  attract  advertisers,  and  thus,  enable  radio  and  television  stations  to  generate  revenue.  Our  continuing  goal  is  to  ensure  that  our  rules  and 
 policies  foster,  rather  than  hinder,  broadcasters'  incentives  and  ability  to  compete  for  advertising  revenues  by  providing  consumers  with  innovative  and  quality  programming,  news,  and  information. 


 376.  In  the  Notice  we  asked  commenters  to  provide  us  with  evidence  regarding  the  degree  to  which  radio  serves  as  an  economic  substitute  for  broadcast  television.  864  We  noted  that  evidence  showing 
 radio  and  television  are  not  economic  substitutes  would  support  relaxation  or  elimination  of  the  current  rule.  The  DOJ/  FTC  Guidelines  865  define  the  relevant  product  market  as  the  smallest  group  of  competing 
 products  for  which  a  hypothetical  monopoly  provider  of  the  products  would  profitably  impose  at  least  a  small  but  significant  and  non-  transitory  price  increase,  presuming  no  change  in  the  terms  of  sale  of 
 other  products.  866  Thus,  when  one  product  is  a  reasonable  substitute  for  the  other  in  the  eyes  of  consumers,  it  is  to  be  included  in  the  relevant  product  market  even  though  the  products  themselves  are  not 
 identical.  867  In  the  Local  Radio  Ownership  NPRM,  we  noted  that  the  Department  of  Justice  views  radio  as  a  discrete  market,  finding  that  advertisers  find  value  in  certain  of  radios  unique  attributes.  868 


 377.  As  described  in  greater  detail  above,  we  conclude  that  most  advertisers  do  not  consider  radio  and  television  stations  to  be  good  substitutes  for  advertising  and,  therefore,  that  generally 
 combinations  of  these  two  types  of  media  outlets  likely  would  not  result  in  competitive  harm.  869  Again,  (Continued  from  previous  page) 
 because  the  essential  nature  of  each  medium  determines  the  type  of  programming  each  medium  broadcasts,  the  content  is  not  interchangeable.  Authors  Lin  and  Jeffres  used  media  websites  to  analyze  the  programming  of 
 newspapers,  radio  stations,  and  television  stations  in  25  of  the  largest  metro  markets  in  the  US.  They  concluded  that  each  medium  has  a  relatively  distinctive  content  emphasis.  See  Carolyn  A.  Lin  and  Leo  W.  Jeffres,  Comparing 
 Distinctions  and  Similarities  across  Websites  of  Newspapers,  Radio  Stations,  and  Television  Stations,  J  MASS  COMM  Q  (Columbia;  Autumn  2001)  at  555-  573. 


 864  Notice,  17  FCC  Rcd  at  18537    104. 
 865  DOJ/  FTC  Guidelines,  supra  note  282. 
 866  Id.    1.11. 
 867  Id.    1.12.  See,  e.  g.,  EchoStar/  DirecTV  HDO,  17  FCC  Rcd  at  20605-  06    106. 
 868  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19879    42. 
 869  CWA  agrees  that  newspapers,  television  and  radio  are  distinct  and  separate  media  product  markets,  with  weak 
 substitution  by  consumers  and  advertisers.  CWA  also  urges  the  Commission  to  adopt  structural  rules  that  place  ownership  limits  on  each  distinct  media  type.  See  CWA  Comments  at  2-  3,  46.  In  rare  instances,  advertisers  may 


 consider  radio  and  television  to  be  good  substitutes.  Buckley,  for  example,  states  that  competition  between  radio  and  television  advertising  exists  in  smaller  markets,  such  as  in  the  Monterey-  Salinas  market,  where  radio  and 
 television  advertising  rates  are  approximately  the  same  during  certain  times  of  the  day.  See  Buckley  Comments  at  3.  The  local  television  ownership  rule  and  the  local  radio  ownership  rule  will  prevent  any  one  entity  from  owning 
 all  of  the  broadcast  television  stations  or  all  the  broadcast  radio  stations  in  a  local  market.  Thus,  those  advertisers  (continued.) 
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 in  MOWG  Study  No.  10,  Anthony  Bush  found  weak  substitutability  between  local  media,  including  radio  and  television.  In  separately  filed  comments,  both  Professor  Jerry  Hausman  and  Dr.  Bruce  M.  Owen 
 criticize  Bush  for  using  national  and  regional,  rather  than  local,  advertising  price  data.  870  As  we  noted  above,  we  recognize  the  limitations  of  the  SQAD  data  but  believe  the  effects  of  these  measurement  errors 
 may  cancel  out  such  that  the  estimates  of  Bush  are  unbiased.  We  weight  the  study  accordingly  and  consider  the  other  evidence  on  the  record. 


 378.  Moreover,  other  studies  confirm  Bushs  conclusion  that  advertisers  do  not  consider  radio  and  television  to  be  good  substitutes.  Silk,  Klein,  and  Berndt  (2002)  examine  advertising  in  the  national 
 markets  for  eight  different  media  outlets:  magazines,  newspapers,  network  television,  spot  television,  network  radio,  spot  radio,  outdoor  billboards,  and  direct  mail.  871  The  authors  find  that  for  advertisers  in 
 national  markets,  radio  and  television  are  weak  substitutes.  Reid  and  King  (2000)  used  survey  and  interview  methods  to  examine  advertising  managers  opinions  of  media  substitutability.  872  Their  reports 
 suggest  that  managers  consider  radio  and  broadcast  television  to  be  weak  substitutes. 
 379.  In  addition  to  the  empirical  evidence,  differences  between  radio  and  television  programming  and  formats  suggest  that  they  do  not  compete  in  the  same  product  market.  First,  in  any 


 given  market,  radio  stations  can  market  and  distinguish  themselves  to  potential  listeners  through  their  identification  with  a  particular  format.  873  These  formats  allow  radio  advertisers  to  target  specific 
 demographics  much  more  precisely  than  they  can  when  they  advertise  on  television.  In  addition,  viewers  and  listeners  experience  these  two  mediums  differently.  Television  uses  both  sight  and  sound  to  allow 
 advertisers  to  reach  their  audience  in  a  relatively  comprehensive  way.  As  an  audio  medium,  radio  is  more  limited.  As  a  result,  radio  and  television  broadcast  distinct  programming.  Video  is  not  suitable  for  radio 
 and  vice  versa.  The  difference  is  important  for  viewers  and  advertisers  alike. 
 380.  The  essential  nature  of  each  medium  determines,  in  large  measure,  the  type  of  programming  each  will  broadcast.  874  For  example,  a  car  dealership  or  furniture  warehouse  wishing  to 


 quickly  create  strong  brand  recognition  will  likely  place  greater  value  on  television  ads  where  potential  customers  see  the  products,  as  opposed  to  using  radio  ads.  Radio  listeners  are  seldom  completely 
 engaged  to  listening  because  simultaneously  they  are  perhaps,  driving,  working,  cleaning,  dining,  or  shopping.  Thus,  some  advertisers  may  prefer,  while  others  avoid,  the  radio  listener  as  a  significant 
 audience  to  target.  Additionally,  television  advertisements  typically  are  more  expensive  than  radio  ads, 
 (Continued  from  previous  page)  that  consider  radio  and  broadcast  stations  to  be  good  substitutes,  and  play  these  media  against  one  another  to 
 negotiate  a  good  price,  would  continue  to  have  access  to  these  separately  owned  broadcast  stations. 
 870  See  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  20-  22,  Exh.  6  at  5-  8;  Fox  Comments,  Owen 
 Statement;  see  also  NAB  Comments  in  MM  Docket  No.  01-  317  at  30-  33.  These  comments  were  submitted  in  the  local  radio  proceeding,  and  do  not  discuss  the  relevant  product  market  for  the  radio/  television  cross-  ownership 


 rule. 
 871  Silk,  Klein,  and  Berndt,  supra  note  519. 


 872  Reid  and  King,  supra  note  520. 
 873  Country,  jazz,  urban,  pop,  and  rock  are  examples  of  these  radio  formats. 
 874  MOWG  Study  No.  3  studies  a  number  of  different  specifications  for  consumers  of  TV  and  radio  and  finds 
 either  weak  or  no  substitution  between  these  two  media. 
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 suggesting  that  advertisers  could  not  easily  switch  between  the  two  mediums.  Recent  data  suggest  that  an  average  30  second  evening  television  spot  costs  approximately  $19  per  thousand  viewers,  while  on  radio, 
 the  same  spot  costs  approximately  $11.  875  Radio  stations  typically  do  not  garner  the  size  audiences  that  television  stations  do,  thus,  making  the  30  second  television  spot  considerably  more  expensive  than  a 
 radio  spot.  Small-  scale,  local  establishments  likely  will  find  radio  to  be  more  affordable. 
 381.  In  sum,  television  and  radio  stations  neither  compete  in  the  same  product  market  nor  do  they  bear  any  vertical  relation  to  one  another.  876  A  television-  radio  combination,  therefore,  cannot 


 adversely  affect  competition  in  any  relevant  product  market.  Accordingly,  we  cannot  conclude  that  the  current  television-  radio  cross-  ownership  rule  is  necessary  to  promote  competition. 


 b.  Localism 
 382.  In  the  Notice,  we  sought  comment  on  how  cross-  ownership  limitations  affect  localism,  as  measured  by  the  quantity  and  quality  of  news  and  public  affairs  programming  that  stations  provide  to 


 local  communities.  877  We  sought  comment  on  the  quantities  of  local  news  and  public  affairs  programming  provided  by  radio  and  television  combinations  as  opposed  to  stand-  alone  stations  in  the 
 same  markets.  We  asked  whether  radio  and  television  combinations  produce  more,  less,  or  the  same  amount  of  news  programming  than  stand-  alone  stations.  We  also  asked  commenters  to  address  the 
 implications  of  any  such  differences.  We  find  that  by  prohibiting  combinations  of  news  gathering  resources  between  radio  and  television  stations,  the  current  rule  prohibits  owners  from  maximizing  local 
 news  and  information  production,  which  would  benefit  consumers. 
 383.  There  is  no  compelling  or  substantial  evidence  in  the  record  that  the  rule  is  necessary  to  protect  localism.  The  record  in  this  proceeding,  in  fact,  includes  evidence  to  the  contrary    that 


 efficiencies  and  cost  savings  realized  from  joint  ownership  may  allow  radio  and  television  stations  to  offer  more  news  reporting  generally,  and  more  local  news  reporting  specifically,  than  otherwise  may  be 
 possible.  The  record  in  this  proceeding  suggests  that  station  owners  will  use  additional  revenue  and  resource  savings  from  television-  radio  combinations  to  provide  new  and  innovative  programming, 
 provide  more  in-  depth  local  interest  programming,  and  provide  better  service  to  the  public,  including  locally  oriented  services.  878  As  discussed  in  the  Diversity  Index  section,  consumers  rely  on  both  radio  and 
 television  for  coverage  of  news  and  public  affairs.  879  Therefore,  consumers  will  benefit  from  a  policy  which  allows  radio  and  television  owners  to  maximize  these  offerings. 


 384.  Some  commenters  assert  that  independent  owners  expend  more  resources  to  air  local 
 875  Data  represent  average  cost  per  thousand  viewers  or  listeners  during  prime  time  for  third  quarter,  2002.  Source 
 of  data  is  SQAD.  For  explanation  of  SQAD  data  see  note  733,  supra. 
 876  Generally  we  identify  both  the  product  and  the  geographic  markets.  Because  we  find  that  radio  and  television 
 advertising  are  separate  product  markets,  it  is  not  necessary  to  define  the  geographic  market  for  these  purposes. 
 877  Notice,  17  FCC  Rcd  at  18537    103. 


 878  Duhamel  Comments  at  1,  6;  see  generally,  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  23; 
 Cumulus  Comments  in  MM  Docket  No.  01-  317  at  5-  6;  Viacom  Comments  in  MM  Docket  No.  01-  317  at  62-  64;  NAB  Comments  in  MM  Docket  No.  01-  317  at  43-  45. 


 879  MOWG  Study  No.  8;  see  also  Diversity  Index,  Section  VI(  C)(  3),  infra. 
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 programming  or  produce  more  news  and  public  affairs  programming  than  do  owners  of  combined  stations.  880  Further,  some  commenters  contend  that  cross-  ownership  of  radio  and  television  stations  in 
 local  markets  leads  to  reduced  independent  news  and  public  affairs  programming,  more  syndicated  programming,  881  reductions  of  staff,  cross-  assigned  journalists,  re-  use  and  re-  purposing  of  content,  and 
 increased  amounts  of  on-  air  advertising  time.  882 
 385.  These  parties  have  failed  to  show  that  the  rule  remains  necessary  in  the  public  interest.  First,  isolated  anecdotes  of  changes  in  news  programming  schedules  following  a  transaction  do  not 


 provide  the  kind  of  systematic  empirical  evidence  necessary  to  support  a  general  allegation  that  cross-owned  stations  produce  lesser  quantities  of  news,  or  news  of  lower  quality,  than  do  non-  cross-  owned 
 stations.  Second,  shared  support  staff  and  conservation  of  resources  does  not  necessarily  mean  a  reduction  in  local  news.  The  efficiencies  derived  from  some  of  these  practices  may  in  fact,  increase  the 
 amount  of  diverse,  competitive  news  and  local  information  available  to  the  public.  883  Thus,  the  record  does  not  demonstrate  that  the  current  rule  specifically  promotes  localism,  or  that  elimination  of  the  rule 
 would  harm  it. 
 c.  Diversity 
 386.  We  asked  in  the  Notice  whether  the  cross-  ownership  rule  is  necessary  to  foster  viewpoint  diversity  in  todays  media  marketplace.  884  We  sought  comment  on  the  types  of  media  that  contribute  to 


 viewpoint  diversity  and  how  the  cross-  ownership  rule  affects  viewpoint  diversity.  885  We  noted  that  the  current  rule  counts  as  a  media  voice  commercial  and  non-  commercial  broadcast  television  and  radio 
 stations,  certain  daily  newspapers,  and  cable  systems.  We  asked  whether  additional  types  of  media  should  also  be  counted  as  contributing  to  viewpoint  diversity,  such  as  the  Internet,  DBS,  cable 


 880  UCC  Comments  at  40-  41.  UCC  points  to  Clear  Channels  2002  acquisition  of  the  Ackerley  Group,  in  which 
 Clear  Channel  acquired  16  television  stations,  and  created  new  radio  and  television  combinations  in  eleven  communities.  Post-  merger,  UCC  argues  that  in  Watertown,  New  York,  Clear  Channel  replaced  the  television 


 stations  morning,  noon  and  weekend  news  broadcasts  with  a  morning  news  show  produced  in  Birmingham.  UCC  also  complains  that  Clear  Channel  replaced  its  local  news  telecasts  on  stations  in  Binghampton  and  Utica 
 with  regional  news  programs.  However,  without  additional  information,  it  is  impossible  to  evaluate  the  actual  reasons  for  the  programming  changes  or  effect  of  the  changes  on  the  aggregate  news  programming  produced  and 
 distributed  by  the  Clear  Channel  stations  in  the  market. 
 881  AFTRA  Comments  in  MM  Docket  No.  01-  317  at  12.  AFTRA  believes  that  syndicated  programming  does  not 
 serve  the  interests  of  local  communities.  See  also  AFTRA  Comments  at  12-  15  regarding  the  sharing  of  news  product  between  different  local  outlets. 


 882  Id.  at  5-  8.  AFTRA  cites  CBS/  Infinitys  acquisition  of  Group  W/  Westinghouse,  which  resulted  in  the  cross-ownership 
 of  television  and  radio  stations  in  the  Chicago  market.  AFTRA  states  that  CBS  proposes  to  cross-assign  news  reporters  for  television  and  its  seven  radio  stations. 


 883  We  received  substantially  more  comments  on  this  issue  in  the  context  of  the  newspaper/  broadcast  cross-ownership 
 rule.  There,  the  record  suggests  that  the  newspaper/  broadcast  cross-  ownership  rule  impedes  efficiencies  that  might  otherwise  benefit  the  public.  We  believe  that  the  same  is  true  in  the  context  of  radio  and 


 television  combinations. 
 884  Notice,  17  FCC  Rcd  at  18536    100. 


 885  Id.  at  18536-  37    102. 
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 overbuilders,  individual  cable  networks,  magazines,  and  weekly  newspapers. 
 387.  As  discussed  above,  in  todays  media  market  there  are  more  media  outlets  than  ever  before.  886  The  Commission  has  previously  concluded  that  the  information  market  relevant  to  diversity 


 includes  not  only  television  and  radio  outlets,  but  cable,  other  video  media  and  numerous  print  media  as  well.  887  Not  only  have  we  seen  an  increase  in  the  types  of  outlets  available,  but  local  markets  have  also 
 experienced  enormous  growth  in  broadcast  outlets.  The  record  shows  that  in  local  broadcast  markets  of  all  sizes  the  numbers  of  radio  and  television  stations  have  increased  over  the  years.  888 


 388.  We  conclude  that  the  current  television/  radio  cross-  ownership  rule  is  not  necessary  to  ensure  viewpoint  diversity.  As  CanWest  explains,  we  should  not  view  specific  markets  in  a  vacuum  for 
 diversity  purposes,  but  rather  should  consider  that  households  get  information  from  many  sources.  889  Thus,  we  agree  with  the  commenters  that  argue  that  a  cross-  ownership  rule  applicable  only  to  radio  and 
 television  is  inequitable  and  outdated.  890  Although  several  commenters  argue  that  retention  of  the  radio/  television  cross-  ownership  rule  is  necessary  to  protect  the  availability  of  diverse  views,  information, 
 and  local  programming,  891  we  believe  that  a  rule  limited  to  just  radio  and  television  fails  to  take  into  account  all  of  the  other  relevant  media  in  local  markets  available  to  consumers. 


 389.  We  agree  with  the  commenters,  however,  that  fostering  the  availability  of  diverse  viewpoints  remains  an  important  policy  goal,  and  that  diversity  of  ownership  promotes  diversity  of 
 viewpoints.  We  are  adopting  modified  service-  specific  local  ownership  rules  that  will  protect  and  promote  competition  in  the  local  television  and  radio  markets  and,  as  a  result,  will  also  protect  and 
 preserve  viewpoint  diversity  within  those  services.  In  addition,  we  are  adopting  a  new  cross-  media  limit  rule,  described  below,  that  is  specifically  designed  to  protect  diversity  of  viewpoint  in  those  markets  in 
 which  we  believe  consolidation  of  media  ownership  could  jeopardize  such  diversity.  The  local  rules  we  are  adopting  in  this  Order  are  designed  to  reflect  the  substantial  growth  and  availability  of  media  outlets 
 in  local  markets,  and  to  account  for  concentration  among  all  media  outlets  that  substantially  contribute  to  the  dissemination  of  diverse  and  antagonistic  viewpoints  in  local  markets.  892  These  rules  make  a  rule 


 886  See  Media  Marketplace,  Section  IV,  supra. 
 887  See  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  25;  See  Viacoms  Petition  for  Rulemaking 
 (May  23,  2002)  at  7;  Clear  Channel  Comments  at  5;  NAB  Comments  at  68;  Fox  Comments  at  58. 
 888  See  Media  Marketplace,  Section  IV,  supra;  MOWG  Study  No.  1. 


 889  CanWest  Comments  at  3.  CanWest  notes  that  cross-  ownership  in  Canada  has  strengthened  media  companies 
 and  has  encouraged  greater  diversity  and  more  sources  of  information.  Id.  at  6. 
 890  See,  e.  g.,  NAB  Comments  at  69-  70. 


 891  Desmond  Reply  Comments  at  7;  AFTRA  Comments  at  10-  11;  CWA  Comments  at  2-  3,  46;  Nancy  Stapleton 
 Comments  at  10-  11,  16;  see  also  Children  Now  Comments  at  3-  4  (if  the  Commission  relaxes  the  cross-  ownership  rule,  it  should  analyze  the  impact  of  proposed  media  mergers  on  children). 


 892  MOWG  Study  No.  8  shows  that  consumers  use  a  wide  variety  of  media  to  obtain  entertainment,  news  and 
 information,  and  that  the  general  public  views  all  of  these  sources  as  substitutes.  MOWG  Study  No.  3  shows  consumers  increased  use  of  the  Internet  at  work  and  at  home.  Internet  use  has  increased  from  15%  in  1997  to 


 46%  in  2000.  Id.  at  Table  7.  The  UCLA  Internet  Report  suggests  that  over  the  past  three  years  a  significant  number  of  Internet  users  have  been  substituting  away  from  television,  getting  more  news  and  entertainment 
 online.  The  UCLA  Internet  Report:  Surveying  the  Digital  Future,  Year  Three,  UCLA  Center  for  (continued.) 
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 directed  only  at  radio  and  television  unnecessary  and  anachronistic. 
 d.  Conclusion 
 390.  We  do  not  have  evidence  in  the  record  sufficient  to  support  retention  of  the  current  radio/  television  cross-  ownership  rule.  From  a  competitive  perspective,  radio  and  television  are  not  good 


 substitutes  for  the  same  revenue  producing  opportunities,  and  thus,  cannot  be  regarded  as  competing  in  the  same  product  market.  There  is  little  evidence  that  the  current  rule  promotes  localism  and,  to  the 
 contrary,  the  record  indicates  that  combined  station  groups  may  be  able  to  achieve  cost  savings  that  may  accrue  to  the  benefit  of  listeners  and  viewers.  Finally,  radio  and  television  stations  compete  with  many 
 other  electronic  and  print  media  in  providing  programming  and  information  to  the  public,  and  the  targeted  cross-  media  limits  adopted  herein  are  therefore  better  designed  to  achieve  our  diversity  goal  in  markets 
 where  diversity  could  be  jeopardized  by  cross-  ownership  than  the  stand-  alone  radio/  television  cross-ownership  rule.  In  addition,  our  local  television  and  local  radio  ownership  rules,  which  are  designed  to 
 preserve  competition  in  those  markets,  will  also  foster  diversity  of  voices.  We  turn  next  to  a  discussion  of  the  Diversity  Index,  which  is  intended  to  help  us  analyze  outlets  that  contribute  to  viewpoint  diversity  in 
 local  markets. 
 3.  The  Diversity  Index  893 
 391.  In  order  to  provide  our  media  ownership  framework  with  an  empirical  footing,  we  have  developed  a  method  for  analyzing  and  measuring  the  availability  of  outlets  that  contribute  to  viewpoint 


 diversity  in  local  media  markets.  The  measure  we  are  using,  the  Diversity  Index  or  DI,  accounts  for  certain,  but  not  all  media  outlets  (newspapers,  broadcast,  television,  radio,  and  the  Internet)  in  local 
 markets  available  to  consumers,  the  relative  importance  of  these  media  as  a  source  of  local  news,  and  ownership  concentration  across  these  media.  The  DI  builds  on  our  previous  approach  to  the  diversity 
 goal:  We  retain  the  principle  that  structural  regulation  is  an  appropriate  and  effective  alternative  to  direct  content  regulation;  we  retain  the  principle  that  viewpoint  diversity  is  fostered  when  there  are  multiple 
 independently-  owned  media  outlets  in  a  market;  we  retain  our  emphasis  on  the  citizen/  viewer/  listener  and  on  ensuring  that  viewpoint  proponents  have  opportunities  to  reach  the  citizen/  viewer/  listener.  What  we 
 add  is  a  method,  based  on  citizen/  viewer/  listener  behavior,  of  characterizing  the  structure  of  the  market  for  viewpoint  diversity.  We  use  the  DI  as  a  tool  to  inform  our  judgments  about  the  need  for  ownership 
 limits.  This  section  explains  the  rationale  for  the  diversity  index  and  discusses  calculation  methodology.  The  DI  is  based  partly  on  the  results  of  a  consumer  survey,  which  we  acknowledge  is  not  without  flaws, 
 and  partly  on  our  expert  judgment  and  analysis  of  the  local  viewpoint  diversity  marketplace.  While  the  Diversity  Index  is  not  perfect,  nor  absolutely  precise,  it  is  certainly  a  useful  tool  to  inform  our  judgment 
 and  decision-  making.  It  provides  us  with  guidance,  informing  us  about  the  marketplace  and  giving  us  a  sense  of  relative  weights  of  different  media.  It  informs,  but  does  not  replace,  our  judgment  in  establishing 
 rules  of  general  applicability  that  determine  where  we  should  draw  lines  between  diverse  and  concentrated  markets. 


 392.  Because  of  the  limitations  in  the  Nielsen  survey,  and  the  specific  assumptions  underlying 
 (Continued  from  previous  page)  Communication  Policy  (Feb.  2003)  at  33.  See  also  CanWest  Comments  at  6;  CST  Comments  at  5-  7;  Paxson 


 Comments  at  34-  35.  No  commenters  argue  that  a  diversity  analysis  should  be  limited  strictly  to  radio  and  television  programming. 


 893  The  Commission  wishes  to  recognize  some  of  its  economists  for  their  efforts  in  developing  this  index 
 including:  Thomas  Spavins,  Enforcement  Bureau,  Judith  Herman,  Media  Bureau,  and  John  Scott,  Media  Bureau. 
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 the  DI,  it  is  a  useful  tool  only  in  the  aggregate.  It  cannot,  and  will  not,  be  applied  by  the  Commission  to  measure  diversity  in  specific  markets.  Indeed,  it  could  not  be  used  on  a  particularized  basis  to  review  the 
 diversity  available  in  a  specific  market.  For  example,  in  determining  the  appropriate  weights  to  apply  to  the  various  media,  we  have  decided  to  give  no  weight  to  cable  television  or  magazines  as  sources  of  local 
 news,  notwithstanding  the  results  in  the  Nielsen  survey  to  the  contrary.  894  We  recognize  that  consumers  in  certain  markets  do  have  access  to  local  news  from  local  magazines,  local  cable  news  channels,  and 
 PEG  channels,  but  we  believe  that  the  Nielsen  survey  overstates  this  influence.  On  a  national  basis,  we  believe  most  consumers  either  do  not  have  access  to  such  sources  (such  as  a  local  news  magazine)  or  rely 
 very  little  on  them  (such  as  PEG  channels).  Similarly,  the  DI  assumes  each  town  has  only  one  weekly  newspaper.  In  the  aggregate,  the  DI  reflects  the  market  situation  of  most  communities.  In  sum,  excluding 
 these  sources  or  factors  from  the  DI  does  not  undermine  the  general  conclusions  we  reach  about  market  concentration  because  the  DI  is  not  capable  of  capturing  particularized  market  characteristics;  it  is 
 intended  to  capture  generalized,  typical  market  structures  and  identify  trends. 
 a.  Rationale  for  the  Diversity  Index 
 393.  As  discussed  above,  fostering  diversity  is  one  of  the  principal  goals  of  the  Commissions  media  broadcast  ownership  rules.  In  the  past,  the  Commission  has  described  its  diversity  goal  as  fostering 


 competition  in  the  marketplace  of  ideas.  Although  the  analogy  between  economic  competition  and  diversity  is  not  perfect,  it  is  of  use  in  structuring  our  approach.  Viewpoint  diversity  refers  to  availability 
 of  a  wide  range  of  information  and  political  perspectives  on  important  issues.  Information  and  political  viewpoints  are  crucial  inputs  that  help  citizens  discharge  the  obligations  of  citizenship  in  a  democracy. 
 We  recognize  that  the  number  of  political  viewpoints  or  the  number  of  perspectives  on  a  particular  issue  may  be  greater  than  the  number  of  media  outlets  in  a  market.  And  we  recognize  that,  in  an  effort  to  cater 
 to  viewer/  listener/  reader  preferences  any  single  outlet  may  choose  to  present  multiple  viewpoints  on  an  issue.  However,  we  do  not  expect  every  outlet  to  present  every  perspective  on  every  issue.  The 
 competition  analogy  suggests  that  having  multiple  independent  decision-  makers  (i.  e.,  owners  of  media  outlets)  ensures  that  a  wide  range  of  viewpoints  will  be  made  available  in  the  marketplace. 


 394.  News  and  public  affairs  programming  is  the  clearest  example  of  programming  that  can  provide  viewpoint  diversity.  As  discussed  above,  we  regard  viewpoint  diversity  to  be  at  the  core  of  our 
 public  interest  responsibility,  and  recognize  that  it  is  a  product  that  can  be  delivered  by  multiple  media.  Hence,  in  contrast  to  our  competition-  based  rules,  diversity  issues  require  cross-  media  analysis.  895 
 Because  what  ultimately  matters  here  is  the  range  of  choices  available  to  the  public,  we  believe  that  the  appropriate  geographic  market  for  viewpoint  diversity  is  local,  i.  e.,  people  generally  have  access  to  only 
 media  available  in  their  home  market.  896  To  assist  in  our  analysis  of  existing  media  diversity,  and  to  help  us  determine  whether  any  cross-  media  restrictions  are  necessary  in  the  public  interest,  we  use  a  summary 
 index  that  reflects  the  general  or  overall  structure  of  the  market  for  diverse  viewpoints.  By  analogy  with  competition  analysis,  the  diversity  index  is  inspired  by  the  Herfindahl-  Hirschmann  Index  (HHI) 


 894  See  our  discussion  excluding  magazines  and  cable  television  in  subsection,  Choice  of  Media,  Section 
 VI(  C)(  3)(  b),  infra. 
 895  See  the  discussion  of  the  local  radio  and  local  television  rules,  Section  VI(  A)  and  (B),  wherein  we  conclude 
 that  radio  and  television  advertising  markets  are  separate  and  that  consumers  of  programming  do  not  see  radio  and  television  as  close  substitutes. 


 896  See  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  24-  25    24;  Notice,  17  FCC  Rcd  at  18546   
 136. 
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 formulation,  calculating  the  sum  of  squared  market  shares  of  relevant  providers  in  each  local  market. 
 395.  The  measurement  of  market  concentration  has  a  long  history  in  economics  and  several  different  measures  have  been  proposed  in  the  economics  literature.  897  For  example,  a  simple  count  of  the 


 number  of  firms  in  an  industry  (as  the  Commission  has  previously  done  in  the  media  industry),  the  four-firm  concentration  ratio  (measuring  the  percentage  of  the  market  held  by  the  top  four  companies),  and  the 
 HHI  have  all  been  ascendant  at  various  times.  The  HHI  measure,  however,  is  particularly  attractive  for  two  reasons. 


 396.  First,  its  mathematical  properties  correspond  to  our  beliefs  about  the  effects  a  merger  would  cause.  Each  possible  measure  of  market  concentration  has  benefits  and  weakness  that  can  be  captured  by 
 the  list  of  mathematical  properties,  or  axioms,  that  that  particular  measure  satisfies.  898  In  the  case  of  measuring  market  concentration,  a  list  of  reasonable  requirements  or  axioms  limit  us  to  the  choice  of  few 
 mathematical  formulas.  899  Within  this  class  of  admissible  indices,  the  HHI  can  be  thought  of  as  a  very  conservative  choice  in  the  following  sense.  If  we  ask  what  is  the  loss  of  competition  from  a  merger, 
 known  as  the  delta  in  the  antitrust  field,  the  HHI  measure  reflects  the  assumptions  that:  (i)  an  acquisition  of  a  firm  with  given  size  will  lead  to  a  larger  harm  the  larger  the  acquiring  firm,  and  (ii)  this 
 harm  is  proportional  to  the  size  of  both  the  merging  parties.  Applying  a  similar  analysis  to  the  Diversity  Index,  the  Index  reflects  the  assumptions  that  if  newspapers  have  twice  the  diversity  importance  of 
 television,  a  newspapers  acquisition  of  a  broadcast  television  station  will  cause  twice  the  loss  of  diversity  as  will  a  merger  of  two  broadcast  television  stations.  Conversely,  if  radio  has  less  diversity  weight  than 
 television,  then  a  merger  of  a  television  and  a  radio  station  will  cause  less  of  a  loss  of  diversity  than  will  a  merger  of  two  television  stations.  In  contrast,  if  the  Commission  were  to  adopt  a  simple  voice  test,  for 
 example,  then  it  would  be  assuming  that  the  loss  of  voice  due  to  a  merger  is  independent  of  the  diversity  importance  of  either  party.  Similarly,  if  the  Commission  were  to  adopt  a  concentration  ratio  measure, 
 then  it  would  implicitly  be  assuming  that  the  loss  of  diversity  is  independent  of  the  size  of  the  larger  firm  in  the  transaction.  It  is  in  this  sense  --  that  the  size  of  the  diversity  loss  increases  as  does  the  diversity 
 importance  of  either  merging  party    that  the  Diversity  Index  developed  here  is  a  conservative  measure,  and  one  which  we  adopt  in  the  interest  of  prudence. 


 397.  Moreover,  the  HHI,  from  which  our  chosen  measure  derives,  is  widely  used  in  economics  and  in  antitrust.  Thus,  we  can  draw  on  our  experience  with  the  HHI  in  competition  policy  to  determine 
 threshold  values  for  the  Diversity  Index.  Indeed,  the  HHI  formula  is  already  widely  used  in  the  diversity  literature  for  measuring  content  diversity.  900 


 897  For  an  overview  of  this  literature  see,  e.  g.,  Jean  Tirole,  THEORY  OF  INDUSTRIAL  ORG.  (MIT  Press  1993)  at  221- 
 23;  Michael  Waterson,  ECONOMIC  THEORY  OF  THE  INDUSTRY  (Cambridge  Univ.  Press  1984)  at  166-  74. 
 898  A  requirement  placed  on  an  index  is  known  in  mathematics  as  an  axiom.  When  we  can  show  that  there  is  a 
 unique  mathematical  function  that  satisfies  a  given  list  of  axioms,  then  that  function  is  said  to  be  characterized  by  the  list  of  axioms.  For  a  classic  exposition  of  the  axiomatic  approach  see  J.  Aczel,  LECTURES  ON  FUNCTIONAL 


 EQUATIONS  AND  THEIR  APPLICATIONS  (Academic  Press  1966). 
 899  The  axioms  are  presented  in  David  Encaoua  and  Alexis  Jacquemin,  Degree  of  Monopoly,  Indices  of 
 Concentration  and  the  Threat  of  Entry,  21  INTL  ECON.  REV.  87-  105  (1980).  Their  list  includes  axioms  such  as,  the  value  of  an  index  should  increase  when  two  firms  merge  and  decrease  when  a  new  firm  enters. 


 900  The  literature  using  the  HHI  to  measure  content  diversity  goes  back  to  at  least  1979.  See  Barry  Litman,  The 
 Television  Networks,  Competition  and  Program  Diversity,  23  J.  OF  BCASTING  393-  409  (1979). 
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 398.  We  assign  market  shares  to  these  providers  based  in  part  on  the  results  of  responses  to  the  Nielsen  survey  described  in  MOWG  Study  No.  8.  The  Diversity  Index  itself,  however,  is  a  blunt  tool 
 capable  only  of  capturing  and  measuring  large  effects  or  trends  in  typical  markets.  Thus,  the  DI  change  from  a  particular  transaction  in  a  particular  market  might  be  more  or  less  than  we  anticipate,  or  that  it 
 might  result  in  a  market  DI  higher  or  lower  than  that  suggested  by  our  examples.  This  is  of  no  moment  as  the  DI  is  a  tool  useful  only  in  the  aggregate  and  will  not    and  cannot  in  its  current  form  -  be  applied  on  a 
 particularized  basis. 
 399.  There  are  several  conservative  assumptions  in  our  analysis  of  viewpoint  concentration.  First,  we  premise  our  analysis  on  people's  actual  usage  patterns  across  media  today.  Fox  reasonably 


 argues  that  the  Commission  should  set  ownership  limits  based  on  the  availability  of  news  sources  irrespective  of  their  particular  usage  rates  by  consumers.  901  The  record  contains  evidence  that  most 
 people  can  and  do  substitute  among  different  media  for  news  and  information.  902  Nonetheless,  our  method  for  measuring  viewpoint  diversity  weights  outlets  based  on  the  way  people  actually  use  them 
 rather  than  what  is  actually  available  as  a  local  news  source.  We  adopt  this  approach  out  of  an  abundance  of  caution  because  we  are  protecting  our  core  policy  objective  of  viewpoint  diversity.  Second,  our 
 diversity  analysis  is  based  on  preserving  viewpoint  diversity  among  local,  not  national,  news  sources.  The  effect  is  that  we  exclude,  for  purposes  of  measuring  viewpoint  concentration,  the  large  number  of 
 national  news  sources  such  as  all-  news  cable  channels  and  news  sources  on  the  Internet  and  instead  focus  exclusively  on  the  smaller  set  of  outlets  that  people  rely  on  for  local  news.  Excluding  those  national 
 sources  thus  leaves  us  with  a  smaller  set  of  'market  participants'  that  we  regulate  to  protect  local  news  diversity  in  a  way  that  might  be  unnecessary  to  protect  diversity  among  national  news  sources.  Third,  we 
 do  not  include  low  power  television  and  low  power  radio  stations  in  measuring  viewpoint  diversity.  These  stations  are  often  operated  with  the  express  purpose  of  serving  niche  audiences  with  ethnic  or 
 political  content  that  larger  media  outlets  do  not  address.  These  low  power  outlets  promote  viewpoint  diversity  in  a  way  that  we  have  not  addressed  because  of  their  more  limited  reach,  but  collectively  they 
 enhance  viewpoint  diversity  beyond  the  levels  that  are  reflected  in  our  Diversity  Index  measurements. 
 400.  We  conclude  that  each  of  these  judgments  that  inform  our  viewpoint  diversity  analysis  are  sound,  but  in  each  case  we  make  the  most  conservative  assumption  possible.  Thus,  the  results  of  our 


 diversity  index  analysis  can  fairly  be  said  to  understate  the  true  level  of  viewpoint  diversity  in  any  given  market. 


 b.  Choice  of  Media 
 401.  We  have  determined  which  media  to  include  in  the  Diversity  Index  based  on  the  survey  information  derived  from  the  Consumer  Survey  on  Media  Usage  prepared  by  Nielsen  Media  Research 


 (FCC  MOWG  Study  No.  8).  This  survey  tells  us  how  consumers  perceive  the  various  media  as  sources  of  news  and  information.  The  key  threshold  implication  of  this  study  is  that  consumers  use  multiple  media 
 as  sources  of  news  and  current  affairs,  and  hence  that  different  media  can  be  substitutes  in  providing  viewpoint  diversity.  For  example,  consider  a  citizen  who  acquires  local  news  from  television, 
 newspapers,  and  radio.  Suppose  that  a  group  of  citizens  in  the  consumers  home  town  wishes  to  oppose  a  bond  issue  for  a  new  sports  stadium,  and  that  the  local  newspaper  and  television  stations  favor  the  bond 
 issue  and  choose  not  to  cover  the  position  of  opponents.  If  the  opponents  nevertheless  get  radio  coverage 


 901  Fox  Comments  at  59. 
 902  MOWG  Study  No.  3  at  80. 
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 for  their  position,  they  would  be  able  to  reach  this  particular  citizen.  Indeed,  one  might  think  that  part  of  the  radio  coverage  might  address  the  fact  that  other  media  are  ignoring  the  story.  This  could  then  raise 
 the  profile  of  the  story  to  a  level  that  might  attract  newspaper  or  television  coverage.  We  put  forward  this  hypothetical  sequence  of  events  not  because  we  think  that  it  describes  a  process  that  will  happen  with 
 respect  to  any  particular  controversy.  Rather  it  is  a  useful  illustration  of  the  process  by  which  markets  with  multiple  independent  media  outlet  owners  operate,  particularly  in  an  environment  in  which  citizens 
 generally  do  not  depend  on  a  single  medium  for  their  local  news  and  current  affairs. 
 402.  FCC  MOWG  Study  No.  8  asked  respondents  to  identify  the  sources,  if  any,  used  in  the  past  7  days  for  local  news  and  current  affairs.  The  same  question  was  posed  for  national  news  and 


 current  affairs.  The  choices  offered  were  television,  newspaper,  radio,  Internet,  magazines,  friends/  family,  other,  none,  dont  know,  and  refuse.  The  survey  then  asked  follow-  up  questions  regarding 
 the  first  five  choices.  For  each  one  of  the  five  sources,  respondents  who  did  not  mention  a  source  were  asked  specifically  if  they  used  that  source  for  local  news  and  current  affairs.  The  survey  posed  analogous 
 questions  with  regard  to  national  news  and  current  affairs.  Based  on  the  initial  and  follow-  up  questions,  the  survey  presents  summary  data  on  sources  of  local  and  of  national  news  and  current  affairs 
 information. 
 403.  In  an  ex  parte  communication  filed  May  28,  2003,  Media  General  submitted  a  critique  of  MOWG  Study  No.  8  by  Prof.  Jerry  A.  Hausman.  Hausman  argues  that  the  Nielsen  Survey  has  a  number 


 of  serious  flaws  and  questions  its  usefulness  in  any  rule-  making  concerning  cross-  ownership  of  newspapers  and  broadcast  stations.  903  First,  he  claims  that  the  low  response  rate  of  the  survey  may  lead  to 
 biased  results.  904  Second,  he  argues  that  survey  questions  about  hypothetical  future  circumstances  are  unreliable.  He  cites  a  number  of  cases  where  respondents,  presented  with  relatively  simple  questions,  are 
 unlikely  to  consider  the  full,  complete  implications  if  a  particular  form  of  media  were  to  become  unavailable.  905  Third,  he  argues  that  the  survey  asks  no  questions  that  address  the  newspaper/  broadcast 
 cross-  ownership  issues.  906 
 404.  We  recognize  Professor  Hausmans  concerns,  but  we  believe  that  the  Nielsen  survey  sample  of  3,136  households  provides  us  with  useful  information.  In  addition,  Professor  Hausman 


 provides  no  evidence  that  the  sample  is,  in  fact,  biased.  Concerning  Hausmans  second  point,  we  agree  that  answers  to  hypothetical  questions  are  less  useful  than  information  about  actual  behavior.  MOWG 
 Study  No.  8  provides  a  substantial  amount  of  information  on  reported  actual  behavior.  It  is  this  information,  not  the  hypotheticals,  on  which  we  rely  to  conclude  that  media  can  be  substitutes  in 
 providing  viewpoint  diversity  and  to  construct  our  Diversity  Index.  Regarding  Hausmans  third  point,  although  the  Nielsen  survey  may  not  directly  ask  respondents  for  their  views  concerning  specific  cross- 


 903  Statement  by  Jerry  Hausman,  Media  General  Notification  of  Ex  Parte  Communication  (May  28,  2003) 
 904  See  Hausman  at  3. 
 905  For  example,  he  cites  where  the  Nielsen  survey  asks  whether  respondents  would  be  more  likely  to  use  cable 
 or  satellite  news  channels  for  news  if  broadcast  TV  channels  were  not  available.  He  notes  that  the  question  does  not  ask  the  respondent  to  consider  a  number  of  important  factors,  such  as  whether  VHF  and  UHF  news  programs 


 would  cease  to  exist  or  whether  only  cable  and  satellite  news  programs  would  remain.  Since  it  is  not  clear  what  hypothetical  world  the  respondents  are  assuming,  Hausman  argues,  the  results  of  the  survey  are  not  reliable. 
 Hausman,  at  4-  5. 
 906  Hausman  at  6. 
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 ownership  scenarios,  we  find  that  the  results  of  the  survey  are  useful  in  a  number  of  areas,  such  as  which  forms  of  media  are  most  heavily  used  for  news.  While  questions  could  have  been  posed  that  contained 
 more  specificity  concerning  cross-  ownership  rules,  we  understand  that  such  complexities  could  have  made  the  survey  design  more  difficult,  as  well  as  possibly  lowered  the  response  rate.  Overall,  while 
 Hausman  claims  that  the  Nielsen  survey  does  not  provide  a  basis  for  the  measurements  necessary  for  the  specification  of  policy,  907  the  survey  does,  in  fact,  help  us  establish  an  exchange  rate  for  converting 
 newspaper,  television,  radio,  and  other  media  into  common  units  so  we  can  measure  the  extent  of  concentration  in  the  market  of  ideas.  Finally,  we  emphasize  that  the  Commission  has  not  relied  solely 
 on  the  results  of  the  Nielsen  survey,  but  has  used  a  number  of  studies  and  its  own  expert  judgment  on  media  in  reaching  its  decision. 


 405.  The  data  in  the  Nielsen  study  indicate  that  television,  newspapers,  radio,  Internet,  and  magazines  are  the  leading  sources  of  news  and  current  affairs  programming.  908  Indeed,  the  summary  data 
 tables  list  only  those  five  sources.  In  the  initial  questions,  less  than  one  percent  of  respondents  cite  other  as  a  source.  Based  on  the  initial  question,  the  average  respondent  uses  two  of  the  five  major 
 sources  for  news  and  current  affairs,  whether  the  category  is  local  or  national.  Taking  account  of  the  follow-  up  questions,  the  average  respondent  uses  three  of  the  five  major  sources  for  news  and  current 
 affairs,  again  regardless  of  whether  the  category  is  national  or  local.  909  These  data  strongly  suggest  that  citizens  do  use  multiple  media  as  sources  of  viewpoint  diversity,  and  that  media  can  be  viable  substitutes 
 for  one  another  for  the  dissemination  of  news,  information  and  viewpoint  expression.  On  the  basis  of  this  finding,  we  proceed  to  an  analysis  of  local  media  markets  and  whether  there  are  particular  kinds  of  cross-media 
 transactions  in  particular  kinds  of  markets  that  would  likely  result  in  high  levels  of  concentration.  To  assist  in  making  that  determination,  we  rely  in  part  on  our  Diversity  Index. 


 406.  Our  Diversity  Index  focuses  on  availability  of  sources  of  local  news  and  current  affairs.  As  we  explained  in  our  policy  goals  section  above,  we  are  concerned  with  promoting  viewpoint  diversity  in 
 local  media  markets.  Owners  of  media  outlets  clearly  have  the  ability  to  affect  public  discourse.  Consumers  have  numerous  sources  of  national  news  and  information  available  to  them.  Three  major 
 commercial  broadcast  networks,  ABC,  NBC,  and  CBS,  provide  this  material  and  are  available  to  98%  of  US  television  households.  910  Several  nonbroadcast  networks  also  provide  national  news  and  current 
 affairs  information  also  are  widely  available.  Subscribership  to  CNN  is  77.4%  of  US  television  households.  911  The  comparable  figures  for  Headline  News,  Fox  News,  MSNBC,  and  CNBC  are  74.1%, 
 71.8%,  68.4%,  and  74.9%,  respectively.  912  Local  newspapers  generally  provide  information  on  national  issues,  and  a  variety  of  major  newspapers  have  national  footprints.  They  include  USA  Today,  the  Wall 


 907  Hausman  at  3. 
 908  MOWG  Study  No.  8  at  Tables  97  and  98. 
 909  The  average  respondent  uses  2.93  different  media  for  local  and  2.71  different  media  for  national  news  and 
 current  affairs. 
 910  See  OPP  Working  Paper  37  at  48.  In  January  2002,  there  were  105.5  million  television  households  in  the  U.  S. 
 See  Television  Advertising  Bureau,  Trends  in  Television  at  www.  tvb.  org. 
 911  See  Kagan  World  Media,  Cable  Television  Investor  (July  29,  2002)  at  14. 


 912  Id.  The  total  television  households  figure  (105.5  million)  is  for  January  2002  and  is  from  Television 
 Advertising  Bureau,  Trends  in  Television  at  www.  tvb.  org. 
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 Street  Journal,  the  New  York  Times,  and  others.  Moreover,  a  wide  range  of  newspapers  are  available  on-line  at  no  charge.  National  news  magazines,  such  as  Time,  Newsweek,  US  News  and  World  Report,  and 
 more  specialized  political  journals,  such  as  Weekly  Standard  and  New  Republic  are  also  widely  available.  913  Therefore  we  do  not  believe  that  governmental  regulation  is  needed  to  preserve  access  to 
 multiple  sources  of  national  news  and  public  affairs  information. 
 407.  The  Diversity  Index  incorporates  information  on  respondents  usage  of  television,  newspapers,  radio,  and  the  Internet.  Respondents  also  reported  getting  local  news  and  information  from 


 magazines.  914  We  exclude  magazines,  however,  from  our  Diversity  Index.  First,  as  the  description  above  makes  clear,  most  (but  not  all)  news  magazines  have  a  national  rather  than  a  local  focus.  Although  there 
 are  exceptions  (e.  g.,  the  Washingtonian  and  Texas  Monthly),  the  figures  in  MOWG  Study  No.  8  on  magazines  use  appear  to  be  overstated.  This  simplification  and  assumption  is  supported  by  other  aspects 
 of  the  study.  For  example,  unlike  newspapers,  radio,  and  television,  almost  no  one  cited  magazines  as  their  primary  source  of  news  and  current  affairs.  MOWG  Study  No.  8  includes  a  question  asking 
 respondents  to  identify  their  single  primary  source  of  local  or  national  news  and  current  affairs.  The  figure  for  magazines  is  0.6%.  915  A  2000  study  by  the  Pew  Research  Center  for  the  People  and  the  Press 
 provides  similar  results.  916  The  study  examines  Trends  in  Regular  News  Consumption  and  finds  that  12%  of  respondents,  but  only  4.2%  of  responses  cite  news  magazines.  An  even  lower  share,  5%  of 
 respondents  and  1.7%  of  responses,  cite  business  magazines.  Moreover,  these  figures  include  consumption  of  national  as  well  as  local  news.  The  share  of  the  sample  utilizing  magazines  for  local 
 news  is  smaller,  perhaps  considerably  so.  The  Pew  Center  data  support  our  inference  that  magazines  play  a  negligible  role  overall  as  a  source  of  local  news.  We  must  also  note  that,  although  the  actual  local  news 
 figure  is  small,  because  both  the  MOWG  Study  No.  8  and  Pew  Center  figures  combine  local  and  national  news,  the  precise  magnitude  of  the  local  news  figure  is  uncertain.  Hence  we  are  unable  to  assign  to 
 magazines  a  weight  (even  a  small  weight)  in  which  we  would  have  confidence.  Nonetheless,  the  decision  to  exclude  magazines  will  be  re-  examined  in  the  next  biennial  review,  and  we  will  take  the  opportunity  to 
 gather  additional  survey  data  at  that  time  on  magazine  usage. 
 408.  For  similar  reasons,  we  also  exclude  cable  from  our  Diversity  Index.  As  discussed  in  the  following  section,  we  are  concerned  that  some  consumers  may  have  confused  broadcast  and  cable 


 television.  Thus,  we  believe  some  consumers  who  replied  that  they  receive  their  local  news  from  cable  may  have  been  viewing  broadcast  channels  over  the  cable  platform.  We  also  recognize,  however,  that 
 cable  systems  do  provide  local  news  and  current  affairs  information  through  PEG  channels  and,  in  some  markets,  local  news  channels.  However,  we  do  not  have  accurate  data  for  this  measure.  Because  we  do 
 not  have  reliable  data  on  this  point,  we  exclude  cable  from  the  DI  to  simplify  our  general  analysis.  917 


 913  See  Appendix  B  for  a  summary  list  of  major  national  news  sources.  We  note  that  some  of  the  sources  for 
 national  news  and  information  are  owned  by  the  same  companies  but  we  continue  to  believe  that  consumers  have  numerous  independently  owned  sources  of  national  news  and  information. 


 914  Six  percent  of  respondents  answered  that  they  received  their  local  news  and  information  from  magazines. 
 915  MOWG  Study  No.  8,  Table  20. 
 916  Pew  Research  Center  for  the  People  and  the  Press,  Internet  Sapping  Broadcast  News  Audience,  http://  people-press. 
 org/  reports/  display.  php3?  PageID=  203. 
 917  As  with  magazines,  we  will  review  this  issue  in  the  next  biennial  review,  and  may  collect  at  that  time  more 
 accurate  survey  data  on  consumers  use  of  cable  for  local  news  and  current  affairs. 
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 c.  Weighting  Different  Media 
 409.  We  have  concluded  that  various  media  are  substitutes  in  providing  viewpoint  diversity,  but  we  have  no  reason  to  believe  that  all  media  are  of  equal  importance.  Indeed  the  responses  to  the  survey 


 make  it  clear  that  some  media  are  more  important  than  others,  suggesting  a  need  to  assign  relative  weights  to  the  various  media.  In  view  of  our  focus  on  local  news  and  current  affairs,  we  choose  to  base  our 
 weights  on  survey  responses  to  the  question  asking  respondents  to  identify  the  sources,  if  any,  used  in  the  past  7  days  for  local  news  and  current  affairs.  918  We  recognize  that  this  is  not  a  perfect  measure,  and 
 that  it  requires  some  adjustment.  We  justify  these  adjustments  and  assumptions,  however,  by  emphasizing  that  we  are  using  the  DI  only  to  inform  us  of  general  market  trends,  not  for  precise 
 measurements. 
 410.  As  noted  above,  the  average  respondent  uses  three  different  media  for  local  news  and  current  affairs  information.  It  is  likely  that,  for  a  given  respondent,  the  three  are  not  all  of  equal 


 importance.  If  media  differ  in  importance  systematically  across  respondents  (e.  g.,  if  television  were  most  important  to  everyone,  and  everyone  made  only  minor  use  of  radio  to  acquire  news  and  current  affairs 
 information),  then  it  would  be  misleading  to  weight  all  responses  equally. 
 411.  Unfortunately,  we  do  not  have  data  on  this  question  specifically  with  regard  to  local  news  and  current  affairs.  The  available  primary  source  data  address  local  and  national  news  together  and  do 


 show  that  different  media  have  different  importance,  in  the  sense  that  primary  usage  differs  across  media.  919  Because  primary  source  data  are  not  available  for  local  news  and  current  affairs  alone,  we 
 use  the  data  identifying  sources  of  local  news  and  public  affairs  programming  to  weight  the  various  media  to  reflect  relative  usage.  As  noted  below,  this  leads  to  lower  shares  for  television  and  higher  shares  for 
 radio  than  the  primary  source  shares  reflect. 
 412.  The  local  response  summary  data,  Table  97  of  MOWG  Study  No.  8,  include  five  categories  of  media  Internet,  magazines,  radio,  newspaper,  television.  Magazines  account  for  6.8%  of  responses  to 


 the  questions  on  source  of  local  news  and  current  affairs.  We  exclude  magazines  as  explained  above  and  normalize  the  shares  of  the  four  remaining  media  to  sum  to  100%.  The  resulting  weights  are  television 
 (33.8%),  newspapers  (28.8%),  radio  (24.9%),  and  Internet  (12.5%).  920  The  local  response  summary  data  do  not  break  down  the  television  responses  between  broadcast  television  and  cable/  satellite  television. 
 Nor  do  these  data  separate  out  usage  of  daily  and  weekly  newspapers.  We  make  use  of  other  FCC  MOWG  Study  No.  8  questions  to  apportion  the  newspaper  shares  further. 


 413.  Although  the  responses  to  one  question  in  MOWG  Study  No.  8  suggests  that  cable  is  a  significant  source  of  local  news  and  current  affairs,  other  data  from  the  study  casts  some  doubt  on  this 
 result.  The  following  discussion  explains  the  reasoning  that  leads  us  to  exclude  cable/  satellite  television  from  the  current  analysis  of  local  news  and  current  affairs  for  diversity  purposes.  As  a  threshold  matter, 
 DBS  currently  provides  little  or  no  local  nonbroadcast  content.  We  do,  however,  recognize  that  cable  provides  some  such  content  and  that  it  is  becoming  a  more  important  source  of  local  news  and 


 918  MOWG  Study  No.  8,  Table  97. 
 919  Id.,  Table  20. 
 920  The  primary  use  weights,  excluding  magazines,  are  television  (57.8%),  newspapers  (25.8%),  radio  (10.3%), 
 and  Internet  (6.1%).  When  magazines  are  included  their  weight  is  0.6%.  Id. 
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 information.  Some  markets  do  have  commercial  local  news  channels  on  cable.  921  Moreover,  at  least  one  national  cable  news  service  (CNN  Headline  News)  provides  a  five-  minute  local  cut-  in  every  half  hour 
 in  some  markets.  Additionally,  local  public,  educational,  and  governmental  (  PEG)  channels  provide  some  local  news  and  information,  although  the  extent  of  their  impact  is  unclear.  MOWG  Study  No.  8 
 asked  respondents  who  get  local  news  and  current  affairs  from  television  (table  8)  to  indicate  if  the  source  is  broadcast  television  channels,  cable  or  satellite  news  channels,  some  other  channel,  dont  know, 
 or  refuse.  Virtually  all  responses  fell  into  the  first  two  categories,  with  46.4%  of  respondents  who  get  local  news  from  television  identifying  cable  as  their  source.  922 


 414.  Our  experience  suggests  that  the  local  cable  news  response  is  too  high.  A  review  of  the  responses  reported  in  tables  6,  16,  and  18  of  MOWG  Study  No.  8  support  this  assumption.  Table  18 
 provides  responses  from  all  who  get  news  (local  or  national)  from  cable  to  the  question  what  are  the  names  of  the  news  channels  you  watched  in  the  past  7  days  on  cable  or  satellite  for  local  or  national  news 
 or  current  affairs?  The  list  from  which  respondents  can  choose  includes  CNN,  Fox  News  Channel,  MSNBC,  Local  Cable  News  Channels,  Headline  News,  CNBC,  Other,  Dont  Know,  and  Refuse.  The  last 
 two  choices  get  minimal  response,  but  27.5%  of  responses  are  Other.  This  suggests  that  some  people  may  be  counting  retransmitted  broadcast  signals  on  cable  or  satellite  as  cable  or  satellite  channels.  923 
 Moreover,  joint  examination  of  the  responses  reported  in  tables  6,  16,  and  18  make  it  possible  to  infer  that  94.3%  of  those  who  get  news  from  cable  (the  table  18  universe)  claim  to  get  at  least  some  local  news 
 from  cable.  However,  only  6.1%  of  responses  mention  local  cable  news  channels.  924  This  disparity  makes  us  question  the  responses  regarding  local  news  via  cable  and  satellite  channels  and  supports  our 
 conclusion  that  weighting  cable  46.4%  is  too  high.  An  additional  reason  that  leads  us  to  question  cable  as  a  local  news  source  is  that,  of  those  local  cable  channels  that  meet  Nielsens  minimum  reporting 
 standards,  they  are  the  least  watched  of  any  broadcast  or  cable  stations  in  the  market.  925  Given  the  low  viewing  of  PEG  channels  and  the  facts  that  only  one-  third  of  cable  subscribers  have  access  to  a  local 
 cable  news  channel  and  we  do  not  have  an  accurate  cable  figure  to  use,  we  believe  excluding  cable  from  the  Diversity  Index  on  a  national  basis  is  a  reasonable  assumption.  We  will  review  the  status  of  cable  as  a 
 local  news  provider  in  the  2004  biennial  review.  Our  review  will  include  a  follow-  up  to  MOWG  Study  No.  8,  which  will  include  more  detailed  questions  regarding  the  use  of  nonbroadcast  video  media  for  local 
 news  and  current  affairs. 


 921  Roughly  one-  third  of  cable  subscribers,  22.3  million,  had  access  to  a  local  or  regional  news  channel  in  July 
 2002.  See  OPP  Working  Paper  37  at  126. 
 922  The  corresponding  figure  for  national  news  (from  table  16)  is  51.1  percent. 


 923  Because  all  cable  systems  carry  local  broadcast  stations  pursuant  to  our  signal  carriage  rules,  and  because  DBS 
 carriers  provide  local  broadcast  signals  in  many  markets,  also  pursuant  to  our  signal  carriage  rules,  it  is  possible,  even  likely,  that  the  other  category  actually  reflects  viewing  of  retransmitted  broadcast  signals.  If  we  assume  that 


 viewers  are  likely  to  be  familiar  with  local  broadcast  signals,  it  is  not  likely  that  the  dont  know  category  includes  broadcast  signal  viewing. 


 924  Local  cable  news  channels  are,  unlike  the  Internet,  not  available  everywhere,  but  only  in  select  markets.  Only 
 approximately  one-  third  of  cable  subscribers  have  access  to  such  channels.  See  OPP  Working  Paper  37  at  126.  The  ownership  limits  apply  nationwide,  and  the  diversity  index  is  intended  to  help  us  define  these  ownership 


 limits.  This  was  an  additional  reason  for  excluding  cable  from  the  DI  while  counting  the  Internet. 
 925  Nielsen  Television  Index  (Nov.  2000). 
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 415.  With  regard  to  newspapers,  MOWG  Study  No.  8  indicates  that  61.5%  of  those  who  cite  newspapers  as  a  source  of  local  news  and  current  affairs  acquire  that  information  from  dailies  only,  10.2% 
 from  local  weeklies  only,  and  27.3%  from  both.  926  This  works  out  to  a  share  of  70.3%  daily  and  29.7%  weeklies.  We  use  these  weights  to  divide  the  total  newspaper  share  (28.8%)  among  daily  and  weekly 
 newspapers.  Our  next  biennial  review  will  provide  an  opportunity  for  re-  examination  of  the  role  of  weekly  newspapers.  Accounting  for  the  additional  information  on  newspapers  results  in  a  revised  set  of 
 weights.  They  are:  broadcast  television  33.8%,  daily  newspapers  20.2%,  weekly  newspapers  8.6%,  radio  24.9%,  and  Internet  12.5%. 


 416.  Various  commenters  agree  that  MOWG  Study  No.  8  supports  the  conclusion  that  citizens  do,  in  fact,  see  different  media  as  alternative  sources  of  news.  For  example,  NAA  opines  that  the  study, 
 a  comprehensive  survey  shows  that  the  public  makes  ample  use  of  a  broad  assortment  of  outlets  and  that  it  demonstrates  that  the  public  relies  heavily  on  a  range  of  alternative  media.  927  Fox  opines  that  the 
 study  demonstrates  that  consumers  are  utilizing  the  wide  variety  of  media  available  to  them  to  obtain  both  local  and  national  news  and  information.  Later,  this  commenter  states  that  this  study,  along  with 
 another  study  discussed  in  the  comments  demonstrates  that  consumers  are  adept  both  at  using  various  sources  to  obtain  information  and  at  using  multiple  sources  simultaneously.  928  Critics  of  MOWG  Study 
 No.  8  include  AFL-  CIO  and  AFTRA,  both  of  whom  rely  on  a  paper  by  Baker,  attached  to  the  AFL-  CIO  comments.  929  The  Baker  submission  refers  to  the  fact  that  MOWG  Study  No.  8  reports  responses  to  a 
 number  of  hypothetical  questions  regarding  how  respondents  would  behave  if  the  availability  to  them  of  certain  media  were  to  change.  Baker  observes  that  the  study  looks  at  what  people  say  they  will  do  and 
 goes  on  to  assert  that  [  E]  conomists  usually  prefer  looking  at  what  people  do.  930  We  agree  that  answers  to  hypothetical  questions  are  less  useful  than  information  about  actual  behavior.  MOWG  Study  No.  8 
 provides  a  substantial  amount  of  information  on  reported  actual  behavior.  It  is  this  information,  not  the  hypotheticals,  on  which  we  rely  to  conclude  that  media  can  be  substitutes  in  providing  viewpoint 
 diversity  and  to  construct  our  Diversity  Index.  It  is  worth  noting  in  this  connection  that  much  of  the  information  we  have  on  radio  listening  and  television  viewing  is  also  based  on  reports  by  listeners  and 
 viewers  of  their  behavior.  Moreover,  the  information  in  MOWG  Study  No.  8  on  the  range  of  media  that  citizens  use  for  news  and  information  is  quite  similar  to  the  results  of  a  recent  independent  survey  by  the 
 Pew  Research  Center.  931 
 417.  The  most  detailed  analysis  of  MOWG  Study  No.  8  comes  from  the  Consumer  Federation  of  America.  932  CFA  agrees  that  citizens  get  viewpoint  diversity  from  multiple  media.  Their  comments  refer 


 to  the  two  dominant  political  media  daily  newspapers  and  television,  although  CFA  asserts  that  these 


 926  MOWG  Study  No.  8,  Table  7. 
 927  NAA  Comments  at  8. 
 928  Fox  Comments  at  11,  25. 
 929  See  AFL-  CIO  Comments  at  12  and  Baker  Study  at  12-  14  ;  AFTRA  Comments  at  8. 
 930  Baker  Study  at  14. 
 931  Pew  Research  Center  for  the  People  and  the  Press,  Sources  for  Campaign  News,  Fewer  Turn  to  Broadcast  TV 
 and  Papers,  (Apr.  27,  2003)  at  http://  people-  press.  org/  reports/  display.  php3?  PageID=  243. 
 932  See  generally  CFA  Comments  at  94-  147. 
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 media  appear  to  play  very  different  roles.  As  noted  above,  television  has  the  largest  weight  in  the  DI  (33.8%)  and  daily  newspapers  also  loom  large  at  20.2%.  Although  the  radio  weight  is  somewhat  higher 
 at  24.9%,  the  fact  that  markets  generally  have  far  more  radio  stations  than  daily  newspapers  make  our  weights  consistent  with  CFAs  conclusion  that  newspapers  are  among  the  two  most  influential  media. 
 CFA  finds  that  the  Internet  plays  a  small  but  growing  role  in  citizen  acquisition  of  news  and  information,  a  finding  not  inconsistent  with  the  relatively  low  weight  of  Internet  in  our  DI.  CFA  quotes  statistics  on 
 daily  use  of  television,  newspapers,  radio,  and  Internet  that  yield  usage  shares  not  too  different  from  our  DI  weights.  Drawing  on  two  surveys,  CFA  suggests  that  people  spend  4  minutes  per  day  on  average 
 gathering  news  from  the  Internet,  25  minutes  reading  newspapers,  15  minutes  listening  to  radio  news,  and  over  half  an  hour  watching  television  news.  933  Ascribing  half  an  hour  to  television  leads  to  shares  of 
 40.5%  for  television,  33.8%  for  newspapers,  20.3%  for  radio,  and  5.4%  for  Internet.  These  are  fairly  close  to  our  DI  weights  of  33.8%,  28.8%,  24.9%,  and  12.5%  for  television,  newspapers,  radio,  and 
 Internet,  respectively. 
 418.  Although  CFA  does  not  dispute  the  proposition  that  different  media  address  the  same  issues  and  stories,  it  asserts  that  they  do  so  in  different  ways,  suggesting,  inter  alia,  that  television  is  the 


 primary  source  for  breaking  news,  that  newspapers  have  a  larger  role  in  the  follow-  up  function,  and  that  talk  shows  are  a  new  and  significant  element  of  radios  role  in  disseminating  viewpoints.  934  Although 
 CFA  does  not  discuss  the  role  of  radio  as  a  source  of  breaking  news,  we  acknowledge  that  different  media  do  present  information  in  different  ways.  CFA  also  argues  that,  particularly  for  high  use  respondents 
 (the  one-  third  of  respondents  in  MOWG  Study  No.  8  whose  total  media  use  was  above  the  sample  average)  there  is  evidence  that  the  media  are  complements  rather  than  substitutes,  i.  e.,  people  who  use 
 more  of  one  medium  tend  to  use  more  of  the  others.  For  the  low  use  respondents  (the  one-  half  of  respondents  whose  total  media  use  was  below  the  sample  median),  in  many  cases  there  are  negative 
 correlations  in  usage  across  many  pairs  of  media.  CFA  suggests  that  this  is  consistent  with  substitution.  935  Thus,  CFA  appears  to  conclude  that  media  are  substitutes  for  some  citizens  and 
 complements  for  others. 
 419.  We  disagree  with  CFA's  conclusion  that  the  DI  is  invalid  because  some  citizens  may  consider  certain  media  outlets  complements  rather  than  substitutes.  In  the  technical  economic  sense,  two 


 goods  are  substitutes  if  an  increase  in  the  price  of  good  A  (which  leads  to  a  decrease  in  consumption  of  good  A)  leads  to  an  increase  in  the  consumption  of  good  B.  In  the  context  of  our  diversity  goal,  we  are 
 concerned  with  the  question  of  what  happens  when  one  or  more  media  outlets  refuses  to  transmit  a  particular  viewpoint.  If  most  citizens  accessed  only  one  type  of  outlet,  e.  g.,  radio  but  not  newspapers  or 
 television,  then  our  diversity  goal  would  prompt  us  to  analyze  separately  the  structure  of  the  radio  marketplace  of  ideas.  If,  on  the  other  hand,  most  citizens  access  multiple  media,  then  we  can  rely  on  the 
 reasonable  probability  that,  if,  e.  g.,  the  local  newspaper  refused  to  cover  a  particular  story,  citizens  would  be  exposed  to  that  story  via  independently-  owned  other  media,  such  as  radio  or  television.  In  other 
 words,  evidence  that  media  are  complements  in  the  sense  that,  for  at  least  some  citizens,  there  is  a  positive  correlation  between  use  of  one  medium  and  use  of  another,  does  not  invalidate  the  premise  underlying  the 
 DI. 


 933  Id.  at  109. 
 934  Id.  at  112,  100. 
 935  Id.  at  142-  145. 
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 d.  Weighting  Outlets  Within  the  Same  Medium 
 420.  Having  decided  on  relative  weights  for  the  various  media,  we  next  confront  whether  and  how  to  weight  different  media  outlets  within  each  category.  The  decision  of  whether  to  do  weighting 


 turns  on  whether  our  focus  is  on  the  availability  of  outlets  as  a  measure  of  potential  voices  or  whether  it  is  on  usage  (i.  e.,  which  outlets  are  currently  being  used  by  consumers  for  news  and  information).  We  have 
 chosen  the  availability  measure,  which  is  implemented  by  counting  the  number  of  independent  outlets  available  for  a  particular  medium  and  assuming  that  all  outlets  within  a  medium  have  equal  shares.  In  the 
 context  of  evaluating  viewpoint  diversity,  this  approach  reflects  a  measure  of  the  likelihood  that  some  particular  viewpoint  might  be  censored  or  foreclosed,  i.  e.,  blocked  from  transmission  to  the  public. 


 421.  The  underlying  assumption  here  is  that  all  outlets  have  at  least  similar  technical  coverage  characteristics.  This  is  a  good,  but  not  perfectly  accurate  assumption.  Our  signal  carriage  rules  more  or 
 less  equalize  the  coverage  of  all  television  stations  in  a  particular  DMA,  936  and  it  appears  that  newspapers  (even  those  with  limited  current  circulation)  can  expand  their  circulation  area  at  relatively  low  cost.  That 
 is,  assuming  that  additional  readers  are  interested  in  the  content,  additional  delivery  personnel  and  vending  machines  are  readily  available  at  low  cost.  However,  the  assumption  is  less  certain  for  radio.  For 
 example,  a  Class  C  FM  station  and  a  daytime  AM  station,  in  fact,  have  different  coverage  characteristics.  The  Class  A  station  cannot  expand  its  coverage  to  match  that  of  the  Class  C  FM  station  and  thus  reach 
 additional  listeners  who  might  otherwise  not  have  access  to  the  views  expressed  on  this  outlet.  Nevertheless,  we  believe  the  assumption  to  be  reasonable  across  all  cases.  Arbitron  radio  metros  are 
 smaller  than  many  radio  station  service  areas  and  so  would  have  the  effect  of  truncating  the  service  areas  of  more  powerful  stations.  In  addition,  even  though  radios  total  diversity  share  is  24.9%,  on  average 
 there  are  enough  radio  stations  so  that  the  per-  station  share  is  fairly  small.  Any  distortion  in  share  by  overestimating  the  reach  of  small  radio  stations  is  therefore  small. 


 422.  Even  though  we  choose  to  assign  the  same  weight  to  each  outlet  of  a  particular  medium,  we  reiterate  the  importance  of  assigning  different  weights  to  different  media.  As  noted  above  in    409  et 
 seq.,  different  media  are  of  different  importance.  The  differences  in  usage  across  media  documented  in  MOWG  Study  No.  8  are  in  part  reflections  of  the  differential  impact  on  the  user  of  television,  radio, 
 newspapers,  etc.  We  believe  that  the  overall  impact  of  a  medium  is  substantially  determined  by  the  physical  attributes  of  its  distribution  technology,  along  with  user  preferences.  A  radio  station  owner  is 
 able  to  change  format,  say  from  classic  rock  to  all-  news,  and  thus  change  its  impact  on  the  marketplace  of  ideas.  But  a  radio  station  switching  to  all-  news  does  not  thereby  turn  itself  into  the  equivalent  of  a 
 television  station  nor  does  its  impact  on  the  marketplace  of  ideas  become  that  of  a  television  station.  Conversely,  if  a  home  shopping  television  station  began  to  carry  substantial  local  news  programming,  the 
 impact  on  the  marketplace  of  ideas  would  be  greater  than  that  of  the  former  classic  rock  radio  station. 
 423.  The  case  for  a  usage  measure  is  that  it  reflects  actual  behavior.  However,  current  behavior  is  not  necessarily  an  accurate  predictor  of  future  behavior.  Moreover,  in  order  to  implement  a  usage 


 measure  accurately,  it  would  be  necessary  for  us  to  define  which  content  should  be  considered  local  news  and  current  affairs.  Current  behavior,  e.  g.,  viewing  or  listening  to  a  broadcast  station,  is  based  on  the 
 content  provided  by  the  station  in  question.  However,  media  outlets  can  change  the  amount  of  news  and  current  affairs  that  they  offer,  perhaps  in  response  to  competitive  conditions  in  the  viewpoint  diversity 


 936  We  make  this  assumption  for  the  purposes  of  constructing  the  DI;  the  actual  differences  in  coverage  are 
 accounted  for  in  the  rules  themselves,  e.  g.,  the  UHF  discount  in  the  national  rule,  and  our  waiver  policy  in  the  local  TV  and  CML  rules  will  look  to  the  actual  reach  of  stations. 
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 marketplace.  Such  changes  are  unpredictable,  so  current  market  shares  (e.  g.,  of  viewing  or  listening)  may  not  be  good  predictors  of  future  behavior.  Indeed,  advocates  of  a  concentration  approach  to  diversity 
 analysis  have  noted  the  weakness  of  the  usage  approach,  pointing  out  that  [  E]  vidence  of  past  production  does  not,  as  a  matter  of  logic,  necessarily  give  a  proper  picture  of  a  companys  future  ability  to  compete.   
 Only  in  examining  its  structure,  history  and  probably  future,  does  one  provide  the  appropriate  setting  for  judging  the  probably  anticompetitive  effect  of  the  merger  937  This  point  has  particular  force  when 
 dealing  with  competition  in  the  marketplace  of  ideas  because  media  outlets  can  rapidly  expand  their  distribution  of  content  (including  local  news  and  current  affairs)  at  very  low  marginal  cost.  Of  course, 
 availability  of  media  can  also  change.  However,  this  is  less  likely  to  occur  than  is  change  in  the  program  schedule  or  station  format.  Moreover,  availability  is  far  more  likely  to  increase  than  decrease.  Although  a 
 broadcast  station  owner  could  turn  in  the  station  license  and  take  it  out  of  service,  this  happens  rarely  if  ever.  A  more  likely  scenario  is  an  increase  in  media  availability  as  a  new  station  enters  the  market. 


 424.  If  we  were  to  adopt  a  usage  measure  designed  to  reflect  our  concern  with  local  news  and  current  affairs,  we  would  need  information  on  viewing/  listening/  reading  of  local  news  and  current  affairs 
 material.  To  implement  this  procedure,  it  would  be  necessary  first  to  determine  which  programming  constituted  news  and  current  affairs.  We  believe  that  this  type  of  content  analysis  would  present  both 
 legal/  Constitutional  and  data  collection  problems.  News  and  current  affairs  content  is  not  necessarily  limited  to  regularly-  scheduled  news  programs.  So  we  could  be  faced  with  deciding  which  other  programs 
 were  news  and  current  affairs,  whether  some  portion  of  a  program  not  primarily  news  should  count  as  news,  and,  indeed,  whether  portions  of  a  news  report  devoted,  e.  g.,  to  movie  reviews  should  count  as 
 news.  Overall  ratings  or  (in  the  case  of  newspapers)  subscription  data  would  not  suffice.  Someone  who  subscribes  to  a  daily  newspaper  but  only  reads  the  (nationally-  distributed)  comics  and  the  classified 
 advertisements  is  undoubtedly  getting  a  valuable  service,  but  it  is  not  clear  that  the  service  has  anything  to  do  with  news  and  current  affairs.  Similarly,  a  television  station  that  attracts  large  audiences  by  virtue  of 
 its  movies  and  national  sports  programming  provides  an  important  service,  but  it  would  be  misleading  to  judge  the  stations  importance  as  a  local  news  outlet  by  its  overall  ratings. 


 425.  Ultimately,  our  goal  is  not  to  prescribe  what  content  citizens  access,  but  to  ensure  that  a  wide  range  of  viewpoints  have  an  opportunity  to  reach  the  public.  This  goal,  the  limitations  of  current 
 usage  as  a  predictor  of  future  usage,  and  the  content  classification  requirements  for  implementing  a  usage  measure  all  lead  us  to  adopt  an  equal  share  approach  to  weighting  outlets  within  the  same  medium. 


 426.  We  deviate  from  this  approach  only  in  the  case  of  the  Internet.  We  use  subscription  shares  to  divide  the  Internet  category  among  the  two  current  significant  sources  of  Internet  access  telephone 
 companies  and  cable  companies.  In  order  to  determine  the  number  of  subscribers  to  telephone  company  based  Internet  access,  it  is  necessary  to  add  together  dial-  up  and  DSL  subscribers.  Dial-  up  service  is 
 available  to  anyone  with  a  telephone  line  and  offers  a  low-  capacity  connection  (up  to  56  kbps).  DSL  service  offers  much  higher  speed  connections,  but,  due  to  the  requirements  of  the  technology  and  certain 
 physical  limitations  of  the  telephone  distribution  network,  it  is  not  available  everywhere.  Cable  companies  offer  high  speed  Internet  access,  and  most  cable  plant  has  been  upgraded  to  support  this 
 service.  Some  applications,  such  as  viewing  video  clips  of  news  and  other  content,  are  not  fully  supported  by  dial-  up  services.  Trade  and  industry  sources  estimate  that,  as  of  the  end  of  2002,  85  million  households 


 937  Maurice  E.  Stucke  and  Allen  P.  Grunes,  Antitrust  and  the  Marketplace  of  Ideas,  69  ANTITRUST  L.  J.  249,  277 
 (2001)  (quoting  U.  S.  v.  General  Dynamics  Corp.,  415  U.  S.  486,  501  (1974)). 
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 had  access  to  cable  high  speed  Internet  service  and  11.3  million  subscribed.  938  This  leaves  over  15  percent  of  households  without  access  to  cable  modem  service.  Moreover,  it  is  not  clear  how  the  areas  in  which 
 cable  modem  service  is  unavailable  compare  to  the  areas  in  which  DSL  is  unavailable.  We  therefore  think  it  prudent  to  use  subscriber  figures  to  calculate  how  to  divide  the  Internet  category  between  cable 
 and  telephone  companies. 
 427.  Table  78  of  FCC  MOWG  Study  No.  8  provides  information  on  Internet  access.  Respondents  who  said  they  have  home  access  to  the  Internet  were  asked  a  follow-  up  question  regarding 


 how  they  access  the  Internet.  The  answers  (in  percentages)  were  as  follows:  cable  line  18.9  percent,  DSL  line  14.7  percent,  telephone  line  66.1  percent,  other  3.5  percent,  dont  know  5.9  percent,  and  refuse  0.5 
 percent.  The  responses  sum  to  109.6  percent.  If  we  take  the  99.7  percent  of  respondents  who  picked  cable,  DSL,  or  telephone  line  as  the  base,  and  if  we  combine  telephone  and  DSL,  the  resulting  shares  are 
 19  percent  cable  and  81  percent  telephone.  We  recognize  that,  given  the  relatively  small  share  of  Internet  in  the  total  diversity  market  (12.5%  weight),  using  subscriber  shares  rather  than  equal  availability  for 
 Internet  providers  has  a  very  small  impact  on  our  Diversity  Index  calculation.  939  In  this  regard,  however,  we  reject  the  argument  made  by  some  commenters  that  we  should  not  include  the  Internet  at  all.  They 
 argue  that  people  only  utilize  the  Internet  to  access  their  newspapers  and  local  broadcast  stations  websites  and,  therefore,  the  Internet  does  not  add  to  diversity.  940  Although  many  local  newspapers  and 
 broadcast  stations  maintain  websites  with  news  content,  that  does  not  begin  to  plumb  the  extent  of  news  sources  on  the  Internet.  Some  websites  compile  news  from  numerous  sources,  many  of  which  an 
 individual  may  not  have  know  of  or  known  how  to  access  (e.  g.,  The  Drudge  Report).  Others  are  unique  to  the  Internet  (e.  g.,  Salon).  Moreover,  we  include  the  Internet  because,  as  previously  indicated,  we  are 
 looking  at  availability  of  media,  not  the  popularity  of  specific  publications,  stations,  cable  channels,  or  websites.  There  is  a  virtual  universe  of  information  sources  on  the  Internet  and  there  are  websites  not 
 maintained  by  existing  news  media  conveying  information  on  everything  from  fringe  political  groups  to  local  civic  events.  We  cannot  pretend  that  these  are  not  in  the  diversity  mix  simply  because  only  a 
 small  number  of  people  may  visit  them. 
 e.  Calculation  Methodology 
 428.  The  Diversity  Index  is  structured  like  an  HHI,  i.  e.,  it  is  simply  the  sum  of  squared  market 


 938  See  Cable  and  Telecommunications  Industry  Overview  2002  Yearend,  at 
 http://  www.  ncta.  com/  industry_  overview. 
 939  As  explained  in  the  next  section,  Calculation  Methodology,  our  diversity  index  is  calculated  by  squaring 
 relevant  market  shares.  If  we  were  to  assume  that  the  two  Internet  sources  had  equal  shares,  the  contribution  to  the  index  of  Internet  would  be  78  points.  The  assumption  we  use  as  described  in  the  text  leads  to  a  contribution  to  the 


 index  of  109  points.  We  do  not  attribute  common  ownership  to  Internet  Service  Providers,  e.  g.,  even  if  Cox  owns  a  television  station  and  the  local  cable  ISP  in  a  market,  we  will  not  combine  their  market  shares  for  the  purposes  of 
 the  Diversity  Index  calculation.  We  will  assume  (subject  to  examination  at  the  next  biennial  review  and  to  future  findings  we  might  make  in  our  cable  modem  proceeding),  that  ISPs  do  not  restrict  subscriber  access  to  Internet 
 content  based  on  the  identity  of  the  content  provider.  We  also  note  that,  as  explained  above,  we  are  looking  at  the  availability  of  news  and  information  sources  generally  --  and  websites  particularly  --  not  their  popularity. 


 940  See,  e.  g.,  AFL-  CIO  Comments  at  12-  14,  (citing  Consumer  Union  Comments  in  MM  Docket  No.  01-  235, 
 Douglas  Gomery,  The  FCCs  Newspaper-  Broadcast  Cross-  Ownership  Rule:  An  Analysis  (Econ.  Policy  Inst.,  Feb.  2001));  AFTRA  Comments  at  10;  UCC  at  al  Comments  at  23. 
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 shares.  As  explained  above,  squaring  market  shares,  unlike  measures  based  on  the  raw  market  shares,  permits  construction  of  an  index  that  takes  account  of  the  market  shares  of  all  providers  in  the  market 
 for  viewpoint  diversity.  As  noted  above,  the  geographic  market  we  are  using  is  local.  We  currently  define  television  markets  in  terms  of  the  Nielsen  DMA.  DMAs  are  exhaustive  classifications,  covering  the 
 entire  United  States,  and  it  is  straightforward  to  count  the  number  of  television  stations  in  a  DMA.  We  are  including  public  as  well  as  commercial  stations.  Public  stations  provide  viewpoint  diversity;  indeed 
 that  is  a  specific  part  of  their  mandate.  Although  they  do  not  have  the  same  programming  incentives  that  commercial  stations  do,  their  partial  reliance  on  viewer  contributions  means  that  they,  like  commercial 
 stations,  must  be  sensitive  to  the  demands  of  their  audience.  We  choose  not  to  include  television  stations  from  outside  the  DMA  in  question,  even  if  they  obtain  a  measurable  audience  share  in  the  DMA.  Our 
 focus  is  on  local  news  and  current  affairs  and  it  is  not  reasonable  to  assume  that  stations  outside  of  the  DMA  in  question  will  devote  significant  resources  to  news  and  current  affairs  programming  targeted  to 
 that  DMA.  Our  cable  television  signal  carriage  rules  generally  permit  a  television  broadcast  station  within  a  DMA  to  obtain  cable  carriage  throughout  the  DMA,  and  our  DBS  signal  carriage  rules  generally 
 ensure  that  all  television  stations  within  a  DMA  are  treated  the  same  with  respect  to  satellite  retransmission.  941  For  this  reason,  we  assume  that  all  television  broadcast  stations  in  a  DMA  are  available 
 throughout  the  DMA.  As  explained  above,  each  broadcast  television  station  receives  an  equal  share  of  the  broadcast  television  weight. 


 429.  We  combine  the  television  stations  in  each  DMA  with  the  radio  stations  in  the  Arbitron  radio  metro  with  which  the  DMA  is  paired.  There  are  287  Arbitron  radio  metros  in  the  country.  Each 
 one  is  smaller  than  the  DMA  within  which  it  lies.  942  Arbitron  radio  metros  do  not  cover  the  entire  country.  More  sparsely  populated  areas  are  not  included  in  radio  metros;  approximately  one-  half  of  radio 
 stations  are  not  in  a  metro  market.  As  explained  below  in  the  cross-  media  limits  section  of  this  Order,  we  use  the  Diversity  Index  to  help  us  identify  markets  that  are  at  risk  for  excessive  concentration  in  the 
 viewpoint  diversity  market.  Once  those  markets  have  been  identified,  and  cross-  media  limits  imposed,  the  actual  implementation  of  the  cross-  media  diversity  limits  will  not  require  information  on  a  local  radio 
 market,  only  on  the  television  market  (DMA)  within  which  the  radio  stations  are  located  that  are  part  of  a  proposed  merger.  As  detailed  in  the  cross-  media  limits  section,  the  analysis  that  we  use  to  identify  at-  risk 
 markets  is  based  on  examination  of  a  substantial  sample  of  the  287  Arbitron  radio  metro  markets. 
 430.  Daily  newspaper  publication  and  circulation  data  are  not  collected  based  on  Arbitron  radio  metros.  A  different  market  concept,  developed  by  the  Department  of  Commerce,  is  used  by  the  industry. 


 The  basic  building  block  is  the  Metropolitan  Statistical  Area,  or  MSA.  The  Department  of  Commerce  recognizes  318  metropolitan  areas,  which  include  248  MSAs,  58  PMSAs  (primary 
 metropolitan  statistical  areas),  and  12  NECMAs  (  New  England  county  metropolitan  statistical  areas).  For  Diversity  Index  calculation  purposes,  these  areas  are  matched  to  Arbitron  radio  metros.  Each  daily 
 newspaper  that  is  locally  published  in  the  metropolitan  area  is  included  in  the  market.  The  daily  newspaper  share  of  the  Diversity  Index  is  divided  evenly  among  all  daily  newspapers  included  in  the 
 market.  In  the  absence  of  market-  specific  information  on  weekly  newspaper  availability,  we  make  the  most  conservative  assumption  that  there  is  one  independently-  owned  weekly  newspaper  in  each  local 


 941  See  47  C.  F.  R.    76.56  (Cable)  and    76.66  (DBS). 
 942  Most  radio  metros  lie  wholly  within  a  single  DMA;  virtually  all  of  the  others  are  predominantly  within  a  single 
 DMA. 
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 market,  and  assign  to  it  the  entire  weekly  newspaper  share.  943 
 431.  In  terms  of  calculating  the  Index,  within  each  medium  we  combine  commonly-  owned  outlets  and  calculate  each  owners  share  of  the  total  availability  of  that  medium.  We  then  multiply  that 


 share  by  the  share  of  the  medium  in  question  in  the  total  media  universe  (television  plus  newspaper  plus  radio  plus  Internet).  Once  these  shares  in  the  overall  diversity  market  have  been  calculated,  we  add 
 together  the  shares  of  properties  that  are  commonly-  owned  (e.  g.,  a  newspaper  and  a  television  station),  square  the  resultant  shares,  and  sum  them  to  get  the  base  Diversity  Index  for  the  market  in  question.  944 


 4.  Cross-  Media  Limits 
 432.  In  this  Section  we  modify  our  rules  by  adopting  a  new  set  of  cross-  media  limits  (  CML)  in  lieu  of  our  former  newspaper/  broadcast  and  television/  radio  cross-  ownership  rules..  The  CML  have  been 


 designed  specifically  to  check  the  acquisition  by  any  single  entity  of  a  dominant  position  in  local  media  markets  --  not  in  economic  terms,  but  in  the  sense  of  being  able  to  dominate  public  debate  --  through 
 combinations  of  cross-  media  properties.  Because  we  have  traditionally  relied  upon  blanket  prohibitions  on  certain  cross-  media  combinations,  we  have  never  before  had  to  confront  head-  on  the  challenge  of 
 identifying  specifically  which  types  of  markets  give  us  the  greatest  cause  for  concern  in  terms  of  preserving  diversity  of  viewpoint,  and  which  types  of  transactions  are  most  problematic  in  this  regard. 
 This  effort  is  complicated  by  the  nature  of  the  public  interest  we  are  seeking  to  protect    diversity    which  is  as  elusive  as  it  is  cherished. 


 433.  Our  modification  of  the  newspaper/  broadcast  and  television/  radio  cross  ownership  rules  into  a  set  of  cross-  media  limits  or  CML  is  our  first  comprehensive  attempt  to  answer  this  difficult  and 
 complex  set  of  questions.  The  CML  derives  from  data  in  the  record  regarding  the  relative  reliance  by  consumers  of  various  types  of  media  outlets  for  news  and  information.  To  help  us  analyze  that  data,  we 
 use  a  methodological  tool    a  diversity  index  or  DI    that  allows  us  to  measure  the  degree  to  which  any  local  market  could  be  regarded  as  concentrated  for  purposes  of  diversity.  Based  on  an  analysis  of  a  large 
 sample  of  markets  of  various  sizes,  the  diversity  index  suggests  that  the  vast  majority  of  local  media  markets  are  healthy,  well-  functioning,  and  diverse. 


 434.  Moreover,  because  we  are  adopting  herein  intra-  service  competition  caps  for  radio  and  television  properties,  those  caps  will  ensure  that  local  markets  will  continue  to  be  served  by  a  diversity  of 
 voices  within  each  of  these  respective  services.  By  the  nature  of  the  exercise,  markets  defined  for  competition  purposes  are  no  broader  than,  and  generally  are  narrower  than,  markets  defined  for  diversity 
 purposes.  Thus,  our  radio  and  television  competition  caps  will  not  only  serve  to  promote  and  protect  competition  within  the  radio  and  television  services,  they  will  also  be  protective  of  diversity  interests 
 when  television-  only  or  radio-  only  transactions  are  at  issue.  For  example,  in  a  market  with  12  TV  stations,  our  intra-  service  caps  guarantee  at  least  six  different  owners  of  television  stations.  If  there  are 
 forty  radio  stations  in  the  market,  our  radio  cap  will  ensure  at  least  six  different  owners  of  radio  properties. 


 435.  We  recognize,  however,  that  our  intra-  service  caps  will  not  address  diversity  concerns  that 
 943  In  fact,  there  were  7,689  weekly  newspapers  in  2000,  so  it  is  likely  that  the  average  market  has  at  least  one 
 weekly.  See  NAA,  supra  note  200  at  http://  www.  naa.  org/  info/  facts02/  13_  facts2002.  htm. 
 944  Appendix  C,  Diversity  Indices  in  Ten  Sample  Markets,  contains  the  Diversity  Index  calculations  for  the  ten 
 markets  examined  in  MOWG  Study  No.  1,  based  on  the  market  structure  as  of  November  2002. 
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 may  result  from  cross-  media  combinations.  Although  our  local  radio  and  television  caps  will  ensure  a  significant  number  of  independent  voices  in  larger  markets,  cross-  media  combinations  in  very  small 
 markets  might  result  in  problematical  levels  of  concentration  for  diversity  purposes.  Accordingly,  we  are  herein  supplementing  our  two  intra-  service  local  rules  with  a  narrowly  drawn  set  of  cross-  media  limits  to 
 reach  those  combinations  that  are  not  already  prohibited  by  our  television  or  radio  caps,  but  which  would  give  rise  to  serious  diversity  concerns.  The  cross-  media  limits  are  based  on  a  set  of  assumptions  drawn 
 directly  from  the  record  evidence  in  this  proceeding  and  premises  that  are  consistent  with  past  Commission  policy  and  practice.  Although  we  rely  in  part  on  our  data  analysis  to  help  define  the  CML, 
 we  clearly  respect  that  diversity  is  inherently  subjective  and  cannot  be  reduced  to  scientific  formula.  We  do  believe,  however,  that  greater  use  of  empirical  data  and  evaluation  of  that  data  can  significantly 
 strengthen  the  reasoning  that  underlies  our  expert  judgment.  The  CML,  therefore,  ultimately  rests  on  our  independent  judgments  about  the  kinds  of  markets  that  are  most  at-  risk  for  viewpoint  concentration,  and 
 the  kinds  of  transactions  that  pose  the  greatest  threat  to  diversity. 
 a.  Competition  Caps  Protect  Diversity 
 436.  As  set  forth  above,  we  have  adopted  a  cap  both  on  the  number  of  television  stations  that  any  one  owner  may  hold  in  a  market,  and  on  the  number  of  radio  stations  that  any  one  owner  may  hold  in 


 a  market.  These  caps  were  designed  to  promote  and  protect  competition  within  these  two  distinct  services.  The  caps  are,  therefore,  based  on  product  market  definitions  that  consider  only  those  products 
 or  services  that  may  be  regarded  as  reasonable  substitutes  for  competition  purposes.  We  recognize,  however,  that  although  radio  and  television  outlets  may  not  compete  in  economic  terms  with  other  types 
 of  speech  outlets,  e.  g.,  newspapers,  they  all  inhabit  the  mass  media  landscape  that  Americans  turn  to  for  news  and  information.  In  that  sense,  whatever  the  confines  of  their  markets  for  competition  purposes, 
 many  different  outlets  serve  core  democratic  functions  as  purveyors  of  ideas,  outlets  for  opinion,  and  distributors  of  news. 


 437.  The  data  in  the  record  evidence  this  difference.  As  set  forth  above,  radio  and  television  compete  in  economic  terms  in  separate  and  distinct  product  markets.  Both  radio  and  television  outlets, 
 however,  inhabit  the  larger  speech  market,  as  do  several  other  types  of  entities.  For  example,  MOWG  Study  No.  8,  a  consumer  survey  on  media  usage,  reveals  that,  when  asked  to  identify  their  primary  source 
 of  all  news  and  information  --  both  local  and  national  --  ,  approximately  40%  of  Americans  responded  that  broadcast  television  was  their  primary  source  and  approximately  10%  of  Americans  responded  that 
 radio  was  their  primary  source.  945  However,  nearly  24%  of  respondents  identified  daily  newspapers  as  their  primary  source  of  news  and  information,  18%  identified  cable  news  networks,  6%  identified  the 
 Internet,  and  2%  identified  weekly  newspapers  or  magazines.  946  These  figures  track  closely  results  from  a  Pew  Research  Center  survey  asking  similar  questions  about  Americans  use  of  media  for  news  and 
 information.  When  asked  where  they  turned  for  their  primary  source  of  election  news,  39%  of  respondents  said  broadcast  television,  24%  said  cable  television,  24%  said  newspapers,  9%  said  radio, 
 and  5%  said  the  Internet.  947  Other  studies  confirm  that,  today,  Americans  substitute  among  and  between 


 945  MOWG  Study  No.  8,  Table  20. 
 946  Id. 
 947  The  Pew  Research  Center  for  the  People  and  the  Press,  Sources  for  Campaign  News,  Fewer  Turn  to  Broadcast 
 TV  and  Papers  (Apr.  27,  2003)  at  http://  people-  press.  org/  reports/  display.  php3?  PageID=  243. 
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 many  different  sources  for  news  and  information  on  a  regular  basis.  948  The  record  reflects,  in  short,  that  the  viewpoint  market  in  which  television  and  radio  stations  participate  is  broader  than  the  economic 
 product  markets,  as  defined  by  standard  competition  theory,  in  which  either  competes.  949  As  a  result,  intra-  service  caps  designed  to  ameliorate  competition  concerns  necessarily  also  will  protect  against  undue 
 concentration  of  speech  outlets  for  diversity  purposes. 
 438.  Our  diversity  index  helps  to  illustrate  this  point.  Pursuant  to  our  new  local  radio  rule,  no  single  owner,  even  in  the  smallest  markets,  will  own  more  than  50%  of  the  radio  outlets.  In  larger 


 markets,  the  percentage  of  radio  outlets  that  can  be  held  by  any  one  entity  is  considerably  smaller.  Thus,  using  the  most  extreme  set  of  facts,  and  using  Altoona,  Pennsylvania,  as  our  test  case,  the  diversity  index 
 focused  on  local  news  and  information  alone  (again,  the  most  conservative  assumption)  reveals  a  relatively  minimal  impact  on  viewpoint  diversity  even  should  the  radio  outlets  become  split  between  only 
 two  owners.  The  current  base  case  DI  for  local  news  and  information  for  Altoona  is  960.  950  If  the  local  radio  market  were  to  become  restructured  into  a  duopoly,  the  DI  would  rise  to  only  1,156.  951  Again,  this 
 hypothetical  posits  the  most  extreme  restructuring  of  radio  outlets  in  the  smallest  market  among  those  in  our  test  cases.  The  change  in  the  diversity  index  will  be  far  smaller  as  a  result  of  radio  transactions  in 
 larger  markets  or  where  the  restructuring  is  less  extreme. 
 439.  Similarly,  pursuant  to  our  new  local  television  rule,  no  single  owner  will  be  permitted  to  own  more  than  two  television  outlets  in  most  markets.  Using  Altoona  again,  a  two-  TV  combination 


 raises  the  base  DI  for  local  news  and  information  by  only  64  points.  952  Indeed,  using  a  set  of  randomly  sampled  markets  of  varying  sizes,  the  average  change  in  DI  as  a  result  of  an  owner  of  one  television 
 property  buying  another  to  create  a  television  duopoly  in  a  small  market  with  only  five  licensed  television  stations  is  91.  953  In  markets  with  twenty  licensed  television  stations  the  change  in  DI  as  a  result  of  the 
 creation  of  a  television  duopoly  is  only  six.  954  Thus,  although  our  intra-  service  television  and  radio  caps  are  designed  to  protect  and  promote  competition,  they  have  a  corollary  benefit  of  also  guarding  against 
 concentration  in  the  viewpoint  markets,  at  least  with  respect  to  intra-  service  combinations. 
 440.  We  recognize,  however,  that  cross-  media  combinations  that  may  impact  the  range  and  diversity  of  voices  in  local  markets  will  not  be  captured  by  our  television  and  radio  caps.  We  therefore 


 adopt,  as  described  below,  new  cross-  media  limits  targeted  specifically  and  solely  at  the  types  of 
 948  See,  e.  g.,  UCLA  Internet  Report. 


 949  Fox  Comments,  Owen  Statement. 
 950  See  Appendix  C,  Diversity  Indices  in  Ten  Sample  Markets. 
 951  Id. 
 952  Id.  In  running  this  sample  case,  we  assume  that  a  duopoly  would  be  permitted  in  the  market  even  though,  in 
 fact,  a  new  duopoly  would  not  be  permitted  in  Altoona  under  our  new  local  television  cap  (Altoona  has  five  stations  and  one  existing  duopoly;  a  second  therefore  would  violate  our  top  four  restriction). 


 953  See  Appendix  D,  Diversity  Index  Scenarios. 
 954  Id.  We  note,  also,  that  our  local  television  ownership  cap  includes  a  prohibition  on  top-  four  combinations. 
 This  will  have  the  effect  of  prohibiting  combinations  of  the  local  television  stations  most  likely  to  produce  and  carry  significant  local  news  programming.  Thus,  although  the  top-  four  restriction  is  based  on  competition  theory, 


 the  rule  will  also  have  beneficial  effects  on  local  diversity. 
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 transactions  that  would  give  us  the  most  concern  and  which  are  not  already  prohibited  by  our  intra-  service  caps. 
 b.  Foundations  of  the  Cross-  Media  Limits 
 441.  We  begin  with  the  proposition  that,  because  this  rule  will  limit  the  speech  opportunities  not  only  for  broadcasters,  but  also  for  other  entities  that  may  seek  to  own  and  operate  broadcast  outlets 


 (including  those  with  the  fullest  First  Amendment  protection    newspapers),  we  should  draw  the  rule  as  narrowly  as  possible  in  order  to  serve  our  public  interest  goals  while  imposing  the  least  possible  burden 
 on  the  freedom  of  expression.  955  We  also  recognize  that  the  tools  that  we  are  using  to  evaluate  market  diversity  involve  as  much  art  as  science.  Diversity  is  not  susceptible  to  microscopic  examination;  it 
 cannot  be  mapped  with  any  known  formal  system  or  reduced  to  mathematical  equations.  Although  we  attempt  to  measure  it  and  assign  some  quantitative  value  to  it  in  order  to  understand  relative  diversity  of 
 different  types  of  markets,  we  recognize  that  this  process  is  inherently  approximate.  956  We  must  exercise  great  care,  therefore,  before  categorically  prohibiting  any  particular  transaction  or  set  of  transactions  as  a 
 prophylactic  matter. 
 442.  Nonetheless,  it  is  apparent,  based  on  the  record  in  this  proceeding,  that  certain  types  of  transactions  in  certain  markets  present  an  elevated  risk  of  harm  to  the  range  and  breadth  of  viewpoints 


 that  may  be  available  to  the  public.  957  Using  our  diversity  index  analysis  and  our  independent  judgment  regarding  desired  levels  of  diversity,  we  first  identify  at-  risk  markets  that  might  already  be  thought  to 
 be  moderately  concentrated  for  diversity  purposes.  We  then  identify  the  types  of  transactions  that  pose  the  greatest  risk  to  diversity,  and  impose  specific  limits  on  those  transactions  in  at-  risk  markets.  Finally, 
 because  certain  transactions  in  less  concentrated  markets  pose  a  high  risk  of  rapid  concentration,  we  impose  separate  restrictions  on  transactions  outside  of  the  at-  risk  markets. 


 c.  Identifying  At-  Risk  Local  Markets 
 443.  We  begin  by  identifying  those  markets  most  susceptible  to  high  levels  of  viewpoint  concentration;  i.  e.,  those  markets  where  our  diversity  concerns  cut  most  deeply.  At  the  outset,  consistent 


 with  our  past  practice  and  precedent,  we  focus  in  this  regard  on  local,  not  national,  viewpoint  market(  s).  958  Evidence  in  the  record  before  us  supports  the  conclusion  that  the  number  of  outlets  for 
 national  news  and  information  is  large  and  growing,  and  that  government  regulation  is  thus  unnecessary  to  protect  it.  959 


 955  See  FOEF  Comments  at  41-  42;  WVRC  Comments  at  43-  44. 
 956  Using  the  Diversity  Index  allows  us  to  see  different  market  characteristics  in  markets  of  different  sizes.  We 
 have  also  found,  however,  that  differentiating  markets  by  the  number  of  newspapers  present  is  too  blunt  while  differentiating  markets  by  the  number  of  radio  stations  is  too  fine.  Therefore,  we  use  the  number  of  television 


 stations  as  an  identifier  of  market  size. 
 957  Cf.  1975  Multiple  Ownership  Second  Report  and  Order,  supra  note  33  (in  which  we  required  divestiture  in 
 egregious  newspaper/  broadcast  cases). 
 958  See  Policy  Goals  Section  III,  supra,  and  the  Diversity  Index,  Section  VI(  C)(  3),  supra. 


 959  See  Appendix  B,  National  News  Sources. 
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 444.  With  respect  to  local  markets,  our  ten  city  study  and  our  DI  test  cases  reveal  that  most  local  markets  today  are  well-  functioning,  healthy  markets  for  speech.  960  For  example,  as  of  2000,  the  largest 
 media  market  in  the  country,  New  York  City,  had  184  different  media  outlets  owned  by  114  different  owners.  961  Perhaps  more  impressively,  the  Burlington/  Plattsburgh  market    market  141  out  of  287    had 
 53  outlets  owned  by  34  different  owners.  962  Even  Altoona,  Pennsylvania,  market  255,  had  23  outlets  owned  by  15  different  owners.  963  That  is,  in  the  255th  ranked  market,  there  currently  are  fifteen  different 
 independent  voices. 
 445.  Not  all  voices,  however,  speak  with  the  same  volume.  Using  our  Diversity  Index,  we  have  examined  the  concentration  of  media  outlets  in  the  ten  markets  that  were  the  subject  of  our  Ten  City 


 Study  using  weighted  voices.  New  York  has  a  base  DI  for  local  news  and  information  of  373;  Lancaster,  Pennsylvania,  has  a  DI  of  939;  and  Myrtle  Beach,  South  Carolina,  has  a  DI  of  989.  964  Indeed,  the  average 
 DI  for  all  ten  markets,  which  range  from  the  largest  to  near  the  smallest,  is  758.  965  A  DI  of  758  is  the  equivalent  of  13  equally-  sized  firms. 


 446.  Moreover,  to  ensure  that  the  results  of  our  ten  city  study  were  not  anomalous,  we  have  calculated  the  average  DI  for  a  different  set  of  randomly  selected  markets,  both  large  and  small.  966  The 
 average  DI  for  markets  in  which  there  are  20  television  stations  is  612;  the  average  DI  for  markets  in  which  there  are  15  television  stations  is  595;  the  average  DI  for  markets  in  which  there  are  10  television 
 stations  is  635;  and  the  average  DI  for  markets  in  which  there  are  5  television  stations  is  911    all  well  below  the  point  at  which  one  would  characterize  them  as  highly  concentrated  if  one  were  using  the 
 analogous  HHI  to  measure  competition  in  the  market.  967 
 447.  We  believe  the  analogy  to  the  HHI  is  apt.  The  HHI  is  an  indicator  of  economic  concentration;  it  provides  an  analytical  framework  for  determining  when  and  if  an  entity  or  group  of 


 entities  is  likely  to  wield  market  power  in  an  economic  market.  Our  DI,  which  was  inspired  by  and 
 960  See  MOWG  Study  No.  1. 
 961  Id.  Even  though  both  MOWG  Study  No.  1  and  Appendix  C  (Diversity  Indices  in  Ten  Sample  Markets  Study) 
 used  the  same  media  markets,  the  number  of  outlets  and  owners  in  individual  markets  as  described  in  MOWG  Study  No.  1  are  different  from  the  number  of  outlets  and  owners  in  Appendix  C,  Diversity  Indices  in  Ten  Sample 


 Markets,  for  two  reasons.  First,  MOWG  Study  No.  1  used  outlet  and  ownership  data  that  was  current  in  2000,  in  order  to  make  a  comparison  between  1960  and  1980.  The  Diversity  Indices  in  Ten  Sample  Markets  Study  used 
 more  current  outlet  and  ownership  data  from  2002,  in  order  to  be  more  up-  to-  date.  In  addition,  MOWG  Study  No.  1  included  the  embedded  radio  metro  markets  that  are  physically  in  the  NYC  metro,  for  illustrative  purposes. 
 The  Diversity  Indices  in  Ten  Sample  Markets  Study  used  only  the  radio  stations  assigned  to  the  NYC  metro,  for  analytical  purposes. 


 962  Id. 
 963  Id. 
 964  Id. 
 965  Id. 
 966  See  Appendix  D,  Diversity  Index  Scenarios. 
 967  Id. 
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 modeled  after  the  HHI,  similarly  is  an  indicator  of  viewpoint  concentration.  Using  the  DI  as  an  analytical  tool,  we  can  assign  approximate  weights  to  different  types  of  media  outlets,  account  for  the  diversity 
 effects  of  commonly-  owned  properties,  and  measure  relative  concentration  between  and  among  markets.  The  DI  can  help  us,  therefore,  identify  the  point  at  which  an  entity  or  group  of  entities  is  likely  to  wield 
 inordinate  power  in  the  marketplace  of  ideas. 
 448.  Although  competition  theory  does  not  provide  a  hard-  and-  fast  rule  on  the  number  of  competitors  necessary  to  ensure  that  the  benefits  of  competition  are  realized,  a  market  that  has  ten  or  more 


 equally-  sized  firms  normally  can  be  considered  fully  competitive.  968  A  1000  DI  correlates  to  market  in  which  there  are  roughly  ten  firms  with  approximately  equal  market  power.  An  1800  DI  would 
 correspond  to  a  market  with  six  roughly  equal  voices.  Using  our  DI  analysis  of  sample  markets,  we  note  that  it  is  not  until  we  reach  markets  with  three  or  fewer  licensed  television  stations  that  the  average  DI 
 exceeds  1000,  the  point  at  which  the  market  normally  would  be  characterized  as  moderately  concentrated  for  competition  purposes.  969 


 449.  Our  DI  analysis  of  these  sample  markets,  however,  is  not  the  end  of  our  inquiry.  Because  of  the  importance  we  associate  with  maintaining  diversity  among  the  three  principal  platforms   
 newspaper,  radio  and  television    for  the  expression  of  viewpoint  at  the  local  level,  and  because  these  same  three  outlets  produce  a  large  share  of  local  news  content,  970  we  previously  have  used  a  voice  test 
 focused  on  one  or  more  of  these  outlets  for  measuring  diversity.  Indeed,  the  Sinclair  court  suggested  that  our  choice  of  an  eight-  voice  test,  then  used  in  conjunction  with  the  local  television  rule,  was  an  exercise 
 of  agency  discretion  entitled  to  some  deference.  971  Although  we  no  longer  are  willing  to  base  our  rules  upon  the  comparatively  rudimentary  eight-  voice  test,  we  continue  to  believe  that  unacceptable  diversity 
 losses  can  occur  in  very  small  markets  when  the  principal  distribution  platforms  for  local  news  content  come  under  common  ownership  and  control.  In  larger  markets,  we  expect  that  the  number  of  distribution 
 outlets  for  local  news  content  will  be  larger,  and  that  consumers  will  have  greater  access  to  secondary  outlets  for  news  and  information.  972 


 450.  Finally,  we  are  concerned  not  merely  with  the  absolute  level  of  diversity  that  might  already  exist  in  any  market  or  type  of  market,  but  also  with  the  degree  to  which  diversity  might  be  sacrificed  as  a 
 result  of  likely  transactions.  Accordingly,  in  defining  at-  risk  markets,  we  have  used  our  DI  and  sampled  the  effect  of  transactions,  in  large  and  small  markets,  involving  heavily  used  sources  of  local 


 968  A  market  with  10  or  more  equally-  sized  firms  has  an  HHI  of  1000  or  less.  DOJ/  FTC  regards  markets  in  this 
 region  to  be  unconcentrated.  Mergers  resulting  in  unconcentrated  markets  are  unlikely  to  have  adverse  competitive  effects  and  ordinarily  require  no  further  analysis.  See  DOJ/  FTC  Merger  Guidelines    1.51. 


 969  See  Appendix  D,  Diversity  Index  Scenarios.  The  average  DI  for  markets  with  three  television  stations  is  1027; 
 the  average  DI  for  markets  with  two  television  stations  is  1316;  and  the  average  DI  for  markets  with  a  single  television  station  is  1707. 


 970  CFA  Comments  at  32-  39;  UCC  Comments  at  23. 
 971  Sinclair,  284  F.  3d  at  162. 
 972  E.  g.,  Deployment  of  Advanced  Telecommunications  Capability  to  All  Americans  in  a  Reasonable  and  Timely 
 Fashion,  15  FCC  Rcd  20913,  20918  (2000)  (broadband  access  in  rural  areas  limited);  2001  Price  Survey  Report,  17  FCC  Rcd  6301,  6318  (2002)  (low  capacity  cable  systems  in  rural  areas  offer  fewer  channels  and  are  less  likely 


 to  have  stand-  alone  local  or  regional  cable  news  channels). 
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 news  and  information.  973  In  so  doing,  we  have  focused  on  the  types  of  transactions  that  most  likely  will  lead  to  large  DI  changes  and  rapid  concentration.  Our  line-  drawing  effort  is  informed  by  the  approach  the 
 DOJ  has  taken  in  assessing  competition  issues.  Although  DOJ  policy  is  to  review  any  transaction  in  a  moderately  concentrated  market  that  would  result  in  a  change  in  HHI  of  100  points  or  more,  we  have 
 found  no  case  in  many  years  in  which  DOJ  has  filed  suit  to  block  a  merger  that  produced  less  than  a  400  or  more  point  HHI  change.  974  Based  on  our  analysis,  cross-  media  combinations  involving  newspaper  and 
 television,  newspaper  and  radio,  or  radio  and  television  properties  do  not  produce  a  change  in  the  DI  of  anything  even  approaching  that  magnitude  other  than  in  markets  with  three  or  fewer  television  stations.  975 
 For  example,  a  newspaper/  radio  combination  in  markets  with  only  two  licensed  television  stations  produces  a  DI  change  of  more  than  300  points,  a  television/  radio  combination  in  markets  of  that  size 
 produces  a  DI  change  of  301  points,  and  a  newspaper/  television  combination  in  markets  of  that  size  produces  a  DI  change  of  731  points.  A  newspaper/  television  combination  in  a  market  with  three  licensed 
 television  stations  produces  a  DI  change  of  331  points.  976 
 451.  These  changes,  of  course,  reflect  approximations  based  upon  sample  data  and  are  provided  only  to  be  illustrative  of  the  diversity  losses  that  can  occur  as  a  result  of  cross-  media  combinations  in 


 small  markets.  Nonetheless,  based  on  all  of  the  foregoing,  we  conclude  that  a  market  with  the  equivalent  of  ten  or  more  equally-  sized  firms  cannot  be  regarded  as  even  moderately  concentrated  for  diversity 
 purposes.  In  light  of  that  conclusion,  and  in  consideration  of  the  properties  of  small  markets  and  on  our  analysis  of  potential  transactional  impacts  in  those  markets,  we  conclude  that  markets  with  three  or  fewer 
 licensed  television  stations  should  be  regarded  as  at-  risk  markets  for  purposes  of  diversity  concentration.  Markets  of  that  size,  we  expect,  will  be  moderately  concentrated  and  subject  to  rapid 
 concentration  if  cross-  media  combinations  are  created  involving  radio,  television  and/  or  newspaper  properties.  977  Accordingly,  we  will  prohibit  certain  cross-  media  combinations  involving  those  properties 


 973  See  Appendix  D,  Diversity  Index  Scenarios. 
 974  Under  the  FTC/  DOJ  Merger  Guidelines,  an  HHI  between  1000  and  1800  suggests  a  moderately  concentrated 
 market,  and  an  HHI  above  1800  suggests  a  highly  concentrated  market.  Where  the  post-  merger  market  would  be  in  the  moderately  concentrated  range,  the  Guidelines  suggest  that  a  merger  that  increases  the  HHI  by  more  than  100 


 points  will,  absent  other  factors,  present  antitrust  concerns.  Where  the  post-  merger  market  would  be  in  the  highly  concentrated  range,  the  Guidelines  suggest  that  a  merger  producing  an  increase  in  the  HHI  of  more  than  100  points, 
 absent  other  factors,  is  presumed  to  create  or  enhance  market  power  or  facilitate  its  exercise.  FTC/  DOJ  Merger  Guidelines    1.51.  However,  in  the  cases  we  found  over  the  past  15  years,  the  FTC  or  the  DOJ  has  filed  suit  to 
 block  a  merger  only  when  the  change  in  the  HHI  is  at  least  four  times  greater  than  the  Guidelines  standards.  See,  e.  g.,  FTC  v.  Illinois  Cereal  Mills,  Inc.,  691  F.  Supp.  1131  (N.  D.  Ill.,  E.  Div.  1988);  U.  S.  v.  Georgia-  Pacific  Corp., 
 1996  W.  L.  634212  (D.  Del.  1996).  In  the  majority  of  cases,  the  proposed  merger  would  have  resulted  in  a  change  in  the  HHI  in  excess  of  1,000  points. 


 975  See  Appendix  D,  Diversity  Index  Scenarios. 
 976  The  calculated  changes  in  the  Diversity  Index  for  these  markets  are  premised  on  the  assumption  that  the  radio 
 markets  have  consolidated  to  the  maximum  extent  permissible  under  our  new  local  radio  ownership  rule.  On  this  basis,  this  is  a  worst  case  estimation  of  the  impact  of  newspaper/  radio  and  television/  radio  combinations  under 


 the  Diversity  Index. 
 977  A  market  with  an  HHI  of  more  than  1800  is  regarded  as  highly  concentrated.  We  noted  above  that  a  DI  of 
 1800  would  correspond  to  six  equally-  sized  voices.  Because  of  the  amorphous  nature  of  diversity  as  an  interest  and  the  difficulty  of  measuring  it  with  precision,  we  decline  to  draw  an  absolute  line  prohibiting  transactions  that 


 (continued.) 
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 in  markets  with  three  or  fewer  television  stations.  978 
 d.  Local  Cross-  Media  Limits  in  At-  Risk  Markets 
 452.  With  respect  to  the  limits  themselves,  we  tread  lightly  in  view  of  the  sensitive  First  Amendment  interests  at  stake  and  the  deregulatory  purpose  of  Section  202(  h).  Our  intent  is  to  draw  our 


 rules  narrowly,  focusing  on  those  transactions  that  are  likely  to  have  a  substantial  impact  on  the  diversity  of  voices  available  in  the  market.  The  record  shows  that  broadcast  television,  daily  newspapers,  and 
 broadcast  radio  are  the  three  media  platforms  that  Americans  turn  to  most  often  for  local  news  and  information.  979  They  are,  accordingly,  the  focus  of  our  diversity  concerns,  and  we  decline  to  impose  any 
 cross-  media  limit  on  transactions  involving  media  properties  other  than  radio,  television,  and  newspaper  outlets. 


 453.  Further,  we  are  establishing  rules  of  nationwide  applicability.  We  desire,  therefore,  to  provide  the  industry  and  the  public  with  clear,  easy  to  administer  rules  reflective  of  common  market 
 trends  and  characteristics.  We  recognize  that,  in  any  given  market,  the  lines  we  draw  here  may  appear  under-  or  over-  inclusive.  Indeed,  that  quality  inheres  in  the  nature  of  proscriptive  rules  themselves. 
 Nonetheless,  our  analysis  of  the  record  in  this  proceeding  gives  us  confidence  that  our  rules  will  prevent  the  transactions  that  would  seriously  impair  the  availability  of  diverse  viewpoints  in  any  local  market 
 while  permitting  efficiency  enhancing  combinations.  Again,  although  they  have  a  methodological  foundation  in  the  DI,  these  judgments  are  based  on  agency  expertise  and  experience  dealing  with 
 broadcast  markets  and  the  media  industries  generally.  Accordingly,  except  as  specifically  prohibited  herein,  cross-  media  combinations  will  not  be  subject  to  anything  other  than  routine  Commission  review, 
 i.  e.,  unless  the  transaction  is  barred  by  the  CML  or  our  other  ownership  rules,  the  combination  is  permissible  under  our  rules,  and  we  will  not  apply  the  DI  to  it.  980 


 454.  As  explained  below,  combinations  of  daily  newspaper  and  broadcast  properties  in  at-  risk  markets  present  a  serious  threat  to  local  viewpoint  diversity.  981  We  therefore,  adopt  a  rule  prohibiting 
 common  ownership  of  broadcast  stations  and  daily  newspapers,  and  TV/  radio  combinations,  in  markets 
 (Continued  from  previous  page)  would  take  a  market  beyond  the  1800  DI  (i.  e.,  six  voice)  level.  The  rules  we  are  adopting  herein,  however,  are 


 intended  to  protect  against  markets  becoming  highly  concentrated    in  a  qualitative  sense    for  diversity  purposes. 
 978  When  we  originally  crafted  the  newspaper/  broadcast  rule  we  required  divestiture  of  either  a  newspaper  or  a 
 broadcast  station  in  a  limited  number  of  so-  called  egregious  cases.  We  defined  the  relevant  market  in  those  cases  as  the  area  encompassed  by  the  city-  grade  signal  of  the  relevant  broadcast  station.  Divestiture  was  required  where 


 the  only  daily  newspaper  was  published  in  a  community  within  the  city-  grade  signal  of  the  only  commercial  television  (or  only  commercial  radio  station  in  cases  where  no  local  TV  station  also  existed)  where  the  newspaper 
 and  the  broadcast  station  were  commonly  owned.  See  generally  1975  Second  Report  and  Order,  supra  note  33. 
 979  See  MOWG  Study  No.  8,  Table  97. 


 980  Bright  lines  provide  the  certainty  and  predictability  needed  for  companies  to  make  business  plans  and  for  capital 
 markets  to  make  investments  in  the  growth  and  innovation  in  media  markets.  Conversely,  case-  by-  case  review  of  even  below-  cap  mergers  on  diversity  grounds  would  lead  to  uncertainty  and  undermine  our  efforts  to  encourage 


 growth  in  broadcast  services.  Accordingly,  petitioners  should  not  use  the  petition  to  deny  process  to  relitigate  the  issues  resolved  in  this  proceeding. 


 981  See,  e.  g.,  NABOB/  Rainbow,  PUSH  Comments  at  23-  24;  Gray  Comments  at  16-  19. 
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 with  three  or  fewer  television  stations.  In  order  to  determine  which  markets  have  3  or  fewer  broadcast  television  stations,  we  will  rely  on  Nielsen  television  Designated  Market  Areas  (DMAs).  We  include  for 
 these  purposes,  commercial  and  noncommercial  television  stations  assigned  to  the  DMA.  This  is  consistent  with  our  overall  measurement  of  the  DI,  explained  above,  as  we  assume  that  all  television 
 stations  in  the  DMA  are  viewable  in  the  radio  metro  with  which  it  is  paired.  982 
 455.  A  number  of  parties  have  questioned  whether  a  cross-  ownership  rule  applicable  to  entities  other  than  broadcasters,  e.  g.,  newspaper  owners,  would  be  constitutional.  983  We  continue  to  believe  that  a 


 narrowly-  drawn  rule  prohibiting  or  limiting  common  ownership  of  broadcast  properties  and  daily  newspapers  is  consistent  with  our  constitutional  framework.  Our  current  newspaper/  broadcast  cross-ownership 
 rule  has  been  upheld  by  the  Supreme  Court  against  constitutional  challenge  984  and,  as  discussed  above,  985  broadcast/  newspaper  and  radio/  television  cross-  ownership  rules,  like  broadcast 
 ownership  rules,  are  reviewed  under  the  rational  basis  standard.  986  We  believe  that  our  new  cross-  media  limits  satisfy  this  standard  because  they  are  a  reasonable  means  of  promoting  the  public  interest  in 
 diversified  mass  communications,  987  and  they  are  founded  on  a  substantial  record.  Nevertheless,  we  are  mindful  of  the  courts  concern  in  another  context,  where  a  higher  standard  of  constitutional  scrutiny 
 applied,  that  our  rules  should  focus  on  those  markets  and  transactions  that  are  likely  to  result  in  substantial,  rather  than  only  incremental,  changes  in  diversity.  988  Our  new  cross-  ownership  rules 
 accomplish  this  because  they  are  narrowly  tailored  to  restrict  cross-  ownership  only  in  select  markets. 
 456.  Television-  Newspaper.  Nielsen  survey  data  reveal  that  daily  newspapers  and  broadcast  television  remain  the  two  most  important  sources  of  local  news  and  information.  989  The  importance  of 


 these  outlets  is  reflected  in  our  DI.  As  noted  above,  a  combination  of  a  daily  newspaper  and  a  television  station  in  a  market  with  only  three  television  stations  leads  to  an  average  DI  change  of  331  points.  These 
 combinations  in  markets  with  only  two  or  one  television  station  lead  to  DI  changes  of  731  and  910  DI  points,  respectively.  In  these  at-  risk  markets,  a  single  combination  of  a  daily  newspaper  and  a  television 
 station  could  quickly  jeopardize  the  range  of  viewpoints  available  to  consumers  in  the  market.  We  therefore,  adopt  a  rule  prohibiting  the  combination  of  a  daily  newspaper  and  a  broadcast  television  facility 


 982  See    428,  supra. 
 983  Media  General  Comments  at  37;  Tribune  Comments  at  17-  28;  Fox  Comments  at  50-  51. 
 984  See  NCCB,  supra,  note  20. 
 985  See  Legal  Framework,  Section  II,    13-  16,  supra. 
 986  Id. 
 987  NCCB,  436  U.  S.  at  802. 
 988  Time  Warner  II,  240  F.  3d  at  1135. 
 989  Approximately  28.8  percent  of  Americans  rely  on  newspapers  as  a  source  of  local  news  and  information,  and 
 33.8  percent  use  broadcast  television  for  this  purpose.  These  figures  are  derived  from  normalizing  the  figures  in  MOWG  Study  No.  8,  Table  097.  Because  respondents  were  asked  what  sources  they  had  used  in  the  previous  7 


 days  for  local  news  and  information,  and  because  many  respondents  listed  more  than  a  single  source,  the  totals  in  the  Table  add  up  to  more  than  100%.  Also,  magazines  were  excluded  from  the  normalizing  process  as  they 
 typically  are  not  sources  of  local  news. 
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 in  any  market  with  three  or  fewer  television  properties.  To  trigger  the  rule,  we  will  count  all  television  stations  assigned  to  the  DMA  that  contains  the  newspapers  community  of  publication.  We  presume  that 
 broadcast  television  stations  are  generally  carried  throughout  the  DMA  to  which  the  station  is  assigned.  Our  rules  will  not,  however,  bar  a  broadcast  television  station  in  such  a  market  from  starting  a  new 
 newspaper,  as  that  would  expand,  not  decrease,  diversity. 
 457.  One  additional  issue  in  the  cross-  interest  context  is  the  definition  of  daily  newspaper  for  the  purposes  of  newspaper/  broadcast  cross-  ownership.  Currently,  Note  6  to  the  multiple  ownership  rule 


 defines  a  daily  newspaper  as  one  which  is  published  four  or  more  days  per  week,  which  is  in  the  English  language  and  which  is  circulated  generally  in  the  community  of  publication.  990  Commenters  raised  the 
 issue  of  the  English  language  requirement  when  applied  in  Puerto  Rico  where  the  Spanish  language  is  the  dominant  language.  991  Caribbean  argues  that  the  Commission  expressly  rejected  requests  to  exempt 
 Puerto  Rico  from  the  rule  at  the  time  of  its  adoption  and  recognized  that  the  goals  underlying  the  rule  were  of  equal  concern  in  Puerto  Rico  as  on  the  mainland.  992  Both  Caribbean  and  Arso  argue  that  the 
 exclusion  of  foreign  language  newspapers  also  allows  for  the  exercise  of  market  power  by  the  dominant  newspapers  in  Puerto  Rico  which,  due  to  the  exclusion  of  non-  English  newspapers,  could  be  owned  in 
 tandem  with  broadcast  stations  in  the  market.  993 
 458.  The  exclusion  of  non-  English  language  daily  newspapers  in  areas  where  the  dominant  language  of  the  market  is  not  English  creates  a  discrepancy  in  treatment  that  must  be  ended.  As 


 Caribbean  notes,  in  adopting  the  original  newspaper/  broadcast  cross-  ownership  rule,  the  Commission  recognized  that  the  need  for  diversity  in  Puerto  Rico  was  the  same  as  that  elsewhere.  Since  the  definition 
 of  a  daily  newspaper  was  adopted  in  1975,  the  percentage  of  households  in  which  Spanish  has  spoken  has  approximately  doubled.  994  It  is  appropriate,  therefore,  at  this  point  in  time,  that  we  apply  the  CML  to 
 non-  English  daily  papers  in  markets  in  which  the  language  that  they  are  printed  in  is  the  dominant  language  of  their  market.  995  While  the  example  of  Puerto  Rico  was  addressed  in  the  comments,  there  may 
 be  other  communities  to  which  this  will  apply  now  or  in  the  future.  Those  whose  primary  language  is  not  English  deserve  the  same  protections  of  diversity  and  competition  as  do  English  speakers.  Accordingly, 
 for  purposes  of  applying  the  CML  to  newspaper/  broadcast  transactions  we  will  change  the  definition  of  daily  newspapers  to  include  non-  English  dailies  printed  in  the  primary  language  of  the  market. 


 459.  Radio-  Newspaper.  Although  broadcast  radio  generally  has  less  of  an  impact  on  local 
 990  47  C.  F.  R.    73.3555  Note  6. 
 991  Arso  Comments  at  1-  4;  Caribbean  Comments  in  MM  Docket  No.  01-  235  at  22-  35. 
 992  Caribbean  Comments  in  MM  Docket  No.  01-  235  at  22. 
 993  Id.  at  30-  38.  Arso  Comments  at  3-  4. 
 994  In  2000,  Spanish  was  the  language  spoken  at  home  in  10.5  %  of  American  households.  See  www.  census.  gov. 
 In  1980,  the  percentage  was  5.3%.  This  is  derived  from  data  contained  in  INFORMATION  PLEASE  ALMANAC  (Otto  Johnson  ed.,  Houghton  Mifflin  Co.  1995)  at  835. 


 995  As  previously  indicated,  to  trigger  the  rule,  we  will  count  all  television  stations  assigned  to  the  DMA  that 
 contains  the  newspapers  community  of  publication.  For  the  purposes  of  evaluating  whether  the  non-  English  daily  is  printed  in  the  primary  language  of  the  market,  however,  the  market  shall  be  defined  as  the  newspapers 


 community  of  publication. 
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 diversity  than  broadcast  television,  according  to  the  results  of  our  Nielsen  survey,  discussed  above,  in  at-risk  markets  the  combination  of  a  daily  newspaper  with  one  or  more  broadcast  radio  facilities  can 
 nonetheless  have  significant  negative  implications  for  the  range  of  viewpoints  available.  Indeed,  markets  with  three  or  fewer  television  stations  have,  on  average,  only  21  radio  stations.  996  Under  our  radio  cap,  a 
 single  owner  in  a  market  with  21  stations  could  own  six  stations,  or  29%  of  all  the  radio  outlets  in  the  market.  Combining  such  a  station  group  with,  perhaps,  the  only  daily  newspaper  could,  therefore, 
 seriously  impair  the  range  of  independent  viewpoints  available  in  the  market.  997  Again,  based  on  a  sample  of  markets  with  three  or  fewer  television  outlets,  we  find  that  the  change  in  DI  as  a  result  of  a 
 newspaper-  radio  combination,  assuming  that  the  radio  owner  has  reached  the  radio  ownership  cap  under  our  new  local  rules,  would  be  242  points  or  higher.  998  Given  that  markets  of  three  television  outlets  begin 
 with  an  average  DI  of  1027,  which  we  regard  as  the  beginning  of  the  moderately  concentrated  range,  a  242  point  DI  increase  moves  the  market  substantially  toward  a  highly  concentrated  state.  We  therefore, 
 adopt  a  rule  prohibiting  the  combination  of  a  daily  newspaper  and  a  broadcast  radio  facility  in  any  market  with  three  or  fewer  television  properties.  999  To  trigger  the  rule  for  newspaper/  radio  combinations  we  will 
 retain  our  current  standard.  That  standard  requires  complete  encompassment  of  the  newspapers  community  of  publication  by  the  requisite  signal  strength  contour  of  the  commonly  owned  radio 
 station(  s).  1000 
 460.  Television-  Radio.  Combinations  involving  daily  newspapers  and  broadcast  properties  are  not  the  only  cross-  media  combinations  that  present  diversity  concerns  in  at-  risk  markets.  Approximately 


 996  BIA  Master  Access  Data  Base  (Nov.  2002). 
 997  Although  any  given  market  may  have  more  than  one  daily  newspaper,  and  of  course  every  radio  owner  does 
 not  buy  stations  up  to  the  regulatory  limit,  we  are  adopting  general  rules  of  nationwide  applicability.  Accordingly,  we  are  positing  for  these  purposes  that  the  market  is  as  concentrated  as  possible  consistent  with  our  other  local 


 rules. 
 998  See  Appendix  D  (Diversity  Index  Scenarios). 


 999  Again,  we  note  that  this  rule  does  not  apply  in  the  event  that  a  broadcast  licensee  seeks  to  found  a  new  daily 
 newspaper  in  the  market. 
 1000  For  AM  radio  stations  that  standard  is  complete  encompassment  of  the  newspapers  community  of 
 publication  by  the  predicted  or  measured  2mV/  m  contour  computed  in  accordance  with    73.183  or    73.186  of  the  Commissions  Rules.  For  FM  radio  stations  the  standard  is  complete  encompassment  of  the  newspapers 


 community  of  publication  by  the  1  mV/  m  contour  computed  in  accordance  with    73.313  of  the  Commissions  Rules.  Previously,  we  discussed  the  inherent  flaws  in  defining  radio  markets  using  a  contour-  based  definition,  and 
 decided  to  move  to  a  geographic  based  definition.  Specifically,  we  found  that  a  contour  based  definition  for  defining  radio  markets  can  create  inconsistencies  in  counting  stations  that  comprise  a  market,  counting  stations 
 that  an  entity  owns  in  a  market,  and  determining  a  radio  markets  size  and  geographic  area.  See  Local  Radio/  Problems  with  the  Existing  Radio  Market  Definition  and  Counting  Methodologies,  Section 
 VI(  B)(  1)(  a)(  ii)(  a),  supra.  However,  such  problems  do  not  arise  in  the  context  of  using  contours  to  determine  whether  the  cross-  media  limits  rule  is  triggered.  Here,  we  are  concerned  with  the  physical  proximity  of  the 
 broadcast  station  and  the  newspapers  community  of  publication,  or  in  the  case  of  radio/  television  cross-ownership,  we  are  concerned  with  the  relative  distance  between  two  specific  stations.  Because  the  cross-  media 
 rule  relies,  in  part,  on  a  geographic  location,  i.  e.  the  community  of  publication  or  the  communities  of  license,  parties  cannot  take  advantage  of  such  discussed  inconsistencies  to  circumvent  the  rules.  Moreover,  we  are  not 
 relying  on  a  contour-  based  definition  to  define  a  cross-  media  market;  we  are  only  using  it  to  determine  whether  the  rule  is  triggered. 
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 one-  fourth  of  Americans  rely  on  radio  as  a  source  of  local  news  and  information,  and  one-  third  use  broadcast  television  for  this  purpose.  1001  Cross-  media  combinations  involving  television  and  radio 
 properties  also,  therefore,  are  likely  to  give  rise  to  systematic  diversity  concerns  in  at-  risk  markets.  Our  DI  analysis  confirms  this  fact.  1002  We  therefore  adopt  a  rule  prohibiting  the  combination  of  broadcast 
 radio  and  broadcast  television  facilities  in  any  market  with  three  or  fewer  television  properties.  In  such  markets,  we  will  not  permit  an  owner  of  a  TV  station  to  own  any  radio  stations  in  the  market,  and  vice 
 versa.  Although  this  modification  is  more  stringent  than  our  current  radio/  TV  cross-  ownership  rule  in  a  limited  number  of  markets,  1003  the  overall  thrust  of  our  CML  approach  has  been  to  eliminate  regulatory 
 restrictions  where  they  are  unnecessary.  1004 
 461.  The  television/  radio  cross-  ownership  rule  is  triggered  when  the  radio  stations  community  of  license  is  in  the  commonly  owned  television  stations  DMA.  Similar  to  requests  for  waiver  of  the 


 newspaper/  broadcast  cross-  ownership  rule,  parties  seeking  waiver  of  the  television/  radio  cross-  ownership  rule  can  rebut  this  by  showing  that  the  stations  signals  do  not  overlap  and  the  television  station  is  not 
 carried  on  cable  systems  in  the  radio  stations  market. 
 5.  Additional  Cross-  Media  Limits  in  Small  to  Medium-  Size  Markets 
 462.  Although  markets  with  four  or  more  licensed  television  stations  do  not  qualify,  in  our  judgment,  as  at-  risk  markets,  a  combination  of  a  daily  newspaper  with  a  television  duopoly  and  a 


 significant  radio  presence  can,  in  small  to  medium-  size  markets  result  in  substantial  changes  in  the  level  of  diversity.  For  example,  assuming  that  owners  of  broadcast  properties  are  constrained  only  by  our  local 
 radio  and  television  caps  (i.  e.,  they  may  acquire  stations  up  to  the  cap  in  either  service),  a  newspaper  owner  might  attempt  to  acquire  a  television  duopoly  and  several  radio  properties  within  the  same  market. 
 Referring  again  to  our  sample  markets  we  find  that,  in  a  five-  television  market,  a  combination  of  a  newspaper,  a  television  duopoly,  and  as  many  radio  stations  as  permitted  by  the  applicable  local  radio  cap 
 results  in  an  average  DI  change  of  846  points.  Indeed,  even  in  an  eight-  television  market,  the  resulting  average  DI  change  from  such  a  newspaper/  TV  duopoly/  radio  combination  DI  is  734  points.  Given  that 
 eight-  television  markets  begin,  on  average,  with  a  DI  of  almost  900  points,  changes  of  this  magnitude  can  lead  quickly  to  a  highly  concentrated  market. 


 463.  We  notice  a  dramatic  difference,  however,  in  the  base  DI,  and  in  the  DI  changes  that  result  from  a  combination  involving  a  newspaper,  a  TV  duopoly,  and  a  radio  station  group,  between  our  sample 
 markets  that  have  four  to  eight  television  stations  and  those  that  have  nine  or  more  television  stations.  The  base  DI  for  markets  with  eight  television  stations  is  still  almost  900  points    nearly  in  the  moderately 
 concentrated  range;  there  is  almost  a  200  point  difference  between  these  markets  and  those  with  nine 
 1001  MOWG  Study  No.  8,  Table  097.  The  figures  above  are  derived  from  normalizing  the  figures  in  Table  097. 
 Because  respondents  were  asked  what  sources  they  had  used  in  the  previous  7  days  for  local  news  and  information,  and  because  many  respondents  listed  more  than  a  single  source,  the  totals  in  the  Table  add  up  to  more 


 than  100%.  Magazines  were  excluded  from  the  normalizing  process  because  they  typically  are  not  used  for  local  news. 


 1002  See  Appendix  D,  Diversity  Index  Scenarios. 
 1003  47  C.  F.  R.    73.3555(  c). 
 1004  We  discuss  grandfathering  of  existing  combinations  in  these  markets  below.  See  Grandfathering  and  Transition 
 Section  VI(  D),  infra. 
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 television  stations,  which,  in  our  sample,  have  a  base  case  DI  of  705  points.  In  addition,  although  a  newspaper/  TV  duopoly/  radio  combination  produces  a  change  of  over  700  points  in  an  eight  television 
 market,  bringing  the  DI  up  to  approximately  1600  points,  the  change  is  fewer  than  500  DI  points  in  a  nine  television  market,  bringing  the  DI  up  to  only  1200  points.  These  numbers  accord  with  our  experience  and 
 judgment  regarding  the  operation  of  small  to  medium-  size  markets,  and  are  supported  by  other  evidence  in  the  record.  1005 


 464.  We  also  note  significant  differences  between  the  DI  changes  that  result  from  newspaper/  TV  combinations  in  markets  with  between  four  and  eight  television  stations  and  those  with  nine  or  more 
 television  stations.  Using  our  sample  markets,  a  newspaper  combining  with  a  television  duopoly  in  a  market  with  only  five  television  stations  leads  to  an  increase  in  the  DI  of  376  points.  Even  in  markets 
 with  eight  television  stations,  the  average  DI  increase  as  a  result  of  such  a  combination  is  over  300  points.  In  markets  with  nine  television  stations,  however,  the  DI  increase  from  a  merger  of  a  newspaper  with  a 
 television  duopoly  is  only  172  points;  it  is  about  100  points  in  markets  with  ten  televisions.  1006  The  potential  for  rapid  concentration  that  may  result  from  a  combination  of  a  newspaper  with  a  television 
 duopoly  in  markets  with  between  four  and  eight  licensed  television  stations  (  small  to  medium  markets)  leads  us  to  conclude  that  it  would  be  prudent,  in  these  markets,  to  impose  additional  local  ownership 
 restrictions  as  part  of  our  CML. 
 465.  We  are  cognizant,  however,  of  the  fact  that  substantial  public  interest  benefits  may  flow  from  broadcast/  newspaper  combinations.  As  discussed  above,  television  stations  that  are  co-  owned  with 


 daily  newspapers  tend  to  produce  more,  and  arguably  better,  local  news  and  public  affairs  programming  than  stations  that  have  no  newspaper  affiliation.  Because  of  the  news  resources  available  to  local 
 newspapers,  we  expect  similar  benefits  to  be  associated  with  newspaper  ownership  of  radio  stations  (e.  g.,  radio  stations  affiliated  with  a  local  newspaper  may  have  an  enhanced  ability  to  produce  local,  all-  news 
 radio  programming  and  to  cover  local  political  and  cultural  events  in  greater  depth  than  stations  unaffiliated  with  a  newspaper).  Accordingly,  we  are  not  inclined  to  prohibit  outright  newspaper/ 
 broadcast  combinations  in  markets  with  4    8  television  stations  (referred  to  below  as  small  to  medium  size  markets). 


 466.  Balancing  these  interests,  we  believe  it  appropriate,  in  small  to  medium  size  markets  (those  with  between  four  and  eight  television  stations)  to  allow  the  following:  1)  one  entity  may  own  a 
 combination  that  includes  radio,  television  and  newspaper  properties,  but  the  entity  may  not  exceed  50%  of  either  of  the  applicable  local  radio  or  the  local  television  caps  in  the  market;  2)  a  radio  station  group 
 owner  that  also  owns  a  newspaper  in  the  market,  but  which  does  not  own  any  television  properties  in  the  market,  may  acquire  radio  stations  up  to  100%  of  the  applicable  radio  cap.  In  these  small  to  medium  size 
 markets,  therefore,  we  will  prohibit:  television  broadcasters  that  also  own  a  daily  newspaper  in  the  market  from  having  a  television  duopoly  in  that  market;  a  broadcaster  with  a  duopoly  from  obtaining  a  daily 
 newspaper  in  the  same  DMA;  a  newspaper  owner  from  purchasing  more  than  a  single  television  station  within  the  DMA;  and  a  radio  station  owner  that  also  owns  a  daily  newspaper  and  a  television  station  in 


 1005  See,  e.  g.  Buckley  Comments  at  4-  5;  UCC  Comments  at  16-  17,  40-  41. 
 1006  Because  of  the  number  of  radio  stations  in  the  markets  observed  for  our  sample  of  seven-  television-  station 
 markets,  the  DI  increases  in  those  markets  are  smaller  than  those  in  eight  TV  markets.  This  deviation  does  not  undermine,  in  our  judgment,  the  more  general  conclusions  that  we  draw  from  the  data  and  from  our  DI 


 methodology  regarding  the  markets  most  at  risk  for  viewpoint  concentration  (i.  e.,  we  do  not  deem  markets  with  seven  television  stations,  in  general,  to  be  less  at  risk  than  markets  with  eight  television  stations). 
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 the  market  from  exceeding  50%  of  the  applicable  radio  cap  for  the  market.  1007 
 467.  We  believe  that  this  CML  achieves  an  appropriate  balance  in  small  to  medium  size  markets  between  fostering  the  production  of  high  quality  local  programming  and  protecting  diversity.  To  begin 


 with,  the  public  interest  benefits  of  newspaper  ownership  (the  benefits  of  cross-  fertilization  between  media)  likely  are  realized  primarily  in  the  first  broadcast  station  co-  owned  in  either  service.  Although 
 there  may  be  economic  benefits  to  the  owner  from  more  extensive  combinations,  it  is  not  as  clear  that  those  benefits  will  accrue  to  the  public  in  any  meaningful  way;  at  least  the  public  interest  component  of 
 these  benefits  is  likely  to  decline  incrementally  as  the  number  of  stations  increases.  Given  that  no  owner  will  be  permitted,  in  accordance  with  our  local  television  cap,  to  hold  more  than  two  television  stations  in 
 a  small  to  medium  size  market,  a  limit  of  one  station  in  these  markets  for  owners  of  local  newspapers  will  maximize  the  public  interest  benefits,  while  reducing  any  loss  of  diversity.  Although  the  loss  of  diversity 
 that  might  result  were  that  owner  to  add  a  significant  radio  presence  in  the  market  warrants  a  further  50%  limit  in  the  number  of  radio  properties  that  owner  might  hold,  such  is  not  the  case  if  the  combination  does 
 not  include  any  television  properties. 
 468.  Again,  our  DI  and  a  set  of  sample  markets  help  to  illustrate  the  fact  that  our  modified  50%  CML  for  newspaper  combinations  in  small  to  medium  size  markets  will  significantly  reduce  any  loss  of 


 diversity  that  might  result  from  efficiency-  enhancing  newspaper/  broadcast  combinations.  In  a  five-television  station  market,  a  combination  involving  a  newspaper,  a  TV  duopoly  and  a  radio  station  group 
 at  the  radio  cap  would  result  in  an  average  DI  increase  of  846  points,  which  would  take  the  market  to  1757  points,  near  the  highly  concentrated  range.  1008  If  the  combination  is  limited  to  a  single  television 
 station  and  no  more  than  50%  of  the  applicable  radio  cap,  the  DI  change  is  393  points,  a  decrease  of  453  points.  In  an  eight-  television  market,  a  combination  involving  a  newspaper,  a  TV  duopoly,  and  a  radio 
 station  group  at  the  cap  results  in  an  increase  in  the  average  DI  of  over  700  points.  By  limiting  the  combination  to  50%  of  both  the  television  cap  and  the  radio  cap,  the  DI  increase  is  reduced  to  314  points. 


 469.  Similarly,  whereas  a  combination  involving  a  newspaper  and  a  television  duopoly  alone  will,  on  average,  raise  the  DI  of  a  five-  television  station  market  by  376  points,  a  combination  involving  a 
 newspaper  and  a  single  television  station  in  a  market  of  that  size  will  raise  the  DI,  on  average,  only  223  points.  The  difference  is  more  dramatic  in  markets  with  eight  licensed  television  stations,  where  the 
 average  DI  increase  drops  from  308  points  to  only  152  points  for  a  newspaper/  TV  duopoly  combination.  Newspaper/  radio  group  combinations  result  in  significantly  lower  levels  of  viewpoint  concentration  when 
 the  combination  does  not  include  any  TV  properties.  Accordingly,  we  will  permit  newspaper/  radio  combinations  in  small  to  medium  size  markets,  provided  they  comply  with  the  local  radio  rule. 


 470.  Similarly,  our  DI  analysis  indicates  that  radio/  television  combinations  in  small  to  medium  size  markets  result  in  relatively  small  DI  changes.  For  example,  in  a  market  with  only  four  television 
 stations,  a  radio  television  combination,  even  assuming  the  radio  owner  holds  the  maximum  number  of 
 1007  For  these  purposes,  we  use  the  Arbitron  or  contour-  overlap  market  definitions  discussed  above  in  determining 
 whether  the  newspaper  and  a  radio  station  serve  the  same  market.  We  are  not  imposing  a  limitation  that  would  preclude  a  top  four  television  station  in  a  market  from  being  combined  in  common  with  a  newspaper  or  radio 


 station  similar  to  the  restriction  imposed  in  the  local  television  rule  context.  The  top  four  restriction  imposed  under  the  local  TV  ownership  rule  is  specifically  designed  to  protection  competition,  as  fully  discussed  in  that 
 section.  The  cross-  media  limit,  on  the  other  hand,  is  designed  to  protect  viewpoint  diversity,  not  economic  competition. 


 1008  Under  the  DOJ/  FTC  Merger  Guidelines,  an  HHI  above  1800  suggests  a  highly  concentrated  market. 
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 stations  permitted  under  our  local  radio  cap,  results  in  a  DI  change  of  fewer  than  150  points.  1009  Such  a  combination  in  a  market  with  eight  television  stations  results  in  a  DI  change  of  fewer  than  100  points.  1010 
 471.  We  have  engaged  in  this  analysis  using  our  DI  and  a  randomly  selected  sample  of  markets  not  with  the  idea  of  slavishly  following  the  numbers  that  our  index  generated,  but  to  confirm  and  support 
 the  judgments  we  make  regarding  the  kinds  of  markets  that  are  most  susceptible  to  viewpoint  concentration,  and  the  kinds  of  transactions  that  are  most  likely  to  have  a  significant  impact  on  the  level 
 of  diversity  available  in  any  given  market.  As  noted  above,  we  do  not  believe  that  markets  with  between  four  and  eight  television  stations  can  be  regarded  as  moderately  concentrated  for  viewpoint  purposes  or 
 otherwise  at  risk.  We  do,  however,  believe,  and  our  DI  confirms,  that  these  markets  are  approaching  a  level  of  viewpoint  concentration  that  we  would  regard  as  moderate,  and  we  are  concerned  that  some 
 combinations  involving  the  three  major  sources  of  local  news  and  public  affairs  information  in  these  markets  would  lead  to  inordinate  diversity  losses.  Accordingly,  we  will  permit  television/  radio 
 combinations  in  small  to  medium  size  markets,  provided  they  comply  with  the  local  radio  and  television  rules. 


 472.  In  markets  with  9  or  more  TV  stations,  we  will  permit  any  newspaper  and  broadcast  cross-media  combinations  that  comply  with  our  local  TV  ownership  rule  and  local  radio  rule.  These  tiers  are 
 derived  from  our  DI  analysis  and  our  judgment  as  to  what  markets  are  sufficiently  diverse  so  that  combined  newspaper/  broadcast  ownership  would  not  unduly  harm  diversity. 


 473.  With  respect  to  markets  with  nine  or  more  TV  stations  (  large  markets),  we  impose  no  cross-  media  restrictions.  To  begin  with,  markets  of  this  size  today  tend  to  have  robust  media  cultures 
 characterized  by  a  large  number  of  outlets  and  a  wide  variety  of  owners.  New  York  City,  for  instance,  which  has  23  licensed  television  stations,  61  radio  stations,  and  21  daily  newspapers,  had  61  different 
 owners  of  broadcast  stations  and  daily  newspapers  as  of  November  2002.  1011  Using  our  diversity  index  as  a  measure,  New  York  City  today  has  a  base  DI  of  only  373.  1012  More  striking,  perhaps,  is  the  example 
 provided  by  Kansas  City,  Missouri,  which  has  only  nine  licensed  television  stations.  Our  Ten  City  Study  reveals  that  Kansas  City  had  35  different  owners  and  our  Diversity  Index  analysis  shows  that  Kansas  City 
 has  a  base  DI  today  of  only  509.  1013 
 474.  Again,  to  ensure  that  the  results  of  our  Ten  City  Study  were  not  anomalous,  we  conducted  a  DI  analysis  on  a  random  sample  of  markets  of  various  sizes,  including  markets  with  nine  licensed 


 television  stations,  markets  with  ten  television  stations,  markets  with  fifteen  television  stations,  and  markets  with  twenty  television  stations.  Among  our  sample  markets,  the  average  DI  for  those  with  nine 
 television  stations  is  705;  the  average  DI  for  those  with  ten  television  stations  is  635;  the  average  for  those  with  fifteen  television  stations  is  595;  and  the  average  DI  for  those  with  twenty  television  stations  is 


 1009  See  Appendix  D,  Diversity  Index  Scenarios. 
 1010  Id. 
 1011  See  Appendix  C,  Diversity  Indices  in  Ten  Sample  Markets. 
 1012  Id.. 
 1013  See  MOWG  Study  No.  1  and  Appendix  C,  Diversity  Indices  in  Ten  Sample  Markets. 
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 612.  1014  That  is,  markets  with  nine  or  more  television  stations  today  are  very  much  un-  concentrated. 
 475.  The  local  radio  and  local  television  caps  adopted  herein  will  help  to  ensure  that  large  markets  continue  to  be  served  by  a  large  number  of  different  local  media  owners.  For  example,  positing 


 Kansas  City,  Missouri,  again  as  a  typical  market  of  nine  television  stations,  and  assuming  that  four  television  duopolies  could  in  fact  be  created  in  that  market,  and  further  assuming  maximum  radio 
 consolidation  under  our  new  local  radio  rule,  there  should  still  remain  five  different  owners  of  television  stations  and  seven  different  owners  of  radio  stations.  1015  There  currently  also  are  five  daily  newspaper 
 owners  serving  the  market.  Therefore,  even  assuming  that,  in  the  absence  of  any  cross-  media  limit  in  the  market,  the  owners  of  the  radio,  television,  and  newspaper  properties  combine  to  the  maximum  extent 
 possible,  there  would  remain  at  least  seven  different  owners  of  local  media  in  the  market,  each  with  a  significant  presence.  In  accordance  with  the  mandate  of  Section  202(  h),  we  do  not  believe  that  we  can 
 justify  a  restriction  in  a  market  where  the  worst  case  scenario  (indeed,  one  that  may  not  even  be  possible  given  existing  combinations  in  the  market),  still  results  in  a  market  with  at  least  seven  different  owners  of 
 the  major  sources  of  local  news  and  information. 
 476.  More  realistically,  although  some  cross-  media  combinations  are  likely  to  occur  in  the  absence  of  a  restriction,  constraints  imposed  by  existing  groups  and  the  presence  of  public  stations  that 


 cannot  be  acquired  by  commercial  entities  make  it  highly  unlikely  that  Kansas  City,  or  any  market,  will  consolidate  to  the  level  described  in  the  preceding  paragraph.  In  order  to  get  a  better  sense,  therefore,  for 
 the  actual  affect  of  various  cross-  media  combinations  in  markets  with  nine  or  more  television  stations,  we  use  our  DI  in  sample  markets  and  test  hypothetical  combinations.  1016 


 477.  Beginning  in  markets  with  nine  licensed  television  stations,  we  see  that,  on  average,  the  change  in  DI  that  would  result  from  a  television  owner  acquiring  a  radio  group  consisting  of  the 
 maximum  number  of  radio  stations  permissible  under  our  local  radio  rule  is  only  64  points.  1017  If  instead  it  were  the  owner  of  a  daily  newspaper  acquiring  that  radio  group,  the  DI  change  would  be  198  points, 
 leaving  the  market  below  1000  DI.  1018  If  the  owner  of  a  daily  newspaper  were  to  purchase  a  television  station  instead  of  a  large  radio  group  in  a  market  of  this  size,  the  DI  would  increase  only  86  points.  1019 
 Indeed,  the  largest  combination  possible  in  the  market    a  combination  that  would  include  a  daily  newspaper,  a  television  duopoly,  and  a  large  radio  group    would  result  in  a  DI  increase  of  473  points, 
 taking  the  average  nine  television  market  to  a  base  DI  of  under  1200  points,  only  marginally  in  the  range 


 1014  See  Appendix  D  (Diversity  Index  Scenarios). 
 1015  See  Appendix  C  (Diversity  Indices  in  Ten  Sample  Markets).  That  is,  in  a  market  with  nine  television  stations, 
 four  duopolies  can,  in  theory,  be  created,  leaving  one  singleton  station,  so  that  five  owners  of  television  stations  would  remain.  If  there  are  forty-  four  radio  stations  in  the  market,  and  group  owners  assembled  the  largest 


 combinations  possible  under  the  radio  cap  (seven),  there  would  remain  at  least  seven  group  owners;  six  with  groups  of  six  stations  and  one  with  a  group  of  two  stations. 


 1016  See  Appendix  D  (Diversity  Index  Scenarios). 
 1017  Id. 
 1018  Id. 
 1019  Id. 
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 that  we  would  consider  moderately  concentrated.  1020 
 478.  As  detailed  in  Appendix  D  (Diversity  Index  Scenarios),  in  markets  with  ten  television  stations,  the  average  base  DI  is  635  and  the  increase  that  would  result  from  the  assemblage  of  the  largest 


 media  combination  possible  would  be  292  points    leaving  the  market  un-  concentrated.  1021  In  markets  with  fifteen  television  stations,  the  average  base  DI  is  595  and  a  newspaper/  television  duopoly/  large  radio 
 group  combination  would  increase  the  DI  only  302  points.  1022  Similar  results  obtain  in  markets  with  twenty  television  stations. 


 479.  This  analysis  is  premised  on  the  creation  of  very  large  combinations  of  media  properties  at  the  local  level.  Even  so,  the  results  show  that  markets  with  nine  or  more  television  stations  are  un-concentrated 
 today  and  are  unlikely  to  become  highly  concentrated  even  in  the  absence  of  cross-  media  limits.  Section  202(  h)  requires  that  we  justify  broadcast  ownership  limits  on  more  than  supposition  or 
 inchoate  fears;  our  governing  law  requires  that  we  target  our  structural  limits  at  real  and  demonstrable  harms.  Based  on  the  foregoing,  we  cannot,  therefore,  justify  cross-  media  restrictions  in  markets  with  nine 
 or  more  licensed  television  stations. 
 480.  The  tiers  adopted  above    at-  risk  markets,  small  to  medium  size  markets,  and  large  markets    are  derived  from  our  DI  analysis  and  our  independent  judgment  regarding  market  operation  and 


 the  effect  of  various  combinations  on  diversity.  Our  diversity  concerns  are  greatest  in  at-  risk  markets  and  we  have  accordingly  prohibited  all  forms  of  cross-  media  combinations  in  those  markets.  In  small  to 
 medium  markets  we  have  imposed  specific  limitations  on  particular  kinds  of  combinations  that  would,  in  our  estimation,  most  likely  result  in  unacceptable  harm  to  viewpoint  diversity.  In  large  markets,  our 
 analysis  indicates  that  no  cross-  media  limit  is  necessary,  nor  can  one  be  justified,  given  the  large  number  of  outlets  and  owners  that  typify  these  markets  and  the  operation  of  our  intra-  service  television  and  radio 
 caps. 
 481.  Conclusion.  Although  we  generally  prohibit  television-  radio,  and  newspaper-  broadcast,  cross-  ownership  in  at-  risk  markets,  and  we  limit  newspaper-  broadcast  combinations  in  small  to  medium 


 size  markets,  we  recognize  that  special  circumstances  may  render  these  cross-  media  limits  unnecessary  or  counter-  productive  in  particular  markets.  Accordingly,  we  will  continue  to  entertain  requests  for  waiver 
 of  these  cross-  media  limits  and,  in  particular,  will  give  special  consideration  to  waiver  requests  demonstrating  that  an  otherwise  prohibited  combination  would,  in  fact,  enhance  the  quality  and  quantity 
 of  broadcast  news  available  in  the  market.  1023  In  addition,  of  course,  we  will  review  our  entire  local  broadcast  ownership  framework,  including  our  new  cross-  media  limits,  beginning  next  year,  in  our  2004 


 1020  Id. 
 1021  Id. 
 1022  Id. 
 1023  As  is  the  case  with  our  new  local  television  ownership  rules,  we  will  require  that  a  licensee  who  obtains  a 
 waiver  of  our  cross-  media  limits  show  at  renewal  time  the  benefits  that  have  accrued  to  the  public  as  a  consequence  of  the  waiver.  At  the  end  of  the  broadcast  stations  (or  stations)  license  term(  s),  the  licensee  of  the 


 station(  s)  must  certify  to  the  Commission  that  the  public  interest  benefits  of  the  Commissions  grant  of  the  waiver  are  being  fulfilled.  This  certification  must  include  a  specific,  factual  showing  of  the  program-  related  benefits  that 
 have  accrued  to  the  public.  Cost  savings  or  other  efficiencies,  standing  alone,  will  not  constitute  a  sufficient  showing. 
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 biennial  review.  We  will  not,  however,  permit  collateral  attack  upon  our  rules  in  individual  cases  on  diversity  grounds  based  upon  more  particularized  showings  using  the  DI  in  a  given  market.  The  rules  we 
 adopt  herein  are  rules  of  general  applicability.  The  lines  that  have  been  drawn  and  the  judgments  that  have  been  made  reflect  our  conclusions  regarding  the  probable  effects  of  given  transactions  in  the  run  of 
 cases.  Those  conclusions  necessarily  rely  upon  generalizations,  approximations,  and  assumptions  that  will  not  hold  true  in  every  case.  Indeed,  many  of  these  assumptions  would  not  be  true  in  a  particular 
 context  or  specific  market.  As  we  stated  above,  the  Diversity  Index  itself  is  a  blunt  tool  capable  only  of  capturing  and  measuring  large  effects  and  general  trends  in  typical  markets.  It  is  of  no  use,  therefore,  for 
 parties  to  attempt  to  apply  the  DI  to  a  particular  transaction  in  a  particular  market. 
 D.  Grandfathering  and  Transition  Procedures 
 1.  Grandfathering  Provisions 
 482.  Existing  Combinations.  There  may  be  some  existing  combinations  of  broadcast  stations  that  exceed  the  new  ownership  limits  due  to  the  modifications  of  both  the  local  TV  and  the  local  radio 


 ownership  rules.  Because  the  modified  local  TV  rule  permits  increased  common  ownership  of  local  TV  stations,  we  expect  few  existing  ownership  combinations  to  violate  the  rule  adopted  herein.  However, 
 some  existing  same-  market  combinations  may  not  comply  with  the  modified  TV  ownership  rule  because  of  the  elimination  of  the  Grade  B  overlap  exclusion  that  is  in  the  current  rules.  In  addition,  there  may  be 
 instances  in  which  a  party  currently  owns  a  radio/  television  combination  that  may  not  comply  with  the  new  cross-  media  limits.  1024 


 483.  As  for  radio,  we  are  modifying  the  definition  of  many  radio  markets,  replacing  the  existing  signal-  contour  based  definition  with  a  geographic  based  market  definition.  1025  This  may  result  in  a 
 different  number  of  stations  being  considered  as  participating  in  a  local  radio  market.  Because  our  radio  ownership  rule  is  based  on  a  tiered  system,  if  fewer  stations  comprise  the  radio  market,  and  the  market 
 falls  into  a  smaller  tier,  then  the  number  of  stations  an  entity  may  own  would  decrease.  We  also  are  attributing  in-  market  radio  JSAs,  which  could  increase  the  number  of  radio  stations  that  count  toward  an 
 entitys  numerical  ownership  limit. 
 484.  We  are  persuaded  by  the  record  to  grandfather  existing  combinations  of  radio  stations,  existing  combinations  of  television  stations,  and  existing  combinations  of  radio/  television  stations.  1026  As 


 such,  we  will  not  require  entities  to  divest  their  current  interests  in  stations  in  order  to  come  into 


 1024  While  we  are  not  aware  of  any  existing  newspaper/  broadcast  combinations  that  have  been  previously 
 grandfathered  or  approved  by  the  Commission  that  would  be  barred  under  the  new  rules,  to  the  extent  such  combinations  do  exist,  they  will  be  subject  to  the  grandfathering  and  transferability  provisions  described  in  this 


 section. 
 1025  We  are  retaining  a  modified  contour-  based  definition  outside  of  Arbitron  markets  until  we  have  completed  a 
 rulemaking  to  define  geographic  radio  markets  in  these  areas.  The  grandfathering  and  transition  procedures  adopted  herein  apply  to  Arbitron  and  non-  Arbitron  areas.  In  areas  not  defined  by  Arbitron,  through  the 


 completion  of  the  rulemaking,  licensees  should  apply  the  modified  contour-  based  market  definition  for  these  purposes. 


 1026  We  requested  comment  on  grandfathering  issues  in  the  Radio  NPRMs:  Radio  Market  Definition  NPRM,  15 
 FCC  Rcd  at  25081-  82    11;  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19888    65. 
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 compliance  with  the  new  ownership  rules.  1027  As  suggested  by  commenters,  doing  so  would  unfairly  penalize  parties  who  bought  stations  in  good  faith  in  accordance  with  the  Commissions  rules.  1028  Also, 
 we  also  are  sensitive  to  commenters  concerns  that  licensees  of  current  combinations  should  be  afforded  an  opportunity  to  retain  the  value  of  their  investments  made  in  reliance  on  our  rules  and  orders.  We  also 
 agree  with  the  commenters  that  argue  that  compulsory  divestiture  would  be  too  disruptive  to  the  industry.  1029  On  balance,  any  benefit  to  competition  from  forcing  divestitures  is  likely  to  be  outweighed 
 by  these  countervailing  considerations. 
 485.  While  commenters  overwhelmingly  support  grandfathering  existing  combinations,  many  nonetheless  argue  that  grandfathering  will  create  competitive  imbalances  which  favor  existing  group 


 owners  -  those  that  assembled  combinations  under  the  current  rules  -  and  disfavor  those  that  cannot  assemble  competing  combinations  because  of  new  ownership  restrictions.  1030  Like  all  grandfathering 
 decisions,  some  disparity  will  exist  between  grandfathered  owners  and  non-  grandfathered  owners.  We  do  not  believe  this  fact  outweighs  the  equitable  considerations  that  persuade  us  to  grandfather  existing 
 combinations. 


 1027  Secret  proposes  that  we  grandfather  general  radio  station  ownership  limits  for  markets  rather  than 
 grandfathering  specific  ownership  combinations.  In  the  alternative,  it  proposes  that  we  permit  any  broadcaster  to  own  at  least  as  many  stations  as  the  largest  group  owns  presently  in  the  specific  market.  Secret  Comments  in  MM 


 Docket  No.  00-  244  at  4.  Secrets  approach  is  administratively  problematic,  requiring  the  Commission  to  create  and  monitor  a  range  of  numerical  limits  in  all  of  the  Arbitron  metros,  as  well  as  in  non-  Arbitron  areas.  Moreover, 
 it  would  create  disparate  treatment  in  radio  markets,  not  based  on  competitive  analysis  or  public  interest  assessment,  but  based  solely  on  existing  combinations.  Because  these  existing  combinations  were  created  using 
 the  current  contour-  based  market  definition,  which  we  find  does  not  promote  our  competition  goals,  some  combinations  may  raise  competition  concerns  and  may  violate  the  new  rules.  To  allow  additional  groups  to  obtain 
 the  same  numerical  limits  would  only  exacerbate  such  concerns. 
 1028  See,  e.  g.,  NAB  Comments  in  MM  Docket  No.  01-  317  at  50;  WVRC  Comments  in  MM  Docket  No.  01-  317  at 
 35;  Cumulus  Comments  in  MM  Docket  No.  01-  317  at  20;  Eure  Comments  in  MM  Docket  No.  01-  317  at  5;  HBC  Comments  in  MM  Docket  No.  01-  317  at  13,  n.  2;  MBC  Comments  in  MM  Docket  No.  01-  317  at  11-  12;  Clear 


 Channel  Reply  Comments  in  MM  Docket  No.  01-  317  at  n.  5;  MBC  Reply  Comments  in  MM  Docket  No.  01-  317  at  4;  Zimmer  Comments  in  MM  Docket  No.  00-  244  at  7;  Weigle  Comments  in  MM  Docket  No.  00-  244  at  6;  NAB 
 Comments  in  MM  Docket  No.  00-  244  at  29-  30;  Entercom  Comments  in  MM  Docket  No.  00-  244  at  7. 
 1029  NAB  Comments  in  MM  Docket  No.  01-  317  at  50;  MBC  Reply  Comments  in  MM  Docket  No.  01-  317  at  4; 
 Zimmer  Comments  in  MM  Docket  No.  01-  317  at  7-  8;  NAB  Comments  in  MM  Docket  No.  00-  244  at  29-  30.  We  disagree  with  the  commenters  that  support  divestitures  of  current  combinations.  See  Dick  Broadcasting 


 Comments  in  MM  Docket  No.  01-  317  at  6-  7;  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at  8;  NABC  Comments  in  MM  Docket  No.  01-  317  at  17.  The  Commission  has  required  divestitures  of  existing  combinations 
 pursuant  to  changes  in  media  ownership  rules  in  egregious  cases.  1975  Multiple  Ownership  Second  Report  and  Order,  50  F.  C.  C.  2d  at  1049. 


 1030  NAB  Comments  in  MM  Docket  No.  01-  317  at  48;  WVRC  Comments  in  MM  Docket  No.  01-  317  at  26; 
 Blakeney  Comments  in  MM  Docket  No.  01-  317  at  2;  Cox  Comments  in  MM  Docket  No.  01-  317  at  12;  Daugherty  Comments  in  MM  Docket  No.  01-  317  at  4;  Davis  Comments  in  MM  Docket  No.  01-  317  at  2;  MBC 


 Reply  Comments  in  MM  Docket  No.  01-  317  at  3;  NABOB  Reply  Comments  in  MM  Docket  No.  01-  317  at  8;  Secret  Comments  in  MM  Docket  No.  00-  244  at  3;  NAB  Comments  in  MM  Docket  No.  00-  244  at  8,  9,  n.  15;  Brill 
 Comments  in  MM  Docket  No.  00-  244  at  1;  Aurora  Comments  in  MM  Docket  No.  00-  244  at  27;  Great  Scott  Reply  Comments  in  MM  Docket  No.  00-  244  at  2. 
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 486.  We  expect  that  the  issue  of  grandfathering  existing  combinations  will  affect  predominately  radio  group  owners  because  of  the  changes  we  make  herein  to  the  radio  market  definition.  We  recognize 
 that  a  geographic  based  radio  market  definition  may  result  in  a  fewer  number  of  stations  in  certain  markets.  In  those  instances,  parties  may  not  be  able  to  acquire  the  same  number  of  stations  as  the  largest 
 owner  in  a  particular  market.  1031  However,  those  combinations  were  created  based  upon  the  contour-based  definition  that  we  find  herein  fails  to  adequately  address  our  competition  goals  in  local  radio 
 markets.  To  allow  additional  broadcasters  to  obtain  such  combinations  would  disserve  our  goals.  Our  decision  to  grandfather  existing  combinations  simply  reflects  the  substantial  equitable  considerations 
 discussed  above,  considerations  that  we  conclude  outweigh  our  interest  in  improving  the  precision  of  our  radio  market  definition  in  these  particular  cases. 


 487.  Transferability.  We  also  asked  for  comments  on  whether  to  allow  licensees  to  assign  or  to  transfer  control  of  grandfathered  combinations  that  violate  of  the  new  ownership  rules.  1032  In  general,  we 
 will  prohibit  the  sale  of  existing  combinations  that  violate  the  modified  local  radio  ownership  rule,  the  local  television  ownership  rule,  or  the  cross  media  limits.  1033  Therefore,  parties  must  comply  with  the 
 new  ownership  rules  in  place  at  the  time  a  transfer  of  control  or  assignment  application  is  filed.  However,  as  discussed  earlier,  in  order  to  help  promote  diversity  of  ownership,  1034  we  will  allow  sales  of 
 grandfathered  combinations  to  and  by  certain  eligible  entities.  We  do  not  agree  with  commenters  that  advocate  allowing  grandfathered  combinations  to  be  freely  transferable  in  perpetuity,  irrespective  of 
 whether  the  combination  complies  with  our  adopted  rules.  1035  As  NABC,  Idaho  Wireless,  and  ARD  suggest,  such  an  approach  would  hinder  our  efforts  to  promote  and  ensure  competitive  markets.  1036 
 Grandfathered  combinations,  by  definition,  exceed  the  numerical  limits  that  we  find  promote  the  public  interest  as  related  to  competition.  Moreover,  in  the  case  of  radio  ownership,  these  combinations  were 
 created  pursuant  to  a  market  definition  that  we  conclude  fails  to  adequately  reflect  competitive  conditions.  Unlike  our  decision  not  to  require  existing  station  owners  to  divest  stations,  here,  the  threat  to 
 competition  is  not  outweighed  by  countervailing  considerations.  Buyers  will  be  on  notice  that  ownership 
 1031  At  the  same  time,  however,  we  believe  that  the  impact  on  radio  owners  will  be  mitigated  because  we  are 
 retaining,  not  decreasing,  the  current  numerical  caps,  counting  non-  commercial  stations  as  participants  in  the  market,  and  counting  any  station  licensed  in  the  Arbitron  market  whether  or  not  it  meets  Arbitrons  minimum 


 audience  share  requirements.  In  addition,  a  geographic  based  definition  will  allow  for  more  regional  consolidation  of  radio  stations  than  our  prior  contour  based  approach. 


 1032  Definition  of  Radio  Markets  NPRM,  15  FCC  Rcd  at  25081    11;  Local  Radio  Ownership  NPRM,  16  FCC  Rcd 
 at  19888    65. 
 1033  Likewise,  modification  of  the  facilities  of  a  station  in  a  grandfathered  combination  will  be  prohibited  if  the 
 proposed  modification  would  create  a  new  violation  of  the  ownership  rules. 
 1034  See  Policy  Goals,  Section  III(  A)(  5),  supra. 


 1035  Cumulus  Comments  in  MM  Docket  No.  00-  244  at  9;  Clear  Channel  Comments  in  MM  Docket  No.  00-  244  at 
 5;  Entercom  Comments  in  MM  Docket  No.  00-  244  at  7;  Citadel  Comments  in  MM  Docket  No.  00-  244  at  12;  Viacom  Comments  in  MM  Docket  No.  00-  244  at  8;  NAB  Comments  in  MM  Docket  No.  00-  244  at  29;  Great 


 Scott  Reply  Comments  in  MM  Docket  No.  00-  244  at  3;  Zimmer  Comments  in  MM  Docket  No.  00-  244  at  7;  NAB  Comments  in  MM  Docket  No.  01-  317  at  50;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at  26;  MBC 
 Comments  in  MM  Docket  No.  01-  317  at  12. 
 1036  NABC  Comments  in  MM  Docket  No.  01-  317  at  17;  Idaho  Wireless  Comments  in  MM  Docket  No.  01-  317  at 
 7;  ARD  Reply  Comments  in  MM  Docket  No.  00-  244  at  2. 
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 combinations  must  comply  at  the  time  of  the  acquisition  of  the  stations.  Thus,  they  do  not  have  the  same  expectations  as  present  owners  who  acquired  stations  under  the  current  ownership  rules.  In  addition, 
 because  of  the  limited  number  of  broadcast  licenses  available,  station  spin-  offs  that  would  be  required  upon  sales  of  stations  in  a  grandfathered  group  could  afford  new  entrants  the  opportunity  to  enter  the 
 media  marketplace.  They  could  also  give  smaller  station  owners  already  in  the  market  the  opportunity  to  acquire  more  stations  and  take  advantage  of  the  benefits  of  combined  operations.  Because  divestitures 
 are  not  required  until  a  sale  of  the  station  groups,  owners  have  sufficient  time  to  minimize  any  specific  complications  due  to  joint  operations.  1037  Therefore,  we  reject  the  argument  that  prohibiting  transfers  of 
 station  groups  that  exceed  the  new  ownership  limits  would  be  unacceptably  disruptive  or  would  negatively  impact  the  availability  of  bank  financing,  as  some  commenters  suggest.  1038  Finally,  requiring 
 future  assignments  and  transfers  to  comply  with  our  ownership  rules  upon  sale  is  consistent  with  Commission  precedent.  1039  In  keeping  with  the  policy  we  adopted  in  1975,  the  prohibition  on  the  transfer 
 of  grandfathered  stations  will  not  apply  to  pro-  forma  changes  in  ownership  or  to  involuntary  changes  of  ownership  due  to  a  death  or  legal  disability  of  the  licensee.  1040 


 488.  Eligible  Transfer.  We  are  adopting  an  exception  to  our  prohibition  on  the  transfer  of  grandfathered  combinations  in  violation  of  the  new  rules.  This  exception  applies  to  grandfathered  radio 
 and  television  combinations  that  exceed  the  ownership  limits  adopted  in  this  Order,  cross-  media  combinations  in  at-  risk  markets,  and  cross-  media  combinations  in  small  to  medium  sized  markets  that 
 exceed  the  ownership  limits  adopted  in  this  Order.  Entities  may  transfer  control  of  or  assign  a  grandfathered  combination  to  eligible  entities  as  defined  herein.  1041  In  addition,  eligible  entities  may 
 sell  existing  grandfathered  combinations  without  restriction.  As  we  define  in  greater  detail  below,  we  limit  eligible  entities  to  small  business  entities,  which  often  include  businesses  owned  by  women  and 
 minorities.  We  believe  that  facilitating  new  entry  by  and  growth  of  small  businesses  in  the  broadcast 
 1037  NAB  Comments  in  MM  Docket  No.  00-  244  at  9;  Clear  Channel  Comments  in  MM  Docket  No.  00-  244  at  6; 
 Viacom  Comments  in  MM  Docket  No.  00-  244  at  8;  NAB  Comments  in  MM  Docket  No.  01-  317  at  51. 
 1038  NAB  Comments  in  MM  Docket  No.  01-  317  at  50-  51;  Clear  Channel  Comments  in  MM  Docket  No.  01-  317  at 
 26,  n.  83;  NAB  Comments  in  MM  Docket  No.  00-  244  at  9;  Entercom  Comments  in  MM  Docket  No.  00-  244  at  8. 
 1039  See  1970  Multiple  Ownership  First  Report  and  Order,  22  F.  C.  C.  2d  at  323    2;  1975  Multiple  Ownership 
 Second  Report  and  Order,  50  F.  C.  C.  2d  at  1076    103;  Local  TV  Ownership  Report  and  Order,  14  FCC  Rcd  at  12965    146  (any  transfer  of  permanently  grandfathered  television  combinations  after  2004  must  meet  the 


 television  duopoly  rule  or  waiver  policies  in  effect  at  the  time  of  the  transfer).  Contrary  to  Clear  Channel  and  NABs  assertions,  our  decision  is  consistent  with  the  1992  Radio  Ownership  Order,  supra  note  94.  NAB 
 Comments  in  MM  Docket  No.  00-  244  at  30;  Clear  Channel  Comments  in  MM  Docket  No.  00-  244  at  7.  In  the  1992  Radio  Ownership  Order,  we  relaxed  the  ownership  limits,  permitting  entities  to  own  more  stations  in  local 
 markets  based  on  numerical  caps,  and  we  also  adopted  an  audience  share  cap,  which  precluded  acquisitions  of  stations  if  the  combined  audience  share  at  the  time  the  application  was  filed  exceeded  25%.  At  the  time  the  rules 
 went  into  effect,  no  entity  owned  more  than  the  numerical  caps  or  owned  stations  with  a  combined  audience  share  exceeding  25%.  Therefore,  grandfathering  existing  combinations  was  not  at  issue. 


 1040  1975  Multiple  Ownership  Second  Report  and  Order,  50  FCC  2d  at  1076    103;  see  also  47  C.  F.  R.   
 73.3555,  note  4;  73.3540(  f);  73.3541(  b). 
 1041  We  are  not  grandfathering  existing  combinations  of  stations  that  exceed  the  ownership  limits  because  of  an 
 attributable  interest  in  a  station  pursuant  to  an  LMA  or  JSA.  Existing  LMAs  and  JSAs  that  result  in  a  combination  of  stations  exceeding  the  ownership  limits  must  be  terminated  at  the  time  of  the  sale  or  within  two  years, 


 whichever  comes  first. 
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 industry  will  further  our  goals  of  promoting  diversity  of  ownership  as  well  as  competition  and  localism.  1042 
 489.  We  define  an  eligible  entity  as  an  entity  that  would  qualify  as  a  small  business  consistent  with  SBA  standards  for  its  industry  grouping.  1043  For  example,  the  SBA  small  business  size 
 standard  for  radio  stations  is  $6  million  or  less  in  annual  revenue.  For  TV  stations  the  limit  is  $12  million.  1044  In  addition,  to  tailor  this  exception  to  meet  our  public  interest  objectives  and  ensure  that  the 
 benefits  of  this  proposal  flow  as  intended,  we  will  further  require  that  any  transaction  pursuant  to  this  exception  may  not  result  in  a  new  violation  of  the  rules.  Moreover,  control  of  the  eligible  entity 
 purchasing  the  grandfathered  combination  must  meet  one  of  the  following  control  tests.  The  eligible  entity  must  hold  (1)  30%  or  more  of  the  stock/  partnership  shares  of  the  corporation/  partnership,  and  more 
 than  50%  voting  power,  (2)  15%  or  more  of  the  stock/  partnership  shares  of  the  corporation/  partnership,  and  more  than  50%  voting  power,  and  no  other  person  or  entity  controls  more  than  25%  of  the 
 outstanding  stock,  or  (3)  if  the  purchasing  entity  is  a  publicly  traded  company,  more  than  50%  of  the  voting  power. 


 490.  In  addition  to  the  above,  we  will  allow  entities  that  meet  the  definition  of  eligible  entity  to  transfer  any  existing  grandfathered  combination  generally  without  restriction.  We  believe  that  small 
 businesses  that  qualify  as  eligible  entities  require  greater  flexibility  than  do  larger  entities  for  the  disposition  of  assets.  Restrictions  on  the  sale  of  assets  could  disproportionately  harm  the  financial 
 stability  of  smaller  firms  compared  to  that  of  larger  firms,  which  have  additional  revenue  streams.  To  prevent  abuse  of  this  policy,  however,  an  eligible  entity  may  not  transfer  a  grandfathered  combination 
 acquired  after  the  adoption  date  of  this  Order  to  an  entity  other  than  another  eligible  entity  unless  it  has  held  the  combination  for  a  minimum  of  three  years.  1045  Also,  we  will  prohibit  eligible  entities  from 
 granting  options  to  purchase,  or  rights  of  first  refusal  to  prevent  non-  eligible  entities  from  financing  an  acquisition  in  exchange  for  an  option  to  purchase  the  combination  at  a  later  date.  Finally,  any  transaction 
 pursuant  to  this  policy  may  not  result  in  a  new  violation  of  the  rules. 
 491.  Radio  LMA  Combinations.  As  we  discussed  in  the  context  of  attributable  JSAs  in  the  Local  Radio  Ownership  Section,  there  also  may  be  instances  in  which  an  existing  LMA  may  affect  a 


 licensees  compliance  with  the  ownership  limits  adopted  herein.  As  we  stated  in  instances  of  attributable  JSAs,  because  we  do  not  want  to  unnecessarily  adversely  affect  current  business  arrangements  between 
 licensees  and  brokers,  we  will  give  licensees  two  years  from  the  effective  date  of  this  Order  to  terminate 
 1042  MMTC  suggests  we  define  a  category  of  eligible  purchasers  based  on  the  eligibility  standards  set  forth  in  S. 
 267  Telecommunications  Ownership  Diversity  Act  of  2003.  Because  that  pending  legislation  contemplates  further  definition  of  eligible  purchasers  by  the  Treasury  Department  after  passage,  we  do  not  rely  on  its  terms  and 


 therefore,  set  forth  our  criteria  based  on  our  judgment  and  the  record  of  this  proceeding. 
 1043  See  13  C.  F.  R.    121.201  (North  American  Industry  Classification  System  (NAICS)  code  categories).  The 
 definition  of  small  business  for  the  radio  industry  is  listed  in  NAICS  code  515112,  and  the  definition  of  a  small  business  for  the  TV  industry  is  listed  in  NAICS  code  515120. 


 1044  To  determine  qualifications  as  a  small  business,  SBA  considers  the  revenues  of  the  parent  corporation  and 
 affiliates  of  the  parent  corporation,  not  just  the  revenues  of  individual  broadcast  stations.  See  13  C.  F.  R.    121.103,  121.105. 


 1045  We  do  not  intend  to  restrict  pro  forma  transfers  of  grandfathered  combinations  or  transfer  of  control  to  heirs 
 or  legatees  by  will  or  intestacy  if  no  new  ownership  violation  would  occur. 
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 any  LMAs  that  result  in  a  violation  of  the  new  ownership  limits,  or  otherwise  come  into  compliance  with  the  new  rules.  If  the  licensee  sells  an  existing  combination  of  stations  within  the  two  year  grace  period,  it 
 may  not  sell  or  assign  the  LMA  to  the  buyer  if  the  LMA  causes  the  buyer  to  exceed  the  ownership  limits  adopted  in  this  Order.  Parties  are  prohibited  from  entering  into  an  LMA  or  renewing  an  existing  LMA 
 that  would  cause  the  broker  of  the  station  to  exceed  the  ownership  limits. 
 492.  TV  LMA  Combinations.  In  our  Local  TV  Ownership  Report  and  Order,  we  grandfathered  LMA  combinations  that  were  entered  into  prior  to  November  5,  1996,  through  the  end  of  our  2004 


 biennial  review.  We  do  not  alter  this  policy.  These  LMAs  are  not  affected  by  the  grandfathering  policy  adopted  herein. 


 493.  TV  Temporary  Waivers.  A  few  licensees  have  been  granted  temporary  waivers  of  our  local  TV  ownership  rule,  and  some  have  filed  requests  for  an  extension  of  waivers  that  are  currently 
 pending,  or  have  sought  permanent  waivers.  Any  licensee  with  a  temporary  waiver,  pending  waiver  request,  or  waiver  extension  request  must,  no  later  than  60  days  after  the  effective  date  of  this  Order  or 
 the  date  on  which  the  waiver  expires,  whichever  is  later,  file  one  of  the  following:  (i)  a  statement  describing  how  ownership  of  the  subject  station  complies  with  the  modified  local  TV  ownership  rule;  or 
 (ii)  an  application  for  transfer  or  assignment  of  license  of  those  stations  necessary  to  bring  the  applicant  into  compliance  with  the  new  rules. 


 494.  Cross-  Media  Conditional  Waivers.  A  few  licensees  have  been  granted  conditional  waivers  of  the  previous  one-  to-  a-  market  rule.  Although  we  are  eliminating  the  current  radio/  television 
 cross-  ownership  rules,  we  are  adopting  new  cross-  media  limits.  Parties  that  currently  have  conditional  waivers  for  radio/  television  combinations  must  submit  a  statement  to  indicate  whether  the  combination 
 they  hold  (1)  is  located  in  an  at-  risk  market,  (2)  is  located  in  a  small  to  medium  size  market,  and  (3)  is  in  compliance  with  the  cross-  media  limits.  For  the  combinations  that  comply  with  the  cross-  media  limits 
 adopted  herein,  we  will  issue  a  letter  replacing  the  conditional  grant  with  permanent  approval.  For  any  combinations  that  violate  the  cross-  media  limits,  we  will  issue  a  letter  indicating  that  the  combination  will 
 continue  to  be  grandfathered  until  a  decision  in  the  2004  Biennial  Review  is  final.  As  part  of  the  2004  Biennial  Review,  we  will  review  and  reevaluate  the  status  of  such  grandfathered  combinations  to 
 determine  whether  they  should  continue  to  be  grandfathered.  On  a  case-  by-  case  basis,  we  will  consider  the  competition,  diversity,  equity,  and  public  interest  factors  the  combinations  may  raise. 


 495.  Other  Cross-  Media  Waivers.  Our  cross-  media  limits  are  founded  on  the  presumption  that,  by  reason  of  cable  carriage,  television  stations  are  available  throughout  the  DMA  to  which  they  are 
 assigned.  We  recognize,  however,  that  this  may  not  be  true  in  every  case.  Accordingly,  those  requesting  waiver  of  our  cross-  media  limits  may  attempt  to  rebut  this  presumption  in  individual  cases.  For  example, 
 a  television  licensee  assigned  to  a  DMA  to  which  only  two  other  television  stations  are  assigned  (i.  e.,  an  at-  risk  market)  may  request  a  waiver  of  the  bar  on  its  ownership  of  a  daily  newspaper  published  within 
 that  DMA  by  demonstrating  that  the  newspapers  community  of  publication  neither  receives  television  service  from  the  station  over-  the-  air  nor  through  cable  carriage. 


 2.  Elimination  of  Flagging  and  Interim  Policy 
 496.  In  August  1998,  the  Commission  began  flagging  public  notices  of  radio  station  transactions  that,  based  on  an  initial  analysis  by  the  staff,  proposed  a  level  of  local  radio  concentration 


 that  implicated  the  Commissions  public  interest  concern  for  maintaining  diversity  and  competition.  1046 
 1046  See  Broadcast  Applications,  Rep.  No.  24303  (Aug.  12,  1998). 
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 discount.  1054  We  conclude  that  the  current  rule  cannot  be  justified  and  we  raise  the  cap  to  45%.  We  retain  the  UHF  discount. 
 501.  In  the  1984  Multiple  Ownership  Report  and  Order,  we  determined  that  repealing  the  national  TV  ownership  rule  would  not  harm  competition  or  diversity.  1055  Consistent  with  our  decision  in 
 1984,  we  find  that  restricting  national  station  ownership  is  not  necessary  to  promote  either  of  those  policy  objectives.  We  depart,  however,  from  our  1984  decision  to  repeal  the  rule  because  evidence  in  the  record 
 demonstrates  that  the  national  television  cap  serves  localism.  The  localism  rationale  for  retaining  the  national  television  cap  was  articulated  in  our  1998  Biennial  Review  Report.  In  that  decision  we  explained 
 that  preserving  a  balance  of  power  between  the  networks  and  their  affiliates  serves  local  needs  and  interests  by  ensuring  that  affiliates  can  play  a  meaningful  role  in  selecting  programming  suitable  for  their 
 communities.  1056  We  continue  to  believe  that  to  be  the  case  and,  consequently,  that  a  national  cap  is  necessary  to  limit  the  percentage  of  television  households  that  a  broadcast  network  may  reach  through  the 
 stations  it  owns.  Although  the  record  supports  retention  of  a  national  ownership  cap,  it  does  not  support  a  cap  of  35%.  The  evidence  before  us  shows  that  the  cap  at  the  current  level  is  not  necessary  to  preserve 
 the  balance  of  bargaining  power  between  networks  and  affiliates.  The  record  also  indicates  that  the  cap  appears  to  have  other  drawbacks.  Most  importantly,  the  cap  restrains  some  of  the  largest  group  owners   
 broadcast  networks    from  serving  additional  communities  with  local  news  and  public  affairs  programming  that  is  of  greater  quantity  and  at  least  equal,  if  not  superior,  quality  than  that  of  affiliates. 
 Moreover,  we  believe  that  a  modest  relaxation  of  the  cap  will  help  networks  compete  more  effectively  with  cable  and  DBS  operators  and  will  promote  free,  over-  the-  air  television  by  deterring  migration  of 
 expensive  programming  to  cable  networks.  Balancing  these  competing  interests,  we  raise  the  national  cap  from  35%  to  45%. 


 1.  Background 
 502.  Since  1941,  the  Commission  has  limited  the  national  ownership  reach  of  television  broadcast  stations.  1057  The  Commission  has  modified  the  restriction  several  times  to  keep  pace  with  the 


 changing  marketplace.  1058  In  1984,  the  Commission  repealed  the  rule,  concluding  that  it  was  not  necessary  to  promote  competition  or  diversity,  and  instituted  a  six-  year  transitional  ownership  limit  of 


 1054  Id.  at  18544    130-  31.  See  47  C.  F.  R.    73.3555(  e)(  2)(  i). 
 1055  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  46,  50-  56    86,  97-  114  (repealing  the  station 
 ownership  restriction  and  instituting  a  six-  year  transitional  ownership  limitation  of  12  stations).  The  Commission  subsequently  reversed  its  decision  to  repeal  the  rule.  1985  Multiple  Ownership  MO&  O,  100  F.  C.  C.  2d  at  88-  92 


   33-  40  (eliminating  the  sunset  provision  and  adding  a  25%  cap  on  national  audience  reach,  calculated  as  a  percentage  of  all  Arbitron  ADI  television  households). 


 1056  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11074-  75  30. 
 1057  Notice,  17  FCC  Rcd  at  18543    127. 
 1058  See  Broadcast  Services  Other  Than  Standard  Broadcast,  6  Fed.  Reg.  2282,  2284-  85  (May  6,  1941)  (imposing 
 a  national  ownership  limit  of  three  television  stations);  Rules  Governing  Broadcast  Services  Other  Than  Standard  Broadcast,  9  Fed.  Reg.  5442  (May  23,  1944)  (raising  the  ownership  limit  from  three  to  five  stations);  Amendment 


 of  Multiple  Ownership  Rules,  43  F.  C.  C.  2797,  2801-  02    14  (1954)  (raising  the  ownership  limit  from  five  to  seven  stations). 
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 twelve  television  stations  nationwide.  1059  On  reconsideration,  the  Commission  affirmed  its  underlying  conclusions,  but  it  eliminated  the  sunset  provision  out  of  a  concern  that  repealing  the  rule  would  create  a 
 disruptive  restructuring  of  the  national  broadcasting  industry.  1060  The  Commission  retained  the  twelve  station  limit  and,  in  addition,  prohibited  an  entity  from  reaching  more  than  25%  of  the  countrys 
 television  households  through  the  stations  it  owned.  1061 
 503.  In  1996,  the  Commission  adopted  the  current  35%  cap  in  response  to  the  Congress  directive  to  raise  the  cap  (from  25%  to  35%)  and  to  eliminate  the  rule  that  an  entity  could  not  own  more 


 than  twelve  stations  nationwide.  1062  The  Commission  subsequently  affirmed  the  35%  cap  as  part  of  its  1998  biennial  review  of  media  ownership  regulations.  1063  In  affirming  the  cap,  the  Commission  reasoned 
 that  it  would  be  premature  to  institute  revisions  to  the  national  TV  ownership  limit  before  fully  observing  the  effects  of  changes  to  the  local  TV  ownership  rules  and  the  effects  of  raising  the  cap  from  25%  to 
 35%.  1064  The  Commission  also  concluded  that  the  national  TV  ownership  rule  helps  promote  better  service  to  local  communities  by  preserving  the  power  of  affiliates  to  negotiate  with  the  networks  and  to 
 make  independent  programming  decisions.  1065  In  addition,  the  Commission  concluded  that  the  national  TV  ownership  rule  facilitates  competition  in  the  program  production  market  and  in  the  national 
 advertising  market.  1066 
 504.  Several  broadcast  networks  challenged  the  Commissions  decision  to  retain  the  national  TV  ownership  rule.  In  Fox  Television  Stations,  Inc.  v.  FCC,  the  U.  S.  Court  of  Appeals  for  the  District  of 


 Columbia  Circuit  found  that  the  Commissions  1998  decision  to  retain  the  rule  was  arbitrary  and  capricious,  and  it  remanded  the  rule  for  further  consideration.  1067  The  court  rejected  the  Commissions 
 wait-  and-  see  approach  on  the  grounds  that  it  was  inconsistent  with  the  Commissions  statutory  mandate  to  determine  on  a  biennial  basis  whether  its  rules  are  necessary  in  the  public  interest.  1068  The  court  also 
 held  that  the  Commission  failed  to  demonstrate  that  the  national  cap  advanced  competition,  diversity,  or  localism. 


 505.  With  respect  to  competition,  in  its  1998  Biennial  Review  Report,  the  Commission  provided  a  study  and  a  table  showing  that  large  group  owners  of  television  stations  had  acquired  additional  stations 


 1059  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  46,  54-  56    86,  108-  114. 
 1060  1985  Multiple  Ownership  MO&  O,  100  F.  C.  C.  2d  at  88-  92,  97    33-  40,  52. 
 1061  Id. 
 1062  Implementation  of  Sections  202(  c)(  1)  and  202(  e)  of  the  Telecommunications  Act  of  1996  (National  Broadcast 
 Television  Ownership  and  Dual  Network  Operations),  11  FCC  Rcd  12374  (1996). 
 1063  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11072-  75    25-  30. 


 1064  Id.  at  11072-  74    25-  29. 
 1065  Id.  at  11074-  75    30. 
 1066  Id.  at  11073    26  n.  78. 
 1067  280  F.  3d  1027. 
 1068  Id.  at  1042. 
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 and  increased  their  audience  reach  since  the  1996  Acts  passage.  1069  The  court  was  not  persuaded  by  the  Commissions  evidence  that  large  group  owners  have  undue  market  power,  and  it  agreed  with  the 
 networks  that  the  figures  alone,  absent  evidence  of  an  adverse  effect  on  the  market,  were  insufficient  to  support  retention  of  the  rule.  1070  The  court  also  found  unsupported  the  Commissions  statement  in  the 
 1998  Biennial  Review  Report  that  the  national  cap  is  necessary  to  safeguard  competition  in  the  national  advertising  or  program  production  markets.  1071  The  court  concluded  that  the  Commissions  analysis  of 
 the  state  of  competition  in  the  television  industry  was  incomplete  and  did  not  satisfy  the  requirement  under  Section  202(  h)  to  show  that  the  rule  is  necessary  in  the  public  interest  as  the  result  of 
 competition.  1072 
 506.  The  court  held  that  diversity  and  localism  are  valid  public  interest  goals  within  the  context  of  broadcast  regulation  and  made  it  clear  that  the  Commission  could  determine  that  the  national  TV 


 ownership  rule  was  necessary  in  the  public  interest  under  Section  202(  h)  if  it  served  either  interest.  1073  The  court,  however,  ruled  that  the  Commission  had  not  provided  sufficient  evidence  that  either  one  of 
 these  goals  was  served.  1074  The  court  noted  that  the  Commission,  in  its  1998  Biennial  Review  Report,  mentioned  national  diversity  as  a  justification  for  retaining  the  [national  TV  ownership  rule],  but  did  not 
 elaborate  upon  the  point.  1075  The  court  found  the  Commissions  statement  did  not  explain  why  the  rule  is  necessary  to  further  national  diversity.  The  court  also  found  that  the  Commission  failed  to  justify  its 
 departure  in  the  1998  decision  from  its  1984  decision,  in  which  the  Commission  concluded  that  the  national  TV  ownership  restriction  should  be  phased  out  after  six  years  because:  (1)  the  rule  no  longer  was 
 necessary  for  national  diversity  given  the  abundance  of  media  outlets  and  (2)  a  national  rule  was  irrelevant  to  local  diversity.  1076  In  addition,  the  court  held  that  the  Commission  did  not  adequately 
 demonstrate  that  the  rule  strengthens  the  bargaining  power  of  independently-  owned  affiliates  and  thereby  promotes  program  diversity,  particularly  in  light  of  its  1984  conclusion  that  no  evidence  suggested  that 
 stations  that  are  not  group-  owned  responded  better  to  community  needs  or  spent  proportionately  more  revenue  on  local  programming.  1077  However,  the  court  acknowledged  the  Commissions  right  to  reverse 
 course,  provided  the  reversal  is  supported  by  a  reasoned  analysis.  1078  Recognizing  that  sufficient  evidence  may  exist  to  justify  the  national  TV  ownership  rule,  the  court  determined  that  the  appropriate 


 1069  Id.  at  1041-  42  (citing  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11073    27). 
 1070  Id.  at  1042. 
 1071  Id.  (citing  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11073    26  n.  78). 
 1072  Id.  at  1044. 
 1073  Id.  at  1042. 


 1074  Id.  at  1042-  43. 
 1075  Id.  at  1042  (citing  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11073    26  n.  78). 
 1076  Id.  at  1034,  1042-  45.  See  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  27,  30-  31,  37    31- 
 33,  43,  60. 
 1077  Fox  Television,  280  F.  3d  at  1043  (citing  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  35 
   53). 
 1078  Id.  at  1044-  45. 
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 remedy  was  to  remand,  rather  than  to  vacate,  the  rule.  1079  We  now  consider  whether  the  current  rule  can  be  justified  as  necessary  to  promote  competition,  diversity  or  localism. 
 2.  The  Current  National  TV  Ownership  Rule  Cannot  Be  Justified 
 507.  Under  Section  202(  h),  we  must  evaluate  whether  the  national  TV  ownership  rule  continues  to  be  necessary  in  the  public  interest  as  the  result  of  competition.  1080  To  make  this  determination,  we 


 consider  whether  the  rule  serves  the  public  interest  by  furthering  our  policy  goals  of  competition,  localism,  or  diversity.  The  evidence  demonstrates  that  a  national  TV  ownership  limit  is  necessary  to 
 promote  localism  by  preserving  the  bargaining  power  of  affiliates  and  ensuring  their  ability  to  select  programming  responsive  to  tastes  and  needs  of  their  local  communities.  However,  the  evidence  also 
 demonstrates  that  the  current  cap  of  35%  is  not  necessary  to  preserve  that  balance. 
 a.  Competition 
 508.  In  analyzing  whether  the  current  rule  is  necessary  to  protect  competition,  we  focus  on  whether  and  to  what  extent  market  power  exists  in  any  relevant  market,  and  what  effect  the  rule  has  on 


 the  existence  and  exercise  of  this  market  power.  In  the  1984  decision  to  eliminate  the  national  ownership  cap,  the  Commission  limited  its  competition  analysis  to  the  national  television  advertising  market.  1081  In 
 this  decision,  we  expand  our  competition  review  to  include  the  national  program  acquisition  market.  The  national  cap  affects  economic  concentration  in  national  markets  by  limiting  the  size  of  group  owners  of 
 television  stations,  but  does  not  affect  concentration  in  the  local  video  delivery  market,  and  thus  does  not  raise  competition  concerns  that  were  discussed  in  the  local  ownership  rule  sections  above.  The  national 
 cap  limits  the  ability  of  group  owners  to  purchase  television  stations  in  individual  local  markets.  The  effect  of  this  ownership  restriction  on  station  performance  in  the  video  delivery  market  is  discussed  in  the 
 localism  section  below. 
 509.  Based  on  our  analysis  of  the  relevant  markets,  we  find  that  the  current  rule  is  not  necessary  to  maintain  competition  in  the  three  economic  markets  we  examine.  As  the  record  before  us  indicates,  the 


 media  marketplace  is  undergoing  unprecedented  change.  Broadcast  stations  are  subject  to  competition  from  cable  and  DBS,  1082  and  they  face  increased  competition  for  viewers,  advertising  revenues,  station 
 network  affiliations,  and  programming.  1083  We  conclude  that  the  35%  cap  is  no  longer  necessary  to  protect  competition  in  the  media  marketplace  and  unnecessarily  constrains  the  organization  of,  and 
 investment  in,  free,  over-  the-  air  (i.  e.,  non-  subscription)  broadcast  television. 
 510.  Broadcast  competition  framework.  The  evolution  of  non-  price  competition  in  television  has  implications  for  the  economic  organization  of  broadcast  television  networks.  Higher  channel  capacity 


 cable  systems  and  the  growth  in  the  number  of  cable  networks,  together  with  the  programming  options 


 1079  Id.  at  1048-  49. 
 1080  1996  Act,    202(  h). 
 1081  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  39-  40    67-  71. 
 1082  See  Modern  Media  Marketplace,  supra  Section  IV. 
 1083  Paxson  notes  that  broadcasters  face  competition  today  from  a  dizzying  array  of  diverse  and  high  quality 
 entertainment  and  news  choices.  Paxson  Comments  at  11. 
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 offered  by  DBS,  have  intensified  the  competitive  pressure  on  broadcast  television  networks  to  slow  the  erosion  of  viewer  market  share  and  to  build  strong  network  brand  identity  reflecting  program  focus, 
 quality  and  reputation.  1084 
 511.  Two  broadcast  television  network  organizational  changes,  which  are  viewed  as  responses  to  the  growth  in  viewer  options,  are  noteworthy,  namely,  (1)  the  extensive  backward  integration  into 


 program  supply,  and  (2)  the  desire  to  increase  the  extent  of  forward  vertical  integration  through  ownership  of  additional  local  television  stations.  Transaction  cost  economics  suggests  that  such 
 organizational  integration  induced  by  increased  rivalry  within  the  media  industry  may  improve  economic  efficiency. 


 512.  Transaction  cost  economics  adopts  a  contractual  approach  in  understanding  the  economic  organization  of  firms.  1085  The  transaction  the  exchange  of  goods  or  services  for  money  or  other  goods 
 between  parties  is  the  focal  point  of  economic  analysis.  Determining  the  governance  structure  that  minimizes  the  economic  cost  of  effectuating  a  particular  type  of  transaction  is  a  central  objective  of  a 
 transaction  cost  analysis.  Transaction  cost  economics  identifies  three,  discrete  governance  structures,  namely,  (1)  the  market;  (2)  hybrid  contracting;  and  (3)  hierarchy,  where  transactions  are  placed  under 
 unified  ownership  in  a  firm  subject  to  administrative  controls  and  management.  1086  Whether  it  is  economically  efficient  (cost  minimizing)  to  effectuate  exchange  using  market  contracting  or  through 
 hierarchy  (vertical  integration)  depends  on  certain  behavioral  assumptions,  and  key  attributes  of  any  given  transaction.  1087 


 1084  Reputation  may  constitute  a  mobility  barrier  that  helps  deflect  continuing  market  share  erosion  in  the  mass 
 audience  strategic  group.  An  empirical  study  of  the  relationship  between  reputation  and  strategic  groups  in  the  insurance  industry  is  provided  by  T.  D.  Ferguson,  D.  L.  Deephouse,  and  W.  L.  Ferguson,  Do  Strategic  Groups 


 Differ  in  Reputation?,  21  STRATEGIC  MGMT  J.  1195,  1195-  1214  (2000). 
 1085  Oliver  E.  Williamson,  THE  MECHANISMS  OF  GOVERNANCE  54  (Oxford  Univ.  Press  1999). 


 1086  Id.  at  378. 
 1087  From  a  transaction  cost  perspective,  transactions  differ  one  from  another  in  three  important  dimensions, 
 namely,  (1)  the  frequency  of  a  given  type  of  transaction;  (2)  the  degree  and  type  of  uncertainty  implied  by  the  transaction;  and  (3)  the  condition  of  asset  specificity.  While  all  three  dimensions  are  important  in  determining  the 


 least  costly  governance  structure  for  organizing  transactions,  the  condition  of  asset  specificity  is  especially  important.  Asset  specificity  refers  to  the  degree  that  an  asset  can  be  redeployed  to  alternative  uses  and  by 
 alternative  users  without  a  substantial  loss  in  productive  value.  Asset  specificity  is  similar  to  the  concept  of  sunk  cost  as  found  in  the  literature  on  the  theory  of  contestable  markets  and  recent  game-  theoretic  models  of  industry 
 structure  and  performance.  Asset  specificity  is  a  somewhat  broader  concept  than  sunk  cost,  however,  and  its  full  significance  is  apparent  only  within  the  context  of  incomplete  contracting.  Transaction  cost  economics  recognize 
 that  asset  specificity  can  take  many  different  forms  including,  but  not  limited  to,  site  specificity;  physical  asset  specificity;  human  asset  specificity  derived  from  learning-  by-  doing;  and  dedicated  assets,  representing  discrete 
 investments  in  general  purpose  plant  or  facilities  for  meeting  the  demand  for  output  for  a  specific  customer.  See  Williamson,  supra  note  1085  at  50. 
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 513.  In  general,  ordinary  market  contracting  is  an  efficient  governance  structure  for  transactions  supported  by  general  purpose  assets  not  dedicated  to  the  specific  output  demand  of  a  given 
 customer.  As  asset  specificity  deepens,  market  contracting  as  a  governance  structure  gives  way  to  either  hybrid  structures  or  hierarchy  (vertical  integration)  as  the  least  costly  to  organize  transactions.  1088  The 
 pervasiveness  of  asset  specificity  in  the  program  production  industry  suggests  that  complex  contracts  between  broadcast  television  networks  and  program  suppliers  may  not  be  the  least  costly  governance 
 structure  for  effectuating  transactions. 
 514.  Broadcast  television  networks  have  a  single,  strategic  focus,  namely,  the  maximization  of  the  number  of  television  viewers  that  are  attracted  to  mass  audience  and  niche  audience  programming.  1089 


 This  strategic  focus  is  crucial  to  broadcast  television  networks,  since  the  sale  of  audiences  to  national  advertisers  provides  their  only  stream  of  revenue  from  broadcast  operations  in  contrast  to  cable  networks 
 which  may  receive  both  advertiser  and  subscriber  revenue.  1090  By  contrast,  local  broadcast  television  stations  pursue  a  more  complex  business  strategy  as  licensed  broadcast  facilities.  First,  the  local  station 
 seeks  to  maximize  the  size  of  its  audience  it  attracts  within  its  local  television  market.  If  the  local  station  is  a  network  affiliate,  then  the  local  station  will  promote  the  networks  program  schedule  together  with 
 syndicated  programming  the  station  may  acquire  to  help  fill  out  its  daily  program  schedule.  Second,  the  local  station  will  also  promote  its  own  locally-  produced  programming,  such  as  news  and  public  affairs 
 programming,  that  it  believes  is  responsive  to  issues  or  viewer  preferences  in  the  communities  served  by  the  station.  Station  management  may  vary  the  allocation  of  time  devoted  to  any  particular  type  of 
 programming,  including  network  programming,  to  respond  to  emerging  preferences  or  news  events  in  the  communities  located  in  its  local  television  market. 


 515.  As  the  networks  have  lost  viewer  market  share  over  the  last  decade  in  response  to  the  growth  in  cable  and  DBS,  the  traditional  contractual  relationship  between  a  television  network  and  a  local 
 station  affiliate  may  be  a  less  efficient  governance  structure.  From  a  transaction  cost  perspective,  television  networks  view  their  massive  sunk  investments  in  network  programming  as  increasingly  risky 
 assets  as  non-  broadcast  program  options  proliferate. 
 516.  With  respect  to  contractual  safeguards,  the  networks  have  attempted  to  negotiate  substantial  penalties  for  failure  to  clear  a  full  schedule  of  network  programming.  With  respect  to  changes 


 in  governance  structure,  the  broadcast  television  networks  have  argued  for  elimination  of  the  national 


 1088  The  condition  of  asset  specificity,  if  pervasive,  poses  substantial  contracting  hazards  such  that  ordinary  market 
 exchange  as  encountered  in  competitive  markets  may  be  impaired  or  even  effectively  blocked.  In  other  words,  the  transaction  cost  of  operating  a  market  mechanism  as  a  governance  structure  in  the  presence  of  deep  asset 


 specificity  may  be  so  high  that  a  market  will  simply  fail.  Thus,  market  failure  may  be  attributable  not  only  to  various  externalities  but  to  excessive  transaction  costs  as  well.  This  insight  is  attributed  to  Kenneth  Arrow, 
 according  to  Williamson.  See  Oliver  E.  Williamson,  THE  ECONOMIC  INSTITUTIONS  OF  CAPITALISM  19  n.  8  (1985). 
 1089  Roughly  speaking,  broadcast  television  revenues  tend  to  be  proportional  to  audience  size.  Assuming  that 
 marginal  operating  cost  is  small  relative  to  the  fixed  cost  of  operating  a  broadcast  television  network  and  generally  invariant  with  respect  to  changes  in  audience  size,  then  maximizing  audience  size  is  roughly  equivalent  to 


 maximizing  profit. 
 1090  In  most  cases,  broadcast  television  networks  today  are  organizational  units  of  larger  media  enterprises,  e.  g., 
 ABC  is  one  of  numerous  business  units  operated  by  the  Disney  corporation,  that  have  numerous  revenue  streams.  Corporate  management  ordinarily  expects,  however,  that  each  business  unit  will  recover  its  unit-  specific  fixed  and 


 variable  costs,  contribute  to  the  cost  of  shared  corporate  services  and  functions,  and  earn  unit-  specific  profit. 
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 ownership  cap,  which  would  permit  the  networks  to  substitute  hierarchy  (vertical  integration)  for  the  current  contractual  relationship  with  independently-  owned  station  affiliates.  Presumably,  the  networks 
 believe,  consistent  with  transaction  cost  logic,  that  conflicts  in  strategic  focus  between  stations  and  the  network  respecting  programming  decisions  can  be  resolved  more  efficiently,  i.  e.,  at  minimal  transaction 
 cost,  if  hierarchy,  i.  e.,  forward  vertical  integration,  replaces  market  contracting  as  the  governance  structure. 


 517.  Thus,  our  transaction  cost  analysis  suggests  that  our  national  ownership  cap  probably  restricts  the  full  transition  to  the  least  costly  way  for  organizing  transactions  between  television  networks 
 and  local  television  stations,  i.  e.,  forward  vertical  integration,  assuming  that  realization  of  a  networks  singular  strategic  focus  on  mass  or  niche  audience  size  is  the  preferred  policy  objective.  If,  however, 
 locally  produced  programming  and  ultimate  program  selection  authority  are  a  higher  policy  priority,  then  our  transaction  cost  economic  framework  identifies  the  relevant  policy  trade-  off,  namely,  the  incremental 
 social  benefit  of  local  programming  viewed  as  a  component  of  our  localism  policy  goal  versus  the  increased  social  and  private  costs  of  inefficient  contracting. 


 518.  Program  Production  and  Acquisition  Market.  Competition  in  the  program  production  and  acquisition  market  is  important  because  networks  and  owners  of  individual  television  stations  compete 
 with  each  other,  as  well  as  with  cable  television  networks,  to  acquire  programming  that  will  continue  to  attract  viewers  to  their  channels.  Although  television  station  owners  as  a  group  are  relatively  significant 
 purchasers  of  programming,  we  have  no  evidence  that  they  exercise  market  power  in  the  program  production  market.  1091 


 519.  In  considering  the  effect  of  the  national  television  cap  on  competition  in  the  program  acquisition  market,  we  first  must  identify  the  market  participants.  The  broadcast  networks  contend  that 
 the  following  categories  of  firms  compete  in  the  program  acquisition  market:  broadcast  television  networks,  individual  television  stations  (and  group  owners  thereof),  non-  broadcast  program  networks  (i.  e. 
 cable  networks),  syndicators,  pay-  per-  view  systems,  VHS  and  DVD  rental  stores.  1092  NASA  counters  that  major  broadcast  networks  are  a  discrete  sub-  market,  or  strategic  group,  within  the  program  purchasing 
 market.  1093  We  generally  agree  with  the  networks  definition  of  the  relevant  market  participants,  although  we  exclude  video  sales  and  rental  stores.  We  disagree  with  the  networks  contention  that  such  outlets  are 
 clearly  a  substitute  for  the  delivered  video  programming  of  broadcast  channels  and  cable  channels.  Those  channels  are  the  most  conventional  form  of  television  viewing  that  can  be  substituted  among  by  viewers 
 almost  instantly.  It  is  possible  to  analyze  the  impact  on  the  program  acquisition  market  of  relaxing  the  national  television  ownership  cap  by  examining  company  expenditure  shares.  The  following  describes 
 estimates  of  expenditure  shares  and  calculation  of  a  hypothetical  HHI.  The  analysis  assumes  that  the  buyers  in  this  market  are  broadcast  networks,  broadcast  stations,  and  cable  networks.  1094  OPP  Working 
 Paper  37  (Table  32)  provides  estimates  for  the  year  2000  of  programming  expenditures  by  the  Big  Four 


 1091  See  Miscellaneous  Requests,  Independent  Producers  infra  Section  VIII(  D). 
 1092  Fox  Comments,  Economic  Study  E. 
 1093  NAB/  NASA  Reply  Comments  at  57. 


 1094  Our  market  definition  includes  pay  cable  networks  as  well  as  pay-  per-  view  networks,  but  in  the  absence  of 
 data,  they  are  excluded  from  this  analysis. 
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 commercial  networks  and  by  television  stations.  1095 
 520.  The  table  below  provides  program  expenditure  data  for  the  year  2000  for  the  Big  Four  broadcast  networks  in  column  2  and  for  eight  firms  that  own  cable  networks  in  column  4.  The  eight  firms 


 include  the  top  four  broadcast  networks,  the  two  biggest  cable  network  owners  that  do  not  own  television  stations,  and  the  two  companies  with  the  biggest  cable  network  shares  that  also  own  television  stations. 
 There  is  also  a  residual  category  that  includes  all  other  cable  network  expenditures  as  Other. 
 521.  Column  3  includes  some  hypothetical  broadcast  station  owner  shares.  We  do  not  know  exactly  how  station  expenditures  are  divided  up  among  companies  that  own  television  stations.  The 


 numbers  in  this  column  represent  a  worst  case  scenario  of  what  could  happen  if  the  national  television  cap  were  eliminated.  In  2000  there  were  1248  commercial  television  stations  on  the  air.  We  know  that 
 the  major  commercial  networks  each  reach  virtually  100%  of  US  television  households  and  that  each  network  has  roughly  200  affiliated  stations.  1096  If  stations  were  distributed  evenly  across  markets,  then 
 there  would  be  room  for  six  television  station  companies  each  reaching  all  US  television  households. 
 522.  However,  stations  are  not  evenly  distributed  across  markets.  There  are  50  Nielsen  DMAs  with  fewer  than  four  commercial  stations,  but  they  account  for  only  4.6%  of  US  television  households,  so, 


 from  the  point  of  view  of  station  programming  expenditures,  it  is  reasonable  to  assume  that  each  of  the  top  four  broadcast  networks  could  achieve  100%  coverage  of  US  television  households.  However,  there 
 are  120  markets  with  fewer  than  six  commercial  television  stations,  and  those  markets  account  for  19.7%  of  US  television  households.  So  it  is  reasonable  to  assume  that  two  additional  station  groups  could  grow 
 to  80%  coverage.  This  analysis  assumes  that  television  station  program  expenditures  are  divided  among  six  firms:  the  four  networks  with  100%  coverage,  and  Cox  and  Hearst,  each  with  80%  coverage.  We 
 assume  that  expenditures  are  proportionate  to  coverage.  The  resulting  expenditure  estimates  are  in  column  3.  These  estimates  reflect  a  level  of  concentration  that  is  higher  than  the  true  level.  There  are  63 
 markets  with  more  than  six  commercial  stations  in  them.  Adding  up  the  excess  over  six  stations  in  each  market  yields  a  total  of  259  stations.  We  know  that  a  single  company  can  own  multiple  stations  in  the 
 same  market,  but  it  is  likely  that  even  with  more  companies  owning  two  stations  in  a  market  that  there  will  still  be  more  than  six  station  owners  in  some  markets. 


 523.  Column  5  contains  hypothetical  total  programming  expenditures  for  the  eight  firms,  aggregating  across  broadcast  network,  broadcast  station,  and  cable  network  categories,  and  using  the 
 hypothetical  consolidated  television  station  ownership  pattern  described  above.  Column  6  shows  market  shares  and  column  7  implements  the  HHI  calculation  by  squaring  and  summing  the  market  shares.  The 
 resulting  worst  case  HHI  of  1535  is  in  the  moderately  concentrated  range.  Even  with  the  highly  unrealistic  assumption  of  a  100%  national  reach  by  four  companies,  and  an  80%  reach  by  two  companies, 


 1095  The  network  figure  is  based  on  gross  advertising  revenue  data  from  the  Television  Bureau  of  Advertising, 
 FCC  data  on  net  advertising  as  a  percentage  of  gross,  and  a  trade  press  estimate  of  network  programming  expenditures  as  a  percentage  of  net  advertising  revenues.  This  yields  a  total  figure  for  the  top  four  networks  rather 


 than  estimates  for  each  network.  This  analysis  assumes  that  the  networks  each  spend  the  same  amount,  which  we  believe  is  a  reasonable  approximation  although  Fox  probably  spends  less  than  the  other  three.  The  television 
 station  estimate  is  based  on  data  in  the  NAB  Television  Financial  Report.  The  cable  programming  network  figures  come  from  Kagan  World  Media  publications,  ECONOMICS  OF  BASIC  CABLE  NETWORKS  (2002)  at  432-  433  and 
 CABLE  PROGRAM  INVESTOR  (Jan.  17,  2003)  at  6.  Data  are  available  for  65  basic  cable  networks  and  for  the  HBO,  Showtime,  and  Starz  premium  channels. 


 1096  There  are  210  Nielsen  DMA  markets,  and  in  a  few  cases  a  network  has  more  than  one  affiliate  per  market. 
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 these  levels  of  market  share  provide  us  with  no  basis  to  conclude  that  the  current  35%  cap  on  national  television  ownership  is  needed  to  protect  competition  in  the  program  acquisition  market. 
 Hypothetical  HHI  for  Program  Acquisition  (data  are  year  2000  in  millions  of  $) 
 Broadcast  Network  Broadcast  Station  Cable  Network  Total  Market  Share  Market  Share  Squared 


 Cox  0  969.5  139.4  1108.9  4.  37  19.13502 
 Hearst  0  969.5  530  1499.5  5.  92  34.98944 
 ABC  2581.75  1212  1276.7  5070.45  20.00  400.071 
 Fox  2581.75  1212  521.8  4315.55  17.02  289.812 
 GE  2581.75  1212  300  4093.75  16.15  260.7875 
 Viacom  2581.75  1212  1466.4  5260.15  20.75  430.5666 
 Time  Warner  0  0  2162.9  2162.9  8.  53  72.79758 
 Liberty  Media  0  0  786.3  786.3  3.10  9.621009 
 Other  0  0  1052.5  1052.5  4.  15  17.23806 


 Tot  al  10327  6787  8236  25350  100.00  1535.018 
 524.  National  Advertising  Market.  The  Commissions  focus  is  not  on  advertisers,  but  on  the  ability  of  broadcasters  to  compete  for  advertising  revenues.  Broadcast  networks  compete  for  advertising 
 dollars  by  creating  national  audiences  for  their  programming.  If  the  networks  cannot  generate  national  audiences,  their  ability  to  compete  for  advertising  revenues  will  decline,  thereby  diminishing  their  ability 
 to  invest  in  innovative  programming.  As  a  result,  viewers  will  experience  a  decrease  in  programming  choices  and  quality. 


 525.  In  its  1984  decision,  the  Commission  determined  that  elimination  of  the  national  cap  would  not  harm  competition  in  the  national  advertising  market.  1097  The  Commission  found  that  the 
 number  of  firms  in  the  market  would  ensure  continued  vigorous  competition  in  that  market.  In  the  Notice,  we  sought  information  on  whether  our  conclusion  in  1984  continues  to  be  valid.  To  analyze 
 competition  in  this  market,  we  sought  comment  on  the  firms  that  compete  in  the  national  television  advertising  market,  including  the  extent  to  which  national  spot  advertisements  and/  or  syndicated 
 programming  are  fungible  with  network  television  advertising  from  the  perspective  of  advertisers.  1098  The  national  television  advertising  market  brings  together  those  advertisers  wishing  to  reach  a  national 
 audience  with  television  networks  that  provide  national  exposure.  Broadcast  television  networks  are  the  leading  suppliers  of  national  television  advertising. 


 526.  NAB/  NASA  claims  the  record  demonstrates  that  national  spot  advertising  is  competitive 


 1097  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  52  102. 
 1098  National  spot  advertising  time  is  sold  by  stations  to  national  advertisers,  which  aggregate  national  or  regional 
 coverage  by  purchasing  advertising  spots  from  stations  in  multiple  markets.  Syndication  refers  to  advertisements  sold  in  syndicated  programs.  See  OPP  Working  Paper  37  at  11. 
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 with  national  advertising.  1099  National  advertisers  can  purchase  advertising  on  a  collection  of  local  television  stations  that  can  approximate  a  national  advertisement  on  a  single  network.  Local  television 
 stations  sell  national  spot  advertising  through  advertising  agencies,  which  aggregate  the  available  advertising  on  local  stations  for  national  spot  buyers.  NAB/  NASA  contends  that  when  demand  for 
 national  advertising  on  a  particular  network  show  exceeds  the  available  supply  of  national  network  advertising  time,  advertisers  turn  to  the  national  spot  advertising  market  to  reach  viewers.  1100  Television 
 stations  rely  in  part  on  the  national  spot  advertising  market  for  a  portion  of  their  advertising  revenue.  NAB/  NASA  argues  that  if  the  ownership  cap  is  raised,  the  broadcast  networks  will  increase  their 
 ownership  of  television  stations  and  decrease  the  national  spot  availabilities  to  such  an  extent  that  the  viability  of  the  national  spot  market  will  be  impaired.  1101  Specifically,  NAB/  NASA  contends  that  a 
 network-  owned  station  will  not  compete  against  its  network  for  national  (spot)  advertising  revenue.  The  result,  according  to  NAB/  NASA,  is  that  competition  in  the  national  advertising  market  will  be  diminished 
 by  the  decreased  viability  of  national  spot  advertising  as  a  substitute  for  network  advertising.  NAB/  NASA  asserts  that  the  resulting  loss  of  revenue  to  local  stations  will  harm  their  ability  to  compete 
 with  other  delivered  video  providers.  1102 
 527.  Discussion.  We  agree  that  a  strong  national  spot  advertisement  market  is  an  important  component  of  the  financial  stability  and  competitiveness  of  television  station  owners.  We  find,  however, 


 that  the  increase  in  the  cap  from  25%  to  35%  has  not  harmed  national  spot  advertising  revenues.  Our  analysis  of  advertising  revenue  data  indicates  that  despite  increases  in  ownership  of  stations  by  CBS, 
 NBC  and  Fox  since  1996,  there  has  been  no  diminution  in  the  national  spot  advertising  market  that  can  be  reliably  associated  with  an  increase  in  network  station  ownership.  With  the  exception  of  2001,  national 
 spot  advertising  has  experienced  a  relatively  consistent  growth.  1103 
 528.  Although  we  agree  with  NAB/  NASA  that  network-  owned  stations  have  less  incentive  to  compete  directly  with  an  affiliated  broadcast  network  in  the  national  advertising  markets,  we  cannot  agree 


 that  such  competition  in  fact  would  not  occur.  If  national  advertisers  are  willing  to  pay  a  higher  per-  spot  price  to  network-  owned  stations  than  are  local  advertisers,  network-  owned  stations  might  well  accept  the 
 higher  priced  advertising.  Thus,  the  profit-  maximizing  behavior  of  the  network-  owned  stations  might  well  serve  as  a  substitute  for  national  advertisers  seeking  to  purchase  national  spot  advertising.  Such  a 
 response  by  network-  owned  stations  would  maintain  the  viability  of  national  spot  advertising  as  an  option 


 1099  See  B.  D.  McCullough  &  Tracy  Waldon,  The  Substitutability  of  Network  and  National  Spot  Television 
 Advertising,  37  Q.  J.  BUS.  &  ECON  3  (Spring  1998)  (  Network  Substitutability)  (concluding  that  the  estimated  elasticities  suggest  that  the  network  and  national  spot  advertisements  have  been,  and  continue  to  be,  good 


 substitutes  in  the  aggregate).  But  see  Silk,  Klein,  and  Berndt,  supra  note  519  at  323-  48  (eight  national  media  classes  are  not  viewed  as  substitutes  by  national  advertisers). 


 1100  NAB/  NASA  Comments  at  59. 
 1101  Id.  at  61-  62. 
 1102  Id. 
 1103  Since  1996,  the  broadcast  networks  have  increased  the  number  of  owned  and  operated  stations,  yet  the 
 national  spot  advertising  volume  has  risen  from  $9.1  billion  in  1995  to  $12.2  billion  in  2000.  From  1990-  1994,  the  compound  annual  growth  rate  (CAGR)  in  the  national  spot  advertising  market  was  approximately  4.9%  as 


 compared  to  the  CAGR  for  1995-  2000  of  approximately  6.1%.  See  OPP  Working  Paper  37  at  13.  See  also  Richard  Billotti,  The  Case  for  Moderate  Growth  in  TV  Advertising,  EQUITY  RESEARCH  (Jan.  3,  2003). 
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 for  national  advertising  regardless  of  the  level  of  the  national  television  cap.  Moreover,  even  if  the  top  four  networks  were  to  acquire  additional  local  stations  and  declined  to  use  the  national  spot  advertising 
 availabilities  to  compete  with  their  own  network's  advertising  availabilities,  there  is  every  reason  to  think  the  network-  owned  stations  would  seek  to  take  national  advertising  dollars  away  from  other  broadcast 
 networks.  That  is,  even  if  an  NBC-  owned  station  sought  not  to  compete  with  the  NBC  network  for  advertising  dollars,  the  NBC-  owned  stations  have  incentives  to  compete  in  the  national  spot  market  for 
 advertising  dollars  that  might  otherwise  go  to  the  CBS,  ABC,  and  Fox  networks.  Consequently,  we  cannot  say  that  the  national  cap  is  necessary  to  protect  competition  in  the  national  advertising  market. 


 529.  Innovation.  In  the  Notice,  we  asked  whether  the  national  ownership  cap  promotes  or  hinders  innovation  in  the  media  marketplace.  1104  Affiliates  argue  that  non-  network  owners  encourage 
 innovation  because  affiliates  provide  a  competitive  outlet  for  innovative  programming.  NAB/  NASA  provides  nine  examples  of  innovation  by  non-  network  group  owners,  such  as  satellite  newsgathering 
 encouraged  by  affiliates  to  improve  upon  network-  delivered  news;  the  development  of  the  local  newsmagazine  format;  all-  news  cable  channels  developed  for  cable  carriage;  digital  TV  experiments  such 
 as  the  multicasting  by  several  affiliates  of  the  NCAA  tournament;  the  delivery  of  local  news  in  HDTV  format;  and  the  creation  of  iBlast,  a  joint  venture  between  affiliates  and  an  outside  firm  to  develop  new 
 uses  for  digital  spectrum.  1105 
 530.  Taking  an  opposing  view,  Fox  contends  that  the  cap  limits  networks  investment  in  innovative  programming  by  inhibiting  economic  efficiencies  that  come  with  a  larger  number  of  owned 


 and  operated  stations.  As  evidence,  Fox  refers  to  a  study  by  Michael  Katz  which  concluded  that,  by  inhibiting  the  potential  economic  efficiencies  available  to  group  owners,  the  rule  artificially  raises  the  cost 
 of  operating  television  stations  and  limits  the  return  that  group  owners  can  realize  on  their  programming  investments.  1106  Katz  argues  that  the  rule  drives  group  owners  to  direct  more  of  their  resources  away 
 from  free  television  and  toward  alternative  means  of  distributing  programming  content,  such  as  subscription-  based  cable  channels.  1107 


 531.  Discussion.  The  current  national  ownership  cap  appears  to  encourage  innovation  in  broadcast  television  by  preserving  a  number  of  separately-  owned  station  groups,  including  non-  network 
 owned  station  groups.  The  current  number  of  station  group  owners  has  led  to  innovation  in  ways  that  benefit  the  public.  Those  developments  include  the  creation  of  local  all-  news  channels  in  partnership 
 with  local  cable  companies,  the  implementation  of  program  formats  such  as  local  newsmagazines,  and,  importantly,  experimentation  with  the  spectrum  allocated  to  local  broadcasters  for  digital  television.  1108 


 532.  The  transition  to  digital  television  represents  a  critical  evolutionary  step  in  broadcast  television.  We  are  committed  to  ensuring  the  rapid  completion  of  that  transition  in  a  way  that  delivers  the 
 greatest  possible  benefits  to  the  viewing  public.  We  believe  that  the  broadcast  industry  is  more  likely  to  rapidly  address  the  technical  and  marketplace  issues  associated  with  digital  television  if  there  are  a  variety 


 1104  Notice,  17  FCC  Rcd  at  18549-  50    146. 
 1105  See  NAB/  NASA  Reply  Comments  at  23-  27. 
 1106  Fox  Comments  at  43;  Katz,  supra  note  65. 
 1107  Katz,  supra  note  65  at  48-  51. 
 1108  NAB/  NASA  Reply  Comments  at  57-  58. 
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 of  group  owners  exploring  ways  to  use  the  spectrum.  The  record  shows  that  non-  network  owners  of  television  stations  are  actively  exploring  different  ways  of  using  digital  spectrum.  It  is  also  important  to 
 have  group  owners  with  potentially  different  economic  incentives  in  this  area  examining  transition  mechanisms  to  digital  television.  Because  of  networks  ongoing  investment  in  programming,  it  is 
 possible  that  networks  may  have  incentives  to  use  digital  spectrum  differently  from  affiliates.  The  Fox  television  network,  for  instance,  has  indicated  its  interest  in  using  the  spectrum  of  its  owned  stations  as 
 well  as  its  affiliates  for  future  services.  1109  Therefore,  we  conclude  that  a  national  television  cap  is  necessary  to  preserve  a  number  of  separately-  owned  television  station  groups,  including  non-  network 
 groups,  that  will  increase  the  types  of  digital  transition  experiments  and  ultimately  facilitate  a  rapid  and  efficient  transition  to  digital  broadcast  television. 


 b.  Diversity 
 533.  The  1984  Multiple  Ownership  Report  and  Order  concluded  that  the  local  community  is  the  relevant  market  for  evaluating  viewpoint  diversity  and  that,  therefore,  the  national  TV  ownership  rule  is 


 not  needed  to  promote  viewpoint  diversity.  1110  The  1984  Multiple  Ownership  Report  and  Order  also  stated  that  the  national  market  is  not  relevant  for  evaluating  viewpoint  diversity,  but  even  if  it  were,  the 
 proliferation  of  media  outlets  renders  the  national  ownership  restrictions  unnecessary.  1111  In  the  1998  Biennial  Review  Report,  the  Commission  did  not  analyze  the  rules  effects  on  viewpoint  diversity  and 
 merely  stated,  without  evidentiary  support,  that  the  rule  promotes  diversity  of  programming.  1112  In  remanding  the  national  TV  ownership  rule,  the  court  in  Fox  Television  found  that  the  Commission  had 
 failed  to  support  its  1998  conclusion  that  the  rule  is  necessary  to  strengthen  affiliates  bargaining  power  and  had  neglected  to  address  its  1984  determination  that  the  national  market  is  not  the  relevant 
 geographic  area  to  consider  when  evaluating  diversity.  1113  We  address  the  issue  of  affiliates  bargaining  power  in  the  following  section  and  address  diversity  here. 


 534.  In  the  Notice,  we  observed  that  the  national  TV  ownership  rule  does  not  appear  to  be  relevant  to  the  goal  of  promoting  viewpoint  diversity  because  people  gather  news  and  information  from 
 sources  available  in  their  local  market  and  that  the  relevant  geographic  market  for  viewpoint  sources  is  local,  not  national.  1114  We  also  noted  that  the  viewpoints  aired  by  television  stations  in  one  city  do  not 
 seem  to  have  a  meaningful  impact  on  the  viewpoints  available  in  other  cities.  1115  Commenters  do  not  provide  evidence  that  persuades  us  to  alter  those  views,  and  we  affirm  our  1984  conclusion  that  the 
 national  TV  ownership  rule  is  not  necessary  to  promote  diversity. 


 1109  NAB/  NASA  Comments  at  42. 
 1110  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  27    31-  32. 
 1111  Id.  at  27-  31    33-  43. 
 1112  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11075    30. 
 1113  Fox  Television,  280  F.  3d  at  1042-  43. 
 1114  Notice,  17  FCC  Rcd  at  18546  136. 
 1115  Id. 
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 535.  Discussion.  We  conclude  that  the  national  television  cap  is  not  necessary  to  promote  viewpoint  diversity.  Americans  use  media  outlets  available  in  their  local  communities  as  sources  of 
 information.  The  national  television  cap,  by  contrast,  ensures  a  larger  total  number  of  station  owners  nationwide,  but  it  has  no  meaningful  impact  on  viewpoint  diversity  within  local  markets.  1116  Therefore, 
 we  affirm  our  1984  decision  that  the  national  television  ownership  limit  is  not  necessary  to  promote  viewpoint  diversity.  1117  We  also  affirm  our  decision  that  the  market  for  viewpoint  diversity  is  local,  not 
 national.  And  we  reiterate  our  1984  statement  that  even  if  the  national  market  were  the  relevant  area  to  consider,  the  proliferation  of  media  outlets  nationwide  renders  the  current  rule  unnecessary.  1118 


 536.  Although  proponents  of  the  current  rule  assert  that  the  increased  uniformity  imposed  by  the  networks  national  distribution  agenda  limits  the  number  of  viewpoints  available  to  the  public,  1119  we  do 
 not  find  convincing  evidence  in  the  record  indicating  that  raising  the  current  national  TV  ownership  limit  would  harm  viewpoint  diversity.  Professors  Schwartz  and  Vincent  assert  that  maintaining  a  diversity  of 
 ownership  across  local  markets  is  beneficial  because  viewers  may  become  aware  of  investigative  news  stories  presented  by  stations  in  other  markets,  particularly  those  of  strong  stations.  1120  NAB/  NASA 
 argues  that  this  type  of  cross-  fertilization  is  less  likely  to  occur  in  the  absence  of  the  national  TV  ownership  rule.  1121  For  this  cross-  fertilization  to  be  a  plausible  scenario,  the  following  minimum 
 conditions  must  occur:  (1)  the  national  cap  prevents  a  station  from  being  acquired  by  a  broadcast  network;  (2)  the  non-  acquired  station  produces  content  that  by  some  measure  is  meaningfully  different 
 (and  significant  from  a  viewpoint  perspective)  from  what  the  network-  owned  station  would  have  aired;  and  (3)  the  airing  of  that  different  content  becomes  known  to  consumers  in  other  localities.  The  national 
 cap  cannot  be  justified  by  reference  to  such  a  hypothetical  scenario  as  this. 


 1116  It  is  possible,  of  course,  that  the  replacement  of  one  station  owner  by  another  could  in  fact  reduce  the  number 
 of  independently-  owned  television  stations  in  that  market.  If  the  acquiring  firm  already  owned  one  station  in  that  market  and  the  seller  was  selling  its  only  station  in  that  market,  there  would  be  one  less  independently-  owned 


 station  in  that  market.  The  impact  of  such  a  transaction  on  viewpoint  diversity  would  be  accounted  for  under  the  diversity  component  of  our  local  rules. 


 1117  See  Fox  Comments  at  34-  35.  We  are  not  persuaded  by  claims  to  the  contrary.  See  UCC  Comments  at  49-  50, 
 53-  54;  Cox  Comments  at  65;  IPI  Comments  at  63;  AFTRA  Comments  at    123;  CCC  Comments  at  22. 
 1118  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  25,  27    24,  33.  See  also  Modern  Media 
 Marketplace,  supra  Section  IV;  Fox  Comments  at  10-  26;  Paxson  Comments  at  9-  11;  Letter  from  John  C.  Quale,  Counsel  for  Fox,  to  Marlene  Dortch,  Secretary,  FCC  (May  2,  2003)  (  Fox  May  2,  2003  Ex  Parte),  Attachment  A  at 


 18.  But  see  Cox  Reply  Comments  at  18-  22  (growth  of  other  media  outlets  does  not  negate  the  need  for  the  35%  cap). 


 1119  NAB/  NASA  Comments  at  12;  NAB/  NASA  Reply  Comments  at  6;  Cox  Comments  at  26-  31. 
 1120  NAB/  NASA  Comments,  Attachment  1,  Marius  Schwartz  &  Daniel  R.  Vincent,  The  Television  National 
 Ownership  Cap  and  Localism  (  NAB/  NASA  Comments,  Schwartz/  Vincent  Paper)  at  12-  13.  See  also  NAB/  NASA  Comments  at  12,  69-  70;  Cox  Reply  Comments  at  12-  13. 


 1121  NAB/  NASA  Comments  at  69. 
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 537.  Commenters  discussing  types  of  diversity  other  than  viewpoint  diversity  do  not  provide  an  evidentiary  basis  for  retaining  the  current  cap.  1122  The  1998  Biennial  Review  Report  stated  that 
 [  i]  ndependent  ownership  of  stations  also  increases  the  diversity  of  programming  by  providing  an  outlet  for  non-  network  programming.  1123  In  this  Report  and  Order,  however,  we  have  concluded  that  we  can 
 and  should  rely  on  the  marketplace,  rather  than  regulation,  to  foster  program  diversity.  1124  Further,  the  record  in  this  proceeding  does  not  contain  evidence  that  affiliates  air  programming  that  is  more  diverse 
 than  programming  aired  by  network-  owned  stations.  Therefore,  we  cannot  affirm  our  earlier  determination  regarding  program  diversity,  and  we  do  not  find  that  the  cap  is  necessary  to  foster  program 
 diversity. 
 c.  Localism 
 538.  Introduction.  The  Commissions  decision  in  the  1984  Multiple  Ownership  Report  and  Order  did  not  address  whether  the  national  TV  ownership  rule  advances  its  goal  of  localism.  1125  In  the 


 1998  Biennial  Review  Report,  however,  the  Commission  did  address  its  localism  goal,  declining  to  modify  the  national  TV  ownership  restriction  in  part  because  affiliates  play  a  valuable  counterbalancing 
 role  to  network  programming  decisions  by  exercising  their  independent  programming  discretion  regarding  what  programs  best  serve  the  needs  and  interests  of  their  local  communities.  1126  In  Fox 
 Television,  the  court  stated  that,  although  the  Commission  had  failed  to  present  evidence  that  the  cap  in  fact  promoted  localism,  localism  was  a  legitimate  basis  for  imposing  a  national  ownership  cap.  1127 


 539.  Based  on  our  analysis  of  the  extensive  record  in  this  proceeding,  we  conclude  that  a  national  television  ownership  limit  is  necessary  to  promote  localism  on  broadcast  television.  The 
 evidence  suggests,  however,  that  the  current  35%  cap  is  not  needed  the  protect  localism,  and  may  in  fact  be  hindering  public  benefits  that  are  expected  to  follow  from  an  increase  in  the  cap.  We  conclude  that  a 
 national  cap  of  45%  fairly  balances  the  competing  public  interest  values  affected  by  this  rule.  We  recognize  that  our  decision  to  retain  a  national  ownership  cap  is  contrary  to  our  conclusion  in  1984.  We 
 reach  this  different  conclusion  principally  because  we  find  that  a  cap  is  necessary  to  protect  localism  by  preserving  a  balance  of  power  between  networks  and  affiliates,  a  policy  objective  that  was  not  considered 
 in  the  1984  decision.  In  this  section,  we  detail  the  localism  analysis.  Thereafter,  we  discuss  our  modified  rule. 


 1122  Cox  briefly  discusses  program,  source  and  outlet  diversity,  but  it  does  not  provide  evidentiary  support  for  its 
 arguments.  Cox  Comments  at  65-  66.  CPD  fails  to  explain  how  repealing  the  35%  cap  would  diminish  program  and  source  diversity  in  prime  time  programming.  See  CPD  Comments  at  3-  6. 


 1123  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11075    30. 
 1124  See  Policy  Goals,  supra  Section  III. 
 1125  See  1984  Multiple  Ownership  Report  and  Order. 
 1126  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11074-  75    30. 
 1127  [  T]  he  public  interest  has  historically  embraced  diversity  (as  well  as  localism)  .  .  .  and  nothing  in    202(  h) 
 signals  a  departure  from  that  historic  scope.  Fox  Television,  280  F.  3d  at  1042. 
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 (i)  Whether  a  National  Cap  Promotes  Localism 
 540.  In  this  section  we  examine  the  effect  of  a  national  television  cap  on  the  economic  incentives  for  locally  responsive  programming  by  television  stations.  We  also  consider  evidence  that  a 


 national  cap  results  in  behavior  by  network-  affiliated  stations  that  is  responsive  to  the  needs  and  tastes  of  a  stations  local  community.  1128 


 (a)  Economic  Incentives  for  Localism 
 541.  NAB/  NASA  contends  that  the  current  national  cap  is  needed  to  preserve  affiliates  bargaining  power  with  their  networks.  1129  NAB/  NASA  explains  that  limiting  the  national  audience  that 


 networks  can  reach  through  their  owned  stations  promotes  a  balance  of  power  between  networks  and  their  affiliates.  NAB/  NASA  also  claims  that  the  cap  is  necessary  to  counteract  the  networks  strong  financial 
 incentive  to  promote  the  widest  distribution  across  the  nation  of  network  programming  irrespective  of  the  tastes  of  one  or  more  particular  local  cities.  The  widest  possible  distribution  of  programming,  according 
 to  NAB/  NASA,  increases  viewership  of  network  programming,  which  maximizes  network  advertising  revenues.  According  to  NAB/  NASA,  maximum  national  exposure  of  programming  also  improves  the 
 likelihood  that  the  program  owner  will  realize  additional  revenues  in  the  program  syndication  market.  NAB/  NASA  contends  that  as  broadcast  networks  have  ownership  stakes  in  a  larger  percentage  of  their 
 prime  time  programming,  their  incentive  to  create  programs  with  syndication  value  --  and  their  incentive  to  stifle  local  preemption  --  increases.  1130 


 542.  NAB/  NASA  argues  that  the  incentive  of  independently-  owned  affiliates,  in  contrast  to  network-  owned  stations,  is  to  make  programming  decisions  that  are  more  closely  aligned  with  the  needs 
 and  tastes  of  their  communities  of  license.  1131  A  network  derives  its  income  from  the  programming  that  the  network  produces  (and  the  syndication  revenue  the  programs  might  generate)  as  well  as  from  its  local 
 stations.  A  local  station  maximizes  its  income  by  providing  programming  desired  by  its  local  community  irrespective  of  national  programming  preferences.  Therefore,  the  programming  interests  are  not  always 
 the  same. 
 (b)  Evidence  of  Localism  by  Affiliates 
 543.  NAB/  NASA  contends  that  the  national  cap  is  needed  to  preserve  a  body  of  network  affiliates  not  owned  by  the  network  that  can  influence  network  programming  so  that  it  is  more  suited  to 


 1128  Cox  argues  that  allowing  networks  to  significantly  expand  their  station  ownership  will  increase  the  networks 
 ability  to  pressure  cable  operators,  and  erode  the  cable  operators  bargaining  position,  during  retransmission  consent  negotiations.  Cox  Comments  at  41-  47;  Letter  from  Alexander  V.  Netchvolodoff,  Senior  Vice  President  of 


 Public  Policy,  Cox  Enterprises,  Inc.,  to  Marlene  H.  Dortch,  Secretary,  FCC  (Feb.  3,  2003)  at  1-  2.  See  also  American  Cable  Association  Petition  for  Inquiry  into  Retransmission  Consent  Practices  (filed  Oct.  1,  2002); 
 Children  Now  Comments  at  13-  15.  Fox  responds  that  the  negotiations  are  not  affected  by  the  number  of  stations  owned  by  a  network,  but  by  each  partys  market-  by-  market  evaluation  of  whether  the  agreement  is  beneficial. 
 Letter  from  John  C.  Quale,  Counsel  for  Fox,  to  Marlene  H.  Dortch,  Secretary,  FCC  (April  21,  2003)  (  Fox  April  21,  2003  Ex  Parte)  at  2.  Coxs  arguments  are  outside  the  scope  of  our  biennial  review. 


 1129  NAB/  NASA  Comments  at  9. 
 1130  Id.  at  33. 
 1131  Id.  at  10. 
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 justify  retention  of  a  national  ownership  cap.  1139  Affiliates  assert  that  even  this  hand-  picked  data  by  networks  confirms  that  affiliates  preempt  more  than  network-  owned  stations  and  that  a  national  cap  is 
 needed  to  protect  localism.  1140 
 545.  Affiliates  seek  to  explain  low  preemption  rates  by  arguing  that  networks  have  increasingly  restricted  preemption  through  their  network-  affiliate  contracts.  Cox  argues  that  the  networks  have  been 


 exacting  greater  concessions  from  their  affiliates,  including  demands  to  decrease  the  number  of  preemptions.  1141  Affiliates  complain  that  they  are  subject  to  preemption  caps  involving  financial  penalties 
 or  loss  of  affiliation  if  they  exceed  the  number  of  network-  authorized  preemptions,  1142  while  affiliates  local  programs  are  often  preempted  by  network  overruns  (e.  g.,  network  sports  overrunning  local 
 news).  1143  For  example,  Cox  submits  information  gathered  from  its  television  stations  in  which  the  stations  document  their  conflicts  with  the  networks  over  network  programming  and  local  tastes  and 
 station  preemptions.  1144  According  to  NAB/  NASA,  Fox  allows  only  two  preemptions  per  year,  and  NBC  allows  only  five  hours  of  prime-  time  preemptions  per  year.  Affiliates  that  exceed  their  allowable 
 preemption  basket  may  be  subject  to  financial  penalties  or  even  loss  of  affiliation.  1145  Thus,  while  a  majority  of  affiliates  did  not  exceed  their  permitted  preemptions,  1146  affiliates  argue  that  there  are  good 
 reasons  for  that  result.  In  addition,  affiliates  note  that  they  often  maintain  a  cushion  of  unused  preemption  time  in  case  it  is  needed,  requiring  them  to  exercise  discretion  in  spending  their  preemption 
 time  during  the  year  to  avoid  contractual  financial  penalties  associated  with  excessive  preemption.  1147 
 546.  Discussion.  We  find  that  a  national  television  ownership  cap  is  necessary  to  promote  localism.  The  evidence  before  us  demonstrates  both  that  network  affiliates  have  economic  incentives 


 more  oriented  towards  localism  than  do  network-  owned  stations,  and  that  affiliates  act  on  those  incentives  in  ways  that  result  in  networks  delivering  programming  more  responsive  to  their  local  communities  (in 
 the  judgment  of  the  affiliate)  than  they  otherwise  would.  In  order  for  affiliates  to  continue  to  serve  local 
 1139  Id. 
 1140  NAB/  NASA  Reply  Comments  at  32-  35. 
 1141  Cox  Comments  at  34-  38. 
 1142  NAB/  NASA  Comments  at  39-  43. 
 1143  Cox  Comments  at  34-  41;  NAB/  NASA  Comments  at  43-  45. 
 1144  Cox  Comments  at  Appendix  C-  1. 
 1145  NAB/  NASA  Comments  at  39-  41.  NASA  filed  a  Petition  for  Inquiry  into  Network  Practices  on  March  8, 
 2001,  and  a  Motion  for  Declaratory  Ruling  on  June  22,  2001.  NASA  claims,  among  other  things,  that  contractual  language  contained  in  network  affiliation  agreements  violates  the  letter  and  spirit  of  Section  310(  d)  of  the 


 Communications  Act  of  1934,  the  right  to  reject  rule  and  the  time  option  rule  (47  C.  F.  R.    73.658(  d)  &  (e)).  We  are  addressing  the  merits  of  this  petition  separately  from  this  proceeding. 


 1146  Disney  Comments  at  4-  7.  Disney  Exhibit  G  presents  the  number  of  available  and  used  preemptions  for  ABC 
 affiliates  based  on  negotiated  baskets  of  preemptions.  According  to  Disney,  during  all  of  2001,  affiliates  used  only  56%  of  the  permissible  preemptions  available  to  them  and  out  of  189  affiliates,  150  did  not  exceed  their 


 baskets. 
 1147  NAB/  NASA  Reply  Comments  at  36-  37. 
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 community  tastes  and  needs  in  this  way,  a  national  cap  is  needed  to  preserve  a  body  of  independently-owned  affiliates.  The  two  ways  in  which  affiliates  can  promote  localism  are  by  collective  negotiation  to 
 influence  the  programming  that  the  networks  provide  and  by  preemption  by  an  individual  station  owner  to  provide  programming  better  suited  to  its  community. 


 547.  The  record  shows  that  network-  owned  stations  and  affiliates  have  different  economic  incentives  regarding  the  programming  aired  by  local  stations.  We  agree  with  NAB/  NASAs  study  by 
 Schwartz  and  Vincent  that  affiliates  have  an  economic  incentive  to  target  their  local  audience  by  offering  programs  suited  to  local  tastes.  1148  In  so  doing,  affiliates  have  an  incentive  to  tailor  their  programming 
 schedule  to  meet  local  preferences.  1149  Localism  is  fostered  by  the  affiliates  efforts  to  promote  their  own  economic  interest  of  maximizing  the  value  of  their  stations  by  offering  programming  that  local  viewers 
 will  prefer  to  watch,  even  if  the  programming  replaces  the  networks  nationally  scheduled  programming. 
 548.  The  2001  preemption  data  comparing  network  and  affiliate  preemption  rates  also  supports  retention  of  a  national  cap.  The  record  shows  that  in  2001,  affiliates  preempted  9.5  hours  per  year  of 


 prime  time  programming  versus  6.8  hours  per  year  for  network-  owned  stations.  This  data  bolsters  our  conclusion  that  affiliates  act  on  their  economic  incentives  to  preempt  network  programming  with 
 measurably  greater  frequency  than  do  network-  owned  stations.  Although  we  agree  with  the  networks  that  the  total  number  of  hours  preempted  by  both  types  of  station  owners  in  this  comparison  is  relatively 
 small,  these  data  are  for  the  prime  time  viewing  period,  when  the  vast  majority  of  television  viewing  occurs.  In  our  view,  the  practical  effect  of  prime  time  preemption  is  far  greater  than  that  of  preemption 
 during  other  dayparts. 
 549.  We  cannot  agree  with  Fox  that  network-  owned  stations  provide  the  same  localism  value  that  independently-  owned  affiliates  do.  Fox  argues  that  networks  listen  to  the  management  of  network-owned 


 stations  as  well  as  to  the  management  of  affiliates.  It  claims  that  managers  of  O&  Os  participate  during  the  networks  program  development  process  and  provide  more  credible  input  than  the  management 
 of  affiliate  stations.  1150  Fox  also  asserts  that  affiliates  have  an  inherent  economic  conflict  with  the  network  regarding  the  distribution  of  profits,  have  no  influence  in  the  development  of  new  programs,  and 
 learn  of  the  new  programs  at  the  same  time  as  do  advertisers.  1151 
 550.  We  agree  with  Fox  that  affiliates  have  an  inherent  economic  conflict  with  networks.  However,  we  believe  that  affiliates  economic  incentives  actually  help  explain  why  affiliates  regularly 


 raise  programming  concerns  with  networks  and  why  affiliates  preempt  more  network  programming,  on  average,  than  do  network-  owned  stations.  In  our  view,  affiliates  economic  incentives  to  maximize  local 
 viewership  works  to  promote  localism. 
 551.  In  addition,  Foxs  claim  of  minimal  affiliate  influence  over  programming  is  overcome  by  the  significant  evidence  submitted  by  NAB/  NASA  that  affiliates  regularly  raise  programming  concerns 


 with  networks  and  frequently  succeed  in  altering  network  programming  in  ways  that  protect  local  interests.  These  numerous  instances  of  the  collective  influence  brought  to  bear  by  affiliates  on  network 


 1148  NAB/  NASA  Comments,  Schwartz/  Vincent  Paper. 
 1149  Cox  Comments  at  47-  52,  60-  62. 
 1150  Fox  April  21,  2003  Ex  Parte  at  2. 
 1151  Id. 
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 programming  decisions  represents  a  powerful  force  for  the  protection  of  local  viewing  interests.  They  represent  empirical  evidence  that  affiliates  collectively  serve  as  an  important  counterweight  to  network 
 programming  decisions  by  influencing  networks  to  deliver  programming  responsive  to  local  tastes. 
 552.  In  sum,  we  believe  that  this  affiliate/  network  dynamic  is  beneficial  to  viewers  and  should  be  preserved.  We  conclude  that  eliminating  the  cap  altogether  would  shift  the  balance  of  power  with 


 respect  to  programming  decisions  toward  the  national  broadcast  networks  in  a  way  that  would  disserve  our  localism  policy.  1152 


 (ii)  Appropriate  Level  of  the  Cap 
 553.  In  the  preceding  section,  we  found  that  a  national  television  ownership  cap  continues  to  be  necessary  to  promote  localism  because  the  record  demonstrates  that  affiliates  affect  network  programming 


 in  ways  that  respond  to  viewer  preferences  in  affiliates  local  communities.  In  this  section,  we  examine  the  specific  effects  of  the  current  35%  cap  and  whether  this  particular  level  achieves  our  localism 
 objectives. 
 554.  Preemptions.  Affiliates  argue  that  the  networks  have  limited  their  ability  to  preempt  network  programming  in  order  to  provide  programming  more  geared  to  local  needs  and  interests,  and  that 


 these  limits  have  become  more  formidable  as  the  networks  have  extended  their  ownership  of  stations.  1153  Affiliates  argue  that  an  increase  in  the  national  cap  reduces  affiliates  ability  to  resist  network  pressure  not 
 to  preempt.  The  affiliates  point  to  a  decline  in  affiliate  preemptions  following  the  1996  increase  in  the  cap  from  25%  to  35%.  The  affiliates'  submission  indicates  that,  with  respect  to  all  dayparts  (as  opposed 
 to  prime  time-  only),  affiliates  preempted,  on  average,  48  hours  per  year  between  1991  to  1995  and  36  hours  per  year  between  1996  to  2001.  1154  It  also  shows  that,  in  the  year  1995,  the  year  before  the  cap  was 
 increased  to  35%,  there  were,  on  average,  46  hours  of  programming  preempted,  but  by  the  year  2001  the  average  had  declined  to  33  hours. 


 555.  The  networks  offer  two  responses  to  the  affiliates  data.  First,  the  networks  submit  preemption  data  that,  according  to  the  networks,  shows  that  the  35%  cap  has  no  effect  on  bargaining 
 power  between  networks  and  affiliates.  The  networks  contend  that  if  higher  levels  of  network  station  ownership  actually  increased  networks  leverage  over  their  affiliates,  we  would  expect  affiliates  of  the 
 largest  network  station  owners  to  preempt  less  (because  of  their  diminished  bargaining  power)  than  affiliates  of  a  network  that  had  significantly  less  station  ownership.  The  networks  data  shows  that 
 affiliates  of  the  largest  network-  owners  (CBS  and  Fox,  at  39%  and  38%  national  reach  respectively)  preempt  to  an  equal  or  greater  extent  than  do  affiliates  of  ABC,  with  a  national  reach  of  23%.  1155  The 


 1152  Our  concerns  are  substantiated  by  statements  from  consumer  groups  asserting  that  large  companies  are  less 
 responsive  to  consumer  complaints.  See  Catherine  Yang,  The  FCCs  Loner  is  No  Longer  So  Lonely,  BUS.  WK,  (Mar.  24,  2003)  at  78. 


 1153  NAB/  NASA  Comments  at  31. 
 1154  Id.  at  16. 
 1155  Fox  April  21,  2003  Ex  Parte  at  8-  9. 
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 networks  assert  that  this  data  proves  that  the  35%  cap  has  no  effect  on  bargaining  leverage  between  networks  and  affiliates.  1156 
 556.  Second,  the  networks  argue  that  affiliate  preemptions  often  are  not  for  programming  that  is  of  greater  public  interest,  but  for  syndicated  programs.  1157  The  data  Disney  submits  suggests  that  more 
 affiliates  preempted  ABC  programming  in  favor  of  syndicated  programming  than  for  local  specials.  1158  In  addition,  Disney  states  that  very  few  half  hours  of  affiliate  prime-  time  preemptions  were  for  news, 
 political,  or  public  affairs  programming.  1159  Disneys  data,  however,  is  countered  by  a  NAB/  NASA  survey  of  affiliated  stations,  in  which  respondents  reported  preempting  network  programming  for:  local 
 breaking  news  (83%  of  respondents);  local  news  (71%  of  respondents);  local  emergencies  (70%  of  respondents);  local  political  programming  (74%  of  respondents);  local  sports  (75%  of  respondents); 
 religious  programming  (47%  of  respondents);  other  programming  (e.  g.,  parades,  telethons,  syndicated  programming,  movies)  (34%  of  respondents).  1160 


 557.  Apart  from  contractual  restrictions,  a  majority  of  affiliates  responding  to  a  NAB/  NASA  survey  --  68%  --  report  that  they  have  experienced  pressure  from  [their]  network  to  not  preempt 
 programming.  1161  UCC  provides  several  instances  of  increased  network  resistance  when  affiliates  attempted  to  air  programs  deemed  to  be  of  greater  local  interest  than  the  network  programming.  For 
 example,  it  cites  to  the  experience  of  Belos  ABC  affiliate  in  Dallas,  the  headquarters  of  American  Airlines,  which  failed  to  get  the  networks  permission  to  preempt  the  November  12,  2001,  Monday  Night 


 1156  Id.  In  a  motion  filed  May  28,  2003,  NAB/  NASA  asked  the  Commission  to  disregard  certain  portions  of 
 network  submissions  concerning  preemption  and  local  news  quantity  because  the  networks  have  not  provided  the  data  underlying  those  submissions.  Alternatively,  NAB/  NASA  asked  the  Commission  to  infer  that  the  underlying 


 data  would  not  favor  the  networks  positions  on  preemption  and  news  quantity  of  O&  O  versus  affiliate  stations.  The  portions  of  the  network  filings  the  Commission  is  asked  to  disregard  include,  inter  alia,  EI  Study  G  and 
 Disney  Exhibit  G,  relating  to  preemptions,  and  EI  Study  H,  relating  to  local  news  quantity.  Fox  opposed  the  motion  on  May  29,  2003.  We  will  afford  the  record  evidence  the  appropriate  weight  in  light  of  all  circumstances, 
 including  the  extent  to  which  we  believe  the  underlying  data  is  necessary  to  make  an  informed  decision  about  the  showing. 


 1157  Disney  Comments  at  Exhibit  H  shows,  among  other  things,  that  during  the  first  quarter  of  2002,  affiliates 
 preempted  ABC  programming  more  for  syndicated  programming  than  for  local  specials. 
 1158  Disney  Comments  at  4-  7.  Disney  Exhibit  J  shows,  among  other  things,  that  during  the  first  quarter  of  2002, 
 affiliates  preempted  ABC  programming  more  for  syndicated  programming  (201  half-  hours)  than  for  local  specials  (188  half-  hours). 


 1159  Id.  The  remaining  prime-  time  preemptions  were  for  sports,  telethons,  syndicated  and  local  entertainment, 
 paid  programming,  and  paid  religious  specials.  Disney  Exhibit  J  shows  that,  for  all  of  2001,  of  3,694  half-  hours  of  primetime  preemptions,  291  were  for  news,  political,  or  public  affairs  programming;  574  half-  hours  were  for 


 telethons;  864  half-  hours  were  for  entertainment;  105  were  for  news;  171  were  for  public  affairs;  and  1,561  were  for  sports  related  shows. 


 1160  NAB/  NASA  Comments  at  17-  18,  Table  2,  Attachment  2. 
 1161  Id.  at  17.  NAB/  NASA  sent  the  survey  to  422  ABC,  CBS,  and  NBC  affiliated  stations  asking  them  to  report 
 on  their  experience  with  networks  regarding  preemption.  It  reports  receiving  201  usable  responses. 
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 Football  halftime  show  for  local  news  updates  on  the  American  Airlines  jet  crash  in  New  York  that  morning.  1162 
 558.  Discussion.  Although  we  concluded  in  the  prior  section  that  a  national  cap  is  needed  to  balance  power  between  networks  and  affiliates,  the  record  suggests  that  maintaining  the  cap  at  35%  is  not 
 necessary  to  preserve  the  balance  of  bargaining  power  between  networks  and  affiliates.  In  reaching  this  conclusion,  we  rely  principally  on  the  evidence  showing  that  the  largest  network  station  owners  possess 
 no  greater  bargaining  power    as  measured  by  prime  time  preemptions    than  the  smallest  network  station  owner.  We  find  this  evidence  persuasive  because  it  directly  compares  the  extent  to  which  different  levels 
 of  network  ownership  of  stations  actually  affect  the  level  of  preemption  by  those  networks  affiliates.  Implicit  in  this  analysis  is  an  assumption  that  that  data,  although  not  a  perfect  proxy,  is  a  reliable  indicator 
 of  relative  bargaining  power  between  networks  and  affiliates.  Preemption  of  network  programming  by  an  affiliate  has  negative  consequences  to  the  network,  and  networks  by  all  accounts  seek  to  avoid 
 preemption  by  affiliates.  1163  So  the  ability  of  an  affiliate  to  preempt  in  the  face  of  networks  incentives  to  prevent  preemption  appears  to  be  a  reasonable  measure  of  relative  bargaining  power  between  networks 
 and  affiliates. 
 559.  We  are  not  persuaded  by  the  affiliates  argument  that  the  35%  cap  is  needed  to  protect  localism  because  the  most  recent  national  cap  increase  resulted  in  fewer  affiliate  preemptions.  The 


 principal  deficiency  in  this  argument  is  that  it  does  not  control  for  other  plausible  causes  of  the  decline  in  affiliate  preemptions.  Although  NAB/  NASA  suggests  that  the  1996  increase  in  the  national  cap  reduced 
 affiliates  bargaining  power,  NAB/  NASA  itself  identifies  other  factors  occurring  in  the  same  timeframe  as  the  national  cap  increase  that  it  claims  have  further  eroded  affiliate  bargaining  power.  NAB/  NASA 
 asserts  that  the  Commissions  repeal  of  its  financial  interest  and  syndication  rules  in  the  early  1990s  gave  networks  an  additional  financial  incentive  (in  addition  to  their  incentive  to  avoid  preemption  to  maximize 
 advertising  rates)  to  discourage  affiliate  preemption.  NAB/  NASA  contends  that  vertical  integration,  including  program  ownership  and  syndication  by  broadcast  networks  and  the  trend  toward  repurposing 
 of  network  programming  on  affiliated  non-  broadcast  channels  have  helped  increase  the  networks  leverage  over  affiliates.  1164  To  the  extent  these  additional  factors  actually  enhance  network  bargaining 
 leverage  as  NAB/  NASA  contends,  they  undercut  NAB/  NASAs  argument  that  it  was  specifically  the  1996  increase  in  the  national  cap  that  caused  affiliates  to  reduce  their  preemption  of  network 
 programming. 
 560.  A  more  accurate  assessment  of  the  impact  of  the  1996  national  cap  increase  on  network-affiliate  bargaining  leverage  could  be  made  if  affiliate  preemption  rates  from  1991  through  2001  could  be 


 compared  to  the  preemption  rates  of  network-  owned  stations  during  that  same  period.  If  preemption  rates 
 1162  UCC  Comments  at  51-  52  (citing  Michele  Greppi,  The  Insider:  A(  BCs)  Tale  of  Too-  Different  Cities, 
 ELECTRONIC  MEDIA  (Nov.  19,  2001)  at  8).  Among  its  other  examples,  CBS  pressured  a  Florida  affiliate  into  running  the  season  premier  of  48  Hours  instead  of  the  states  gubernatorial  debate.  UCC  Comments  at  52 


 (citing  Wes  Allison,  Local  PBS  Affiliate  Will  Air  Debate,  ST.  PETERSBURG  TIMES  (Sept.  25,  2002)  at  1B.).  Also,  NBC  resisted  attempts  by  affiliates  to  preempt  a  baseball  game  to  air  a  presidential  debate  during  the  2000 
 campaign.  UCC  Comments  at  52  (citing  Neil  Hickey,  Unshackling  Big  Media,  COL.  J.  REV.  (July/  Aug.  2001)  at  30). 


 1163  See,  e.  g.,  NAB/  NASA  Comments  at  17  (stating  that  68%  of  affiliates  responding  to  a  survey  claimed  that  they 
 have  experienced  pressure  from  [their]  network  not  to  preempt  programming). 
 1164  Id.  at  31-  39. 
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 on  network-  owned  stations  were  similar  to  affiliate  preemption  rates  over  that  same  period,  we  might  have  a  more  certain  --  and  completely  different  --  explanation  for  the  decline.  Networks  might  well  have 
 persuaded  us  that  the  uniform  decline  in  preemptions  by  O&  Os  and  affiliates  was  caused  by  some  plausible  reason  unrelated  to  the  change  in  the  national  cap.  On  the  other  hand,  if  the  data  had  shown 
 preemption  rates  on  network-  owned  stations  remaining  steady  while  affiliate  preemptions  declined  sharply  after  1996,  then  the  affiliates  explanation  for  the  decline  (i.  e.  increase  in  the  national  cap)  would 
 carry  more  weight  than  we  give  it  here. 
 561.  The  foregoing  analysis  of  preemption  data  excludes  consideration  of  the  content  of  the  programming  substituted  by  the  local  station  for  the  network  programming.  Other  than  our  interest  in 


 promoting  market  structures  that  encourage  local  news  production,  we  seek  to  avoid  resting  broadcast  ownership  policies  on  subjective  judgments  about  the  public  policy  value  of  different  types  of  locally-substituted 
 programming.  We  agree  with  NAB/  NASA  that  it  is  enough,  for  purposes  of  assessing  stations  responsiveness  to  local  communities,  that  they  preempted  network  programming.  The  judgment 
 of  when  to  preempt  and  what  to  substitute  are  uniquely  within  the  judgment  --  and  responsibility  --  of  the  station. 


 562.  Thus,  we  reaffirm  our  conclusion,  in  the  1998  Biennial  Review  Report,  that  independently-owned  affiliates  play  a  valuable  role  by  counterbalancing  the  networks'  economic  incentive  to  broadcast 
 their  own  programming  because  they  have  the  right  .  .  .  to  air  instead  programming  more  responsive  to  local  concerns.  1165  But,  the  evidence  suggests  that  the  current  limit  of  35%  is  overly  restrictive  and  that 
 the  cap  may  safely  be  raised  and  the  benefits  of  wider  network  station  ownership  achieved  (discussed  below)  without  disturbing  either  this  balance  or  affiliates  ability  to  preempt  network  programming. 


 (iii)  Other  Effects  of  the  Current  35%  Cap 
 563.  In  the  preceding  sections,  we  examined  two  measures  of  localism  --  collective  affiliate  influence  on  network  programming  and  specific  preemption  levels  by  affiliates  versus  network-  owned 


 stations.  In  this  section  we  consider  a  third  measure  --  the  effect  of  the  national  cap  on  the  quantity  and  quality  of  local  news  and  public  affairs  programming.  We  examine  this  area  because  local  news  and 
 public  affairs  programming  can  play  an  important  role  in  citizen  participation  in  local  and  state  government  affairs.  Thus  we  seek  market  structures  among  broadcasters  that  encourage  stations  to 
 produce  local  news  and  public  affairs  programming  and  thereby  contribute  to  an  informed  citizenry. 
 564.  In  its  1984  decision,  the  Commission  compared  the  quality  and  diversity  of  programming  by  stations  owned  by  group  owners    both  network  and  non-  network  owners    with  that  of  singly  owned 


 stations.  It  concluded  that  there  was  no  evidence  that  group  owners  provided  less  or  lower  quality  news  and  public  affairs  programming  than  single  owners.  1166  The  Fox  court  criticized  the  Commission  for 
 failing  to  explain  in  the  1998  Biennial  Review  Report  why  it  departed  from  this  conclusion.  With  the  decline  in  the  number  of  individually  owned  stations,  an  increase  has  occurred  in  the  number  of  stations 
 sharing  common  ownership.  The  Commission  sought  in  this  biennial  review  to  understand  whether  the  national  TV  ownership  rule,  by  preserving  a  class  of  affiliates,  affects  localism  by  comparing  the  local 


 1165  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11075    30.  In  its  remand,  the  Fox  Television  court  did  not 
 dispute  the  Commissions  view  in  the  1998  decision,  but  said  the  Commission  failed  to  show  whether  it  had  received  evidence  substantiating  its  1998  conclusion  or  repudiating  its  1984  conclusion.  Fox  Television,  280  F.  3d 


 at  1043. 
 1166  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  32-  34    44-  51. 
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 news  and  public  affairs  programming  of  network  owned  and  operated  stations  to  that  of  non-  network  owned  affiliates.  We  discuss  the  evidence  and  our  conclusions  below. 
 565.  Quantity  of  local  news  and  public  affairs  programming.  In  the  Notice,  the  Commission  requested  evidence  regarding  any  clear  relationship  between  the  ownership  of  stations  and  the  quantity 
 and  quality  of  local  news  and  public  affairs  produced  by  those  stations.  1167  A  study  conducted  by  Commission  staff  concluded  that  network-  owned  stations  produced  more  local  news  and  public  affairs 
 programming  than  affiliates  and  received  local  news  excellence  awards  more  frequently  than  affiliates.  1168  Responding  to  that  study,  NAB/  NASA  submitted  a  study  indicating  that  many  of  the  results  of  MOWG 
 Study  No.  7  changed  when  data  pertaining  to  stations  belonging  to  Fox  were  not  used.  1169  The  final  study,  submitted  by  Dr.  Michael  Baumann  of  Economists  Inc.,  demonstrates  that  no  defensible  reason 
 exists  for  deleting  the  Fox  station  data.  1170  This  final,  comprehensive  study  provides  analysis  purporting  to  demonstrate  that  network-  owned  stations,  on  average,  produce  more  local  news  than  do  affiliates 
 across  all-  sized  markets,  with  an  even  greater  difference  in  the  amount  of  news  offered  by  network-  owned  stations  in  smaller  markets.  1171 


 566.  The  results  of  MOWG  Study  No.  7  show  that  network-  owned  stations  air  23%  more  local  news  and  public  affairs  programming  per  week  than  affiliates  (22.8  hours  versus  18.5  hours).  1172  In 
 response  to  MOWG  Study  No.  7,  NAB/  NASA  conducted  a  study  that  revealed  no  statistically  significant  difference  between  hours  of  local  news  aired  by  affiliates  and  O&  O  stations.  1173  Unlike  MOWG  Study 
 No.  7,  the  NAB/  NASA  study  included  data  on  ABC,  NBC  and  CBS,  but  did  not  include  data  on  Fox  Television.  1174  Disney  argues  that  there  is  no  policy-  based  rationale  for  excluding  Fox  stations.  1175  Using 
 the  NAB/  NASA  data,  but  accounting  for  all  four  of  the  networks,  Dr.  Baumann  determined  that  network- 
 1167  Notice,  17  FCC  Rcd  at  18550    148. 
 1168  MOWG  Study  No.  7  at  3-  6. 
 1169  NAB/  NASA  Early  Submission  (Dec.  9,  2002). 
 1170  Letter  from  Susan  L.  Fox,  Vice  President,  Government  Relations,  Disney,  to  Marlene  Dortch,  Secretary,  FCC 
 (Feb.  13,  2003)  (  Disney  Feb.  13,  2003  Ex  Parte).  In  response  to  a  criticism  of  MOWG  Study  No.  7,  which  could  also  apply  to  Fox  Economic  Study  H,  Economists  Inc.  conducted  a  slightly  modified  analysis  filed  as  part  of 


 Economic  Comments  on  Media  Ownership  Issues),  which  was  attached  as  an  exhibit  to  the  Fox  Reply.  See  also  Fox  Comments,  Economic  Study  H. 


 1171  Disney  Feb.  13,  2003  Ex  Parte  at  Attachment. 
 1172  Only  MOWG  Study  No.  7  examined  newspaper-  owned  affiliates  separately  from  the  other  affiliates.  It  showed 
 that,  on  average,  newspaper-  owned  affiliates  provided  more  hours  per  week  of  local  news  and  public  affairs  (about  22  hours)  than  did  the  other  affiliates  (approximately  15  hours).  The  study  also  showed  that  network  O&  Os 


 provided  the  most  local  news  of  all  (almost  23  hours). 
 1173  NAB/  NASA  Early  Submission  (Dec.  9,  2002). 


 1174  Id.  On  May  5,  2003,  NAB/  NASA  submitted  another  letter  reiterating  its  argument.  The  submission, 
 however,  provided  no  new  data  or  additional  information.  See  Letter  from  Alan  Frank,  Chair,  NASA,  to  Michael  K.  Powell,  Chairman,  FCC  (May  5,  2003)  (  NASA  May  5,  2003  Ex  Parte). 


 1175  Disney  Feb.  13,  2003  Ex  Parte,  Attachment  at  7,  n.  6. 
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 owned  stations  on  average  provide  more  local  news  --  about  4.2  hours  per  week  --  than  do  affiliates  in  all  markets.  In  markets  outside  the  top  25  markets,  network-  owned  stations  provide  almost  eight  more  hours 
 of  local  news  each  week  than  affiliates  do.  Inside  the  top  25  markets,  Disney  agrees  with  the  NAB/  NASA  study  results  that  the  difference  between  network-  owned  stations  and  affiliates  was  not 
 statistically  significant.  1176 
 567.  In  Dr.  Baumanns  study,  a  third  data  set  was  used  in  analyzing  local  news  and  public  affairs  programming  on  network-  owned  and  affiliate  stations.  1177  Results,  however,  were  similar  to  the  first  two 


 studies:  network-  owned  stations  produce  about  6.4  more  hours  per  week  of  local  news  than  affiliates  in  all  markets  tested.  As  with  the  modified  NAB/  NASA  data,  in  markets  outside  the  top  25  markets, 
 network-  owned  stations  provide  about  9  hours  additional  local  news  each  week.  This  study  agrees  with  the  NAB/  NASA  results  that  the  difference  between  network-  owned  stations  and  affiliate  stations  in  news 
 provided  was  not  statistically  significant  in  markets  inside  the  top  25  markets.  1178 
 568.  Local  News  Quality.  Although  the  Commission  does  not  regulate  programming  quality,  it  has  attempted  to  strengthen  the  ability  of  local  stations  to  serve  their  communities  through  news  and 


 public  affairs  programming.  In  the  Notice,  we  sought  to  understand  whether  the  national  TV  ownership  rule  may  have  the  effect  of  increasing  or  decreasing  the  quantity  and/  or  quality  of  local  news  and  public 
 affairs  programming.  1179  Studies  discussing  programming  quality  were  submitted  in  the  record. 
 569.  MOWG  Study  No.  7,  for  example,  finds  that  network  O&  O  stations  win  more  awards  for  local  news  programming  than  non-  O&  O  affiliates.  In  evaluating  the  quality  of  local  news  programming, 


 the  authors  used  three  measures:  (1)  ratings  received  for  local  evening  news;  (2)  awards  from  the  Radio  and  Television  News  Directors  Association  (RTNDA);  and  (3)  the  local  television  recipients  of  the  Silver 
 Baton  of  the  A.  I.  Dupont  Awards.  The  ratings  of  network-  owned  stations  and  affiliates  were  virtually  identical  during  the  period  tested.  However,  with  respect  to  the  receipt  of  RTNDA  awards  for  news 
 excellence,  network-  owned  stations  received  those  awards  at  a  rate  of  126%  of  the  national  average  and  affiliates  received  them  at  96%  of  the  national  average.  The  study  found,  with  respect  to  the  DuPont 
 awards,  network-  owned  stations  received  awards  at  337%  of  the  national  average,  while  affiliates  received  awards  at  77%  of  the  national  average. 


 570.  The  results  of  a  second  study,  however,  indicate  that  quality  differences  between  network-owned  stations  and  affiliates  are  virtually  nonexistent.  In  comparing  the  record  of  network-  owned 
 stations  and  affiliates  news  operations,  a  study  by  Economists  Inc.  on  behalf  of  the  networks  focused  on  the  RTNDA  awards,  one  of  the  awards  used  in  MOWG  Study  No.  7.  1180  It  reasoned  that,  because  a  larger 
 number  of  RTNDA  awards  are  given  out  each  year,  they  are  more  likely  to  offer  a  better  measure  of  news  quality  than  the  DuPont  awards.  The  study  examined  the  RTNDA  awards  from  two  perspectives,  first 


 1176  Id.  at  8-  9;  NAB/  NASA  Early  Submission  (Dec.  9,  2002). 
 1177  The  measure  of  weekly  minutes  of  local  news,  public  and  current  affairs  programming  was  provided  by  TV 
 Guide  for  a  week  in  May  2002.  The  set  of  explanatory  variables  includes  market  rank,  whether  a  station  was  an  O&  O  or  not,  and  other  market  characteristics.  Disney  Feb.  13,  2003  Ex  Parte,  Attachment  at  10. 


 1178  Id.  at  12;  NAB/  NASA  Early  Submission  (Dec.  9,  2002). 
 1179  Notice,  17  FCC  Rcd  at  18550    148. 
 1180  Response  of  Fox  to  NAB/  NASA  Early  Submission  (Dec.  19,  2002)  at  5  and  App.  1. 
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 analyzing  the  awards  bestowed  in  the  top  10  markets,  and  then  the  top  50  markets.  The  study  concludes  that,  in  either  setting,  there  is  no  discernible  difference  between  network-  owned  stations  and  affiliates 
 with  respect  to  RTNDA  awards.  1181  Neither  this  study  nor  MOWG  Study  No.  7  suggests  that  affiliates  provide  higher  quality  local  news  and  public  affairs  programming  than  network-  owned  stations.  Thus, 
 the  studies  provide  evidence  that  a  national  limit  of  35%  is  not  necessary  to  preserve  a  class  of  affiliates  in  order  to  maintain  high  quality  local  news  and  public  programming. 


 571.  UCC  argues  that  the  number  of  awards  received  by  stations  is  not  a  reliable  measure  of  quality  because  the  awards  are  not  equally  available  to  both  network  stations  and  affiliates.  It  argues  that 
 stations  must  apply  for  awards  and  pay  entry  fees  to  be  considered.  1182  Moreover,  it  argues,  networks  generally  have  promotion  and  publicity  departments  that  handle  award  entries,  while  local  stations  do 
 not.  1183  While  we  agree  with  UCC  that  factors  unrelated  to  quality  programming  can  affect  the  number  of  awards  received,  there  is  no  evidence  that  these  factors  had  any  measurable  effect  on  the  conclusion  that 
 network-  owned  stations  news  programming  is  at  least  equivalent  in  quality  to  that  of  affiliates. 
 572.  A  third  study  finds  that  smaller  station  groups  tend  to  produce  higher  quality  newscasts  than  larger  groups.  1184  In  the  PEJ  Study,  affiliates  generally  had  higher  quality  scores  than  network-owned 


 stations.  Sixteen  percent  of  affiliate  stations  earned  As  in  programming  quality  versus  11%  of  network-  owned  stations.  1185  According  to  PEJs  survey  results,  affiliates  generally  demonstrate 
 somewhat  more  enterprise,  cite  more  sources,  tend  to  be  more  local,  and  are  more  likely  to  air  stories  that  affect  the  community.  Network-  owned  stations,  on  the  other  hand,  are  more  likely  to  air  national  stories 
 with  no  local  connection,  although  they  tend  to  air  more  points  of  view  and  score  better  in  finding  the  larger  implications  of  a  story.  1186  The  study  also  shows  that  only  22%  of  stations  owned  by  the  25  largest 
 group  owners  earned  A  grades  for  quality,  compared  with  48%  of  midsize  and  small  groups.  It  acknowledges,  however,  that  ratings  for  local  news  programming  are  growing  more  rapidly  at  larger 
 group-  owned  stations  than  at  smaller  ones.  1187  Results  of  the  PEJ  Study  suggest  that  being  a  network-owned  station  does  not  improve  the  kind  of  local  news  that  citizens  see.  1188 


 1181  Id.  at  App.  1  at  10-  11.  This  study  used  the  same  data  as  MOWG  Study  No.  7. 
 1182  UCC  Comments  at  55  (citing  Radio-  Television  News  Directors  Association  and  Foundation,  Awards  and 
 Scholarships:  2003  RTNDA  Edward  R.  Murrow  Awards,  at  www.  rtnda.  org/  asfi/  awards/  murrow.  shtml;  The  Graduate  School  of  Journalism  at  Columbia  University,  Alfred  I.  DuPont  Columbia  University  Awards, 


 www.  jrn.  columbia.  edu/  events/  dupont/  entryform.  pdf). 
 1183  Id.  (citing  E-  Mail  from  Jonnet  S.  Abeles,  Director,  Alfred  I.  DuPont  Awards,  Columbia  School  of  Journalism, 
 Nov.  7,  2002). 
 1184  PEJ  Study,  supra  note  769. 


 1185  Id.  at  4. 
 1186  Id.  at  9. 
 1187  Id.  at  3. 
 1188  Id.  at  8. 
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 573.  A  critique  prepared  by  Economists  Inc.  asserts  that  PEJs  principal  findings  are  statistically  insignificant.  1189  In  addition,  they  contend  the  study  relies  on  subjective  measures  of  newscast  quality, 
 and  does  not  account  for  other  factors  affecting  news  quality,  such  as  geographic  differences.  In  the  critique,  Economists  Inc.  states  that  PEJ  has  advised  that  it  will  not  make  underlying  data  available  for 
 analysis  and  review  within  the  time  frame  of  this  proceeding;  thus  only  limited  information  is  available  for  use  in  determining  the  validity  of  PEJs  results.  1190  PEJ  responds  that  the  point  of  its  survey  was  to 
 identify  patterns  and  trends  in  news  quality.  It  asserts  that  it  was  not  trying  to  prove  a  particular  theory  of  cause  and  effect  with  its  research,  and  states  it  has  no  financial  stake  in  the  outcome.  1191  Whether  or  not 
 the  PEJ  Study  is  unbiased,  its  results  appear  statistically  insignificant,  the  underlying  data  have  not  been  made  available,  and  therefore  it  cannot  be  considered  reliable  or  convincing  evidence. 


 574.  The  affiliates  argue,  however,  that  localism  cannot  be  limited  to  local  news  and  public  affairs;  rather,  it  is  a  rich  mix  of  programming,  and  that  the  Commission  itself  has  previously  identified 
 other  elements,  such  as  opportunities  for  local  self-  expression,  development  and  use  of  local  talent,  weather  and  market  reports,  and  sports  and  entertainment  programming  as  necessary  and  desirable  in 
 serving  the  broadcast  needs  and  interests  of  local  communities.  1192  As  we  said  in  the  Notice,  stations  may  fulfill  their  obligation  to  serve  the  needs  and  interests  of  their  communities  by  presenting  local  news  and 
 public  affairs  programming  and  by  selecting  other  programming  based  on  the  particular  needs  and  interests  of  the  stations  community.  1193  Thus,  we  acknowledge  that  other  kinds  of  programming  are 
 important  in  serving  local  needs.  However,  we  must  rely  on  the  data  in  the  record,  which  focuses  on  two  aspects  of  localism    program  selection  decisions  by  affiliates  (preemption/  collective  negotiation)  and  the 
 quality  and  quantity  of  local  news  and  public  affairs  programming.  From  the  data,  we  conclude  that  network-  owned  stations  provide  local  news  and  public  affairs  programming  that  is  at  least  equal,  and  may 
 be  superior,  to  that  of  affiliates. 
 575.  Discussion.  We  conclude  that  the  national  cap  is  not  necessary  to  encourage  local  stations  to  air  local  news  and  public  affairs  programming.  The  record  actually  suggests  that  the  national  cap 


 diminishes  localism  by  restraining  the  most  effective  purveyors  of  local  news  from  using  their  resources  in  additional  markets.  The  studies  before  us  show  that  network-  owned  stations  air,  on  average,  more 
 local  news  and  public  affairs  programming  than  affiliates  overall.  1194  MOWG  Study  No.  7  found  that  network-  owned  stations  aired  4.3  hours  more  local  news  per  week  than  did  affiliates.  1195  The  Baumann 
 study  concluded  that  the  differential  was  6.4  hours  per  week.  1196  The  principal  objection  to  the  findings 
 1189  Economists  Inc.,  The  Project  for  Excellence  in  Journalisms  PEJ  Study  of  Ownership  and  Quality  of 
 Newscasts:  A  Critique  (Mar.  13,  2003). 
 1190  Id.  at  2. 


 1191  PEJ  Study,  supra  note  766. 
 1192  NAB/  NASA  Reply  Comments  at  4  (citing  FCC  Form  303,  Attachment  A  of  1960  Report  and  Statement  of 
 Policy  re:  Commission  En  Banc  Programming  Inquiry  (July  29,  1960)). 
 1193  Notice,  17  FCC  Rcd  at  18526    70. 


 1194  MOWG  Study  No.  7. 
 1195  Id.. 
 1196  Disney  Feb.  13,  2003  Ex  Parte. 
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 of  these  two  studies  was  NAB/  NASAs  criticism  that  exclusion  of  the  Fox  stations  from  those  two  studies  would  nullify  the  differential  between  the  two  groups  of  stations.  1197  We  agree  with  Disney  that  no  valid 
 reason  exists  for  excluding  the  Fox  stations. 
 576.  The  record  also  shows  that  local  news  on  network-  owned  stations  appears  to  be  of  higher  quality  than  news  on  affiliate  stations.  MOWG  Study  No.  7  found  that  network-  owned  stations  received 


 local  news  excellence  awards  at  a  significantly  higher  rate  than  did  affiliates.  For  the  DuPont  awards,  networks  received  337%  of  the  national  average  compared  with  77%  for  affiliates.  For  the  RTNDA 
 awards,  networks  received  126%  to  affiliates  96%.  1198  We  disagree  with  commenters  relying  on  the  PEJ  study  to  show  that  smaller  group  owners  tend  to  produce  higher  quality  local  news.  We  agree  with  the 
 networks  that  the  findings  of  the  PEJ  are  statistically  insignificant.  In  other  words,  according  to  widely-accepted  scientific  standards,  there  is  an  unacceptably  large  risk  that  the  PEJs  findings  are  attributable  to 
 random  noise  in  the  data.  The  PEJ  Study  reports  the  differences  in  percentages  of  newscasts  that  received  a  particular  grade,  but  fails  to  provide  any  statistical  testing  on  these  results.  The  networks  conducted 
 these  statistical  tests  and  determined  that  the  differences  in  news  quality  were  not  large  enough  to  conclude  that  the  probability  of  a  newscast  getting  a  particular  grade  was  dependent  on  the  ownership 
 group  that  aired  the  newscast. 
 577.  In  sum,  the  record  shows  that  the  national  cap  is  not  necessary  to  promote  high  quality,  or  relatively  larger  amounts  of,  local  news  programming.  The  record  suggests  the  opposite    that  the  current 


 cap  prevents  networks  from  acquiring  more  stations  and  providing  enhanced  local  news  operations. 
 3.  Modification  of  the  National  Television  Ownership  Rule 
 578.  We  have  concluded  that  an  audience  reach  cap  of  35%  is  not  necessary  to  promote  diversity  or  competition  in  any  relevant  market.  We  are  persuaded,  however,  that  a  national  cap  at  some  level  is 


 needed  to  promote  localism  by  preserving  the  balance  of  power  between  networks  and  affiliates.  We  found  that  affiliates  incentives  are  more  attuned  to  their  local  communities  than  are  those  of  networks, 
 which  seek  to  assure  that  the  largest  audiences  possible  are  watching  their  programming  at  the  same  time.  We  conclude  from  the  record  that  preserving  a  balance  of  power  between  a  network  and  its  affiliates 
 promotes  localism,  and  accordingly,  we  will  continue  to  restrict  the  national  audience  reach  of  station  owners. 


 579.  Given  the  benefits  to  innovation  discussed  above  that  derive  from  having  a  number  of  separately-  owned  station  groups,  we  believe  the  national  ownership  cap  should  continue  to  apply  to  all 
 station  owners,  including  those  that  are  not  networks.  The  record  shows  that  there  have  been  a  number  of  instances  where  having  a  variety  of  owners  has  led  to  innovative  programming  formats  and  technical 
 advances,  and  we  believe  that  applying  the  national  ownership  cap  to  all  station  owners  will  continue  to  spur  innovation,  which  we  believe  will  be  particularly  valuable  in  transitioning  to  digital  television.  In 
 addition,  applying  the  cap  to  all  station  owners  adheres  to  our  longstanding  policy  of  refusing  to 


 1197  NAB/  NASA  Comments  at  46. 
 1198  A  score  of  100%  for  a  station  group  would  indicate  that  the  stations  in  that  group  won  precisely  the  number  of 
 awards  that  would  be  expected  given  the  number  of  stations  in  that  group  relative  to  the  total  number  of  stations  in  the  U.  S. 
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 differentiate  among  different  categories  of  station  owners  for  purposes  of  the  national  TV  ownership  rule.  1199 
 580.  The  next  task  is  to  determine  what  the  ownership  limit  should  be.  As  the  court  in  Sinclair  recognized,  the  Commission  has  wide  discretion  when  drawing  administrative  lines.  1200  Having  found 
 that  35%  is  too  low  and  100%  (or  no  limit)  is  too  high,  after  considering  the  evidence  in  the  record,  we  apply  our  discretion  and  raise  the  national  ownership  cap  to  45%.  This  modification,  fundamentally,  is  a 
 line-  drawing  exercise  in  which  we  attempt  to  balance  the  benefits  of  a  television  ownership  cap  against  the  factors  favoring  an  incremental  increase.  Finding  a  point  between  35%  and  100%  is  a  matter  of 
 judgment  falling  within  the  particular  expertise  of  the  Commission.  1201 
 581.  We  have  decided  to  modify  the  national  cap  by  raising  it  10  percentage  points  for  three  primary  reasons.  1202  First,  while  affiliates  argue  that  it  is  necessary  to  preserve  a  balance  of  power 


 between  networks  and  affiliates  so  that  affiliates  can  maintain  adequate  preemption  rights,  it  is  evident  that  networks  can  exceed  a  nationwide  audience  reach  of  35%  without  harming  affiliates  abilities  to 
 preempt  network  programming.  As  discussed  above,  affiliates  of  networks  with  a  national  reach  of  greater  than  35%  seem  to  have  no  less  bargaining  power  than  affiliates  of  networks  with  less  than  35% 
 national  reach.  In  accordance  with  Section  202(  h),  therefore,  the  cap  must  be  modified  upward.  The  record  does  not,  unfortunately,  help  us  identify  with  any  precision  the  point  at  which  a  network  audience 
 reach  would  be  so  large  that  affiliate  bargaining  power  would  be  substantially  undermined.  Given  that  we  are  interested  in  finding  a  point  at  which  the  balance  of  power  between  networks  and  affiliates  is  roughly 
 equal,  however,  we  believe  that  a  national  audience  reach  cap  of  approximately  half  of  all  homes  would  be  appropriate. 


 582.  Second,  we  are  mindful  of  the  predictive  nature  of  this  line-  drawing  exercise  and  we  have  some  concern  about  allowing  significant  new  aggregation  of  network  power  absent  more  compelling 
 evidence  regarding  the  possible  effects  of  that  aggregation  above  current  limits.  Accordingly,  and  in  light  of  the  fact  that  Congress  raised  the  ownership  cap  by  ten  percentage  points  in  1996,  from  25%  to  35%,  we 
 are  inclined  to  take  a  similarly  incremental  approach  and  increase  the  cap  by  an  additional  10  percentage  points.  Although  a  cap  of  45%  does  not  equate  to  a  precisely  equal  degree  of  national  reach  for  networks 


 1199  See  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  50-  54    97-  107;  1985  Multiple  Ownership 
 MO&  O,  100  F.  C.  C.  2d  at  87    30  n.  36  (since  the  adoption  of  a  national  TV  ownership  restriction,  the  limitations  have  been  applied  in  a  uniform  manner  to  all  industry  participants). 


 1200  Sinclair,  284  F.  3d  at  162. 
 1201  AT&  T  Corp.  v.  FCC,  220  F.  3d  607,  627  (D.  C.  Cir.  2000)  (the  Commission  has  wide  discretion  to  determine 
 where  to  draw  administrative  lines);  Cassell  v.  FCC,  154  F.  3d  478,  485  (D.  C.  Cir.  1998)  (the  Commissions  line-drawing  is  entitled  deference  so  long  as  it  is  not  patently  unreasonable);  Health  and  Medicine  Policy  Research 


 Group,  et  al.  v.  FCC,  807  F.  2d  1038,  1043  (D.  C.  Cir.  1987)  (  the  scope  of  review  is  particularly  limited  when  the  FCC  engages  in  the  process  of  drawing  lines);  Hercules  Inc.  v.  EPA,  598  F.  2d  91,  107-  108  (D.  C.  Cir.  1978) 
 (agency's  numbers  must  only  be  within  a  zone  of  reasonableness).  See  also  Letter  from  Jonathan  D.  Blake,  Counsel  for  NASA,  and  Henry  L.  Baumann,  Executive  Vice  President  for  Law  &  Regulatory  Policy,  NAB,  to  the 
 FCC  Chairman  and  Commissioners  (April  30,  2003)  at  1. 
 1202  But  see  Letter  from  Jonathan  D.  Blake,  Counsel  for  NASA,  to  Marlene  Dortch,  Secretary,  FCC  (May  8,  2003) 
 Attachment  at  7  (no  evidence  to  support  raising  the  cap  to  40%,  45%  or  50%)  (  NASA  May  8,  2003  Ex  Parte). 
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 and  their  affiliates,  a  45%  limit  ensures  that  networks  will  not  obtain  a  greater  national  audience  reach  than  their  affiliates  collectively  will  have. 
 583.  Finally,  although  we  elect  not  to  modify  the  cap  to  the  point  advocated  by  Paxson  (50%),  we  agree  with  Paxson  that  the  cap  should  accommodate  all  existing  broadcast  combinations  and  give 
 some  additional  room  for  growth.  1203  A  45%  cap  will  allow  some,  but  not  unconstrained,  growth  for  each  of  the  top  four  network  owners.  1204  Broadcast  networks  have  lost  market  share  in  recent  years  to 
 cable  and  DBS,  and  allowing  them  to  achieve  better  economies  of  scale  and  scope  may  help  them  remain  competitive  in  the  marketplace.  1205  Further,  given  the  rise  in  programming  costs  and  increasing 
 competition  from  non-  broadcast  national  media,  the  economies  of  scale  and  scope  made  possible  by  network  expansion  of  station  ownership  will  contribute  to  the  preservation  of  over-  the-  air  television  by 
 deterring  the  migration  of  expensive  programming,  such  as  sports  programming,  to  cable  networks.  1206  Accordingly,  we  herein  modify  the  national  audience  reach  rule  to  impose  a  45%  cap. 


 584.  Although  we  affirm  our  finding  in  the  1984  Multiple  Ownership  Report  and  Order  that  increased  network  ownership  of  stations  will  not  harm  either  competition  or  diversity,  1207  our  decision  to 
 retain  a  national  ownership  cap  is  a  departure  from  our  conclusion  in  1984  that  the  national  TV  ownership  rule  should  be  repealed.  1208  In  1984,  we  gave  very  limited  consideration  to  the  potential  effects  of  the  cap 


 1203  Paxson  Comments  at  13-  15.  We  decline  to  adopt  Paxsons  suggestion  that  we  establish  a  presumption  to 
 increase  the  cap  biennially  by  at  least  2.5%  until  it  reaches  60%.  Id. 
 1204  Under  the  current  rule,  ABC  owns  ten  stations  reaching  23.6%  of  the  national  audience;  CBS  owns  39  stations 
 reaching  39%  of  the  national  audience  (these  stations  include  the  CBS  as  well  as  the  UPN  owned  and  operated  stations,  including  3  satellite  stations);  Fox  owns  37  stations  reaching  37.8%  of  the  national  audience  (includes 


 two  satellite  stations);  and  NBC  owns  29  stations  reaching  33.6%  of  the  national  television  audience  (these  stations  include  the  NBC  as  well  as  the  Telemundo  owned  and  operated  stations,  as  well  as  a  station  located  in 
 Puerto  Rico).  The  Top  25  TV  Station  Groups,  BCASTING  AND  CABLE  (Apr.  7,  2003)  at  32-  34.  There  are  currently  1,340  commercial  television  stations  licensed  by  the  Commission.  The  percentage  of  these  television  stations 
 owned  by  each  of  these  networks  is  as  follows:  ABC  owns  less  than  1%;  CBS  owns  approximately  3%;  Fox  owns  approximately  3%;  and  NBC  owns  approximately  2%. 


 1205  Paxson  Comments  at  10  (due  to  competition  from  cable  and  DBS,  network  prime  time  viewership  has 
 declined  to  57%)  (citing  2001  Video  Competition  Report,  17  FCC  Rcd  at  1282).  See  also  Letter  from  Jared  S.  Sher,  Counsel  for  Fox,  to  Marlene  Dortch,  Secretary,  FCC  (April  30,  2003),  Attachment  at  52-  54.  We  disagree 


 with  NAB/  NASA  that  network  profitability  is  not  a  valid  reason  for  raising  the  national  cap  in  this  proceeding.  See  Letter  from  Jonathan  D.  Blake,  Counsel  for  NASA,  and  Henry  L.  Baumann,  Executive  Vice  President  for 
 Law  &  Regulatory  Policy,  NAB,  to  the  FCC  Chairman  and  Commissioners  (April  23,  2003)  at  1-  2;  NASA  May  5,  2003  Ex  Parte  at  2-  3;  NASA  May  8,  2003  Ex  Parte,  Attachment  at  5-  6. 


 1206  Fox  Comments  at  43  (the  rule  limits  the  return  that  networks  can  earn  on  their  programming  investments  and 
 drives  them  to  direct  their  resources  away  from  free  television  and  toward  subscription-  based  cable  channels).  Viewers  complain  that  desirable  programming  already  has  begun  migrating  to  subscription-  based  outlets.  Thomas 


 Smith  Comments  at  4;  see  also  NABET-  CWA  Reply  Comments  at  2;  The  Grange  Reply  Comments  at  3;  Fox  May  2,  2003  Ex  Parte  at  16;  Letter  from  John  C.  Quale,  Counsel  for  Fox,  to  Marlene  Dortch,  Secretary,  FCC  (May  12, 
 2003),  Attachment  2  at  5-  7. 
 1207  1984  Multiple  Ownership  Report  and  Order,  100  F.  C.  C.  2d  at  46,  50-  54    86,  97-  107. 


 1208  See  id.  at  18-  20    4-  10. 
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 on  localism.  1209  That  attention  was  devoted  to  the  quality  and  quantity  of  news  and  public  affairs  programming  on  group-  owned  versus  individually-  owned  stations.  1210  In  this  Report  and  Order,  by 
 contrast,  we  have  expanded  our  localism  measures  to  include  the  important  consideration  of  program  selection  by  local  stations.  The  1984  decision  did  not  address  the  balance  of  power  between  networks 
 and  affiliates  and  how  that  affects  program  selection.  1211  It  is  this  factor  that  is  the  central  factor  in  our  decision  to  retain  a  national  cap. 


 4.  UHF  Discount 
 585.  In  the  Notice,  the  Commission  invited  comment  on  the  relevance  and  continued  efficacy  of  the  50%  UHF  discount.  1212  The  Notice  explained  that  the  discount  was  enacted  because  UHF  stations 


 were  competitively  disadvantaged  by  weaker  signals  and  smaller  household  reach  than  VHF  stations.  1213  In  light  of  greater  carriage  of  UHF  stations  on  MVPDs  since  enactment  of  the  UHF  discount  in  1985,  we 
 sought  comment  on  the  continued  need  for  the  UHF  discount. 
 586.  We  conclude  that  the  UHF  discount  continues  to  be  necessary  to  promote  entry  and  competition  among  broadcast  networks.  VHF  signals  typically  reach  between  72  and  76  miles,  while 


 UHF  signals  reach  approximately  44  miles.  This  signal  disparity  results  in  a  significantly  smaller  household  reach  of  UHF  signals  compared  with  VHF  signals.  Fox,  NBC  and  Viacom  submitted  data 
 showing  that,  in  markets  where  they  own  both  a  UHF  and  a  VHF  station,  the  UHF  station  reaches  between  56%  and  61%  of  the  service  area  of  their  VHF  stations.  1214  Similarly,  Paxson  states  that  in  eight 
 cities  where  it  owns  UHF  stations,  its  stations  reach  between  35.7%  and  78.2%  of  the  homes  reached  by  VHF  stations  in  those  markets.  1215 


 587.  This  diminished  UHF  signal  area  coverage  affects  UHF  stations  ability  to  compete  with  VHF  stations  in  two  ways.  First,  although  cable  and  DBS  operators  serve  86%  of  U.  S.  households,  the 
 Commission  recently  determined  that  roughly  30%  of  television  sets  are  not  connected  to  MVPD  service 


 1209  In  our  1984  decision,  we  acknowledged  that  network-  owned  stations  have  rendered  meritorious  service  to 
 their  local  communities.  Id.  at  53    105.  This  observation,  which  continues  to  hold  true,  does  not,  however,  negate  the  importance  of  the  affiliates  role  in  furthering  localism. 


 1210  Id.  at  31-  36    44-  56. 
 1211  See  Cox  Comments  at  9;  Letter  from  Jonathan  D.  Blake,  Counsel  for  NASA,  and  Henry  L.  Baumann, 
 Executive  Vice  President  for  Law  &  Regulatory  Policy,  NAB,  to  Marlene  Dortch,  Secretary,  FCC  (May  9,  2003),  Attachment  at  2;  Letter  from  Jonathan  D.  Blake,  Counsel  for  NASA,  and  Henry  L.  Baumann,  Executive  Vice 


 President  for  Law  &  Regulatory  Policy,  NAB,  to  the  FCC  Chairman  and  Commissioners  (May  15,  2003)  at  1-  2. 
 1212  Notice,  17  FCC  Rcd  at  18545    130-  131.  The  UFH  discount  is  intended  to  recognize  the  deficiencies  in 
 over-  the-  air  UHF  reception  in  comparison  to  VHF  reception. 
 1213  Id.  at  18545    130. 


 1214  Letter  from  John  C.  Quale,  Counsel  for  Fox,  to  Marlene  Dortch,  Secretary,  FCC  (May  20,  2003)  (  Fox  May 
 20,  2003  Ex  Parte). 
 1215  Letter  from  John  R.  Feore,  Counsel  for  Paxson,  to  Marlene  Dortch,  Secretary,  FCC  (May  16,  2003)  at 
 Attachment  3. 
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 and  receive  exclusively  over-  the-  air  broadcast  stations.  1216  UHF  stations  reach  far  fewer  of  these  broadcast-  only  viewers  as  VHF  stations.  Second,  weaker  UHF  signals  make  it  more  difficult  for  a  UHF 
 station  to  qualify  for  cable  and  DBS  carriage.  Commission  regulations  require  a  local  television  station  to  place  a  Grade  B  signal  over  the  cable  or  DBS  headend  in  order  to  qualify  for  carriage.  1217  Alternatively, 
 if  a  station  does  not  place  a  Grade  B  signal  over  the  headend,  it  may  pay  for  an  alternative  method  of  delivering  its  signal  to  the  headend,  such  as  a  fiber  optic  connection.  1218  Non-  carriage  on  a  cable  system 
 will,  as  a  practical  matter,  make  the  UHF  station  unavailable  to  homes  in  the  MVPDs  service  area. 
 588.  In  addition  to  diminished  signal  coverage,  UHF  stations  require  between  1.5  and  3  times  greater  electricity  costs  to  operate  than  VHF  stations.  1219  UHF  stations  also  require  more  expensive 


 transmitters  than  VHF  stations.  1220  These  factors,  along  with  the  signal  coverage  disparity,  appear  to  diminish  the  ability  of  UHF  stations  to  compete  in  the  delivered  video  programming  market.  According 
 to  a  1997  study  provided  by  Paxson,  VHF  affiliates  of  the  top  four  broadcast  networks  had  approximately  50%  higher  ratings  than  UHF  affiliates  of  the  top  four  networks.  1221  Paxson  then  replicated  this  study 
 with  2002  ratings  information  and  determined  that  the  ratings  disparity  between  UHF  and  VHF  stations  had  actually  increased  between  1997  and  2002.  Paxsons  filing  shows  that,  in  November  of  2002, 
 network-  affiliated  VHF  stations  received  approximately  57%  higher  ratings  than  network-  affiliated  UHF  stations,  compared  with  50%  in  1997.  1222  Thus,  even  after  controlling  for  factors  such  as  programming 
 and  market  size,  UHF  stations  continue  to  experience  a  competitive  handicap  compared  with  VHF  stations.  This  disparity  translates  into  reduced  advertising  revenues  for  UHF  stations.  1223  Thus  we 
 disagree  with  UCC  that  the  UHF  handicap  has  largely  been  eliminated  by  greater  cable  and  DBS  carriage  of  UHF  signals.  1224 


 589.  In  addition  to  strengthening  competition  between  UHF  and  VHF  stations,  the  UHF  discount  promotes  entry  by  new  broadcast  networks.  Paxson  asserts  that  the  UHF  discount  enhanced  its  ability  to 
 launch  a  new  broadcast  network  because  it  could  own  more  UHF  stations  than  VHF  stations.  Paxson  states  that  the  additional  ownership  of  stations  permitted  by  the  UHF  discount  provides  a  significant 


 1216  2001  Video  Competition  Report,  17  FCC  Rcd  at  1282    79. 
 1217  47  C.  F.  R.    76.55(  c)(  3). 
 1218  47  C.  F.  R.    76.66(  g). 
 1219  Letter  from  John  R.  Feore,  Counsel  for  Paxson,  to  Marlene  Dortch,  Secretary,  FCC  (May  7,  2003)  (  Paxson 
 May  7,  2003  Ex  Parte),  Attachment  C  at  11. 
 1220  Id. 


 1221  Paxson  May  7,  2003  Ex  Parte,  Attachment  C  at  9  (stating  that  VHF-  based  affiliates  received  a  9.6  prime  time 
 rating  compared  UHF  affiliates  6.  4  rating). 
 1222  Letter  from  John  R.  Feore,  Counsel  for  Paxson,  to  Marlene  Dortch,  Secretary,  FCC  (May  30,  2003), 
 Attachment  at  2. 
 1223  Fox  May  20,  2003  Ex  Parte,  Declaration  of  Michael  Ward,  General  Manager,  WNCN(  TV)  (stating  that 
 advertisers  routinely  discount  the  prices  paid  for  advertising  on  UHF  stations  versus  VHF  stations). 
 1224  UCC  Comments  at  57-  58. 
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 financial  incentive  for  new  networks  to  enter  and  compete  with  established  networks.  1225  This  is  because  ownership  of  stations,  as  opposed  to  affiliation  with  separately-  owned  stations,  enables  a  network  such  as 
 Paxsons  to  earn  both  national  and  local  advertising  revenues.  1226  Univision  also  states  that  the  UHF  discount  has  enabled  it  to  enter  the  market  with  programming  tailored  to  Hispanic  audiences.  Univision 
 explains  that  its  entry  as  a  broadcast  network  is  particularly  beneficial  to  Hispanic  audiences  because  they  rely  disproportionately  on  over-  the-  air  broadcast  channels.  1227 


 590.  Finally,  we  observe  that  the  established  broadcast  networks  generally  have  not  sought  to  take  advantage  of  the  UHF  discount  to  gain  greater  national  reach  through  local  stations.  The  four  most 
 established  broadcast  networks  collectively  own  67  stations,  12  of  which  are  UHF  stations.  1228  Instead  of  replacing  their  VHF  stations  with  UHF  stations  and  owning  up  to  70%  national  coverage,  they  have 
 retained  their  VHF  stations  and  sought  elimination  of  the  national  ownership  cap.  By  contrast,  Paxson,  a  recent  entrant  into  the  broadcast  network  business,  owns  61  stations,  all  of  which  are  UHF.  1229  Absent  the 
 UHF  discount,  Paxsons  audience  reach  would  be  61.8%  of  the  nations  television  households.  This  data  indicates  that  the  UHF  discount  plays  a  meaningful  role  in  encouraging  entry  of  new  broadcast  networks 
 into  the  market.  For  these  reasons,  we  retain  the  UHF  discount. 
 591.  The  Commission  has  previously  said  it  will  issue  a  notice  of  proposed  rulemaking  proposing  a  phased-  in  elimination  of  the  discount  when  DTV  transition  is  near  completion.  1230  At  this 


 point,  however,  it  is  clear  that  the  digital  transition  will  largely  eliminate  the  technical  basis  for  the  UHF  discount  because  UHF  and  VHF  signals  will  be  substantially  equalized.  Therefore,  we  will  sunset  the 
 application  of  the  UHF  discount  for  the  stations  owned  by  the  top  four  broadcast  networks  (i.  e.,  CBS,  NBC,  ABC  and  Fox)  as  the  digital  transition  is  completed  on  a  market  by  market  basis.  This  sunset  will 
 apply  unless,  prior  to  that  time,  the  Commission  makes  an  affirmative  determination  that  the  public  interest  would  be  served  by  continuation  of  the  discount  beyond  the  digital  transition.  For  all  other 
 networks  and  station  group  owners,  we  will  continue  to  examine  the  extent  of  competitive  disparity  between  UHF  and  VHF  stations  as  well  as  the  impact  on  the  entry  and  viability  of  new  broadcast 
 networks.  In  a  subsequent  biennial  review,  we  will  determine  whether  to  include  stations  owned  by  these  other  networks  and  station  group  owners  in  the  sunset  provision  we  have  established  for  stations  owned 
 by  the  top  four  broadcast  networks. 
 B.  Dual  Network  Rule 
 592.  The  dual  network  rule  provides:  A  television  broadcast  station  may  affiliate  with  a  person 


 1225  Paxson  May  7,  2003  Ex  Parte,  Attachment  C  at  18. 
 1226  Id. 
 1227  Univision  Reply  Comments  at  6  (52.8%  of  Hispanic  television  households  in  the  top  30  markets  subscribe  to 
 cable  television.  This  compares  with  67.8%  of  U.  S.  households  that  subscribe  to  cable  overall.).  See  OPP  Working  Paper  37  at  41. 


 1228  The  Top  25  Station  Groups,  BROADCASTING  &  CABLE,  Apr.  7,  2003. 
 1229  Paxson  owns  61  stations,  60  of  which  belong  to  the  PAX  television  network.  Paxson  also  owns  a  station  that 
 is  affiliated  with  ABC.  Id.  See  also  Paxson  Comments  at  2. 
 1230  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11079-  80    38. 
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 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    73.3613(  a)(  1)  of  the  Commissions  regulations  (that  is,  ABC,  CBS,  Fox,  and  NBC).  1231  Thus,  the  rule  permits  common  ownership  of  multiple  broadcast  networks,  but  prohibits  a  merger  between 
 or  among  the  top-  four  networks,  i.  e.,  ABC,  CBS,  Fox,  and  NBC.  In  this  Order,  we  conclude  that  the  dual  network  rule  is  necessary  in  the  public  interest  to  promote  competition  and  localism. 


 1.  Background 
 593.  The  original  dual  network  rule,  which  prohibited  any  entity  from  maintaining  more  than  a  single  radio  network,  was  adopted  over  sixty  years  ago.  1232  The  rule  was  later  extended  to  television 


 networks.  1233  The  Commission  believed  that  an  entity  that  operated  more  than  one  network  might  preclude  new  networks  from  developing  and  affiliating  with  desirable  stations  because  those  stations 
 might  already  be  affiliated  with  the  more  powerful  network  entity.  1234  In  addition,  the  Commission  expressed  concern  that  ownership  of  more  than  one  network  could  give  the  owner  too  much  market 
 power.  1235  The  rule,  therefore,  was  intended  to  serve  the  Commissions  competition  and  diversity  goals.  1236 


 594.  In  the  1996  Act,  Congress  directed  the  Commission  to  amend  the  rule,  1237  which  it  did,  to  permit  common  ownership  of  two  or  more  broadcast  networks,  but  not  a  merger  among  ABC,  CBS,  Fox, 
 or  NBC,  or  between  one  of  these  top-  four  networks  and  UPN  or  WB.  1238  In  2001,  the  Commission  further  modified  the  rule  to  permit  a  top-  four  network  to  merge  with  or  acquire  UPN  or  WB.  1239  The 
 Commission  found  that:  (1)  competition  in  the  national  advertising  market  would  not  be  harmed;  (2)  greater  vertical  integration  was  potentially  an  efficient,  pro-  competitive  response  to  increasing 
 competition  in  the  video  market;  and  (3)  program  diversity  would  not  be  harmed  because  the  two 


 1231  47  C.  F.  R.    73.658(  g). 
 1232  6  Fed.  Reg.  at  2282  (May  6,  1941). 
 1233  Amendment  of  Part  3  of  the  Commissions  Rules,  11  Fed.  Reg.  33  (Jan.  1,  1946). 
 1234  1998  Biennial  Review  Report,  15  FCC  Rcd  at  11095-  96    70. 
 1235  Id. 
 1236  Id. 
 1237  Section  202(  e)  of  the  1996  Act  directed  the  Commission  to  modify  the  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  Acts  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.  1996  Act,    202(  e).  The  legislative  history  of  the  emerging  network  provision  indicated  that  it  was  intended  to  apply  to  only  the  UPN  and  WB  television  networks.  See  S.  Rep.  No.  230,  104th  Cong.,  2d 
 Sess.  at  163. 
 1238  See  note  1062,  supra. 


 1239  Dual  Network  Order  supra  note  95. 
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 combined  networks  would  have  economic  incentives  to  diversify  their  program  offerings.  1240 
 595.  The  restrictions  in  the  current  rule  apply  only  to  combinations  of  the  top-  four  networks.  All  existing  network  organizations,  and  all  new  network  organizations,  may  create  and  maintain  multiple 
 broadcast  networks.  Thus,  the  current  rule  permits  common  ownership  of  multiple  broadcast  networks  created  through  internal  growth  and  new  entry. 


 596.  Although  the  dual  network  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  may  operate  multiple  broadcast  networks.  Specifically,  the  rule  permits  ABC,  CBS,  Fox,  and  NBC  to  develop  multiple  broadcast  networks  by:  (1) 
 creating  new  broadcast  networks;  (2)  acquiring  new  broadcast  networks;  or  (3)  acquiring  video  networks  from  non-  broadcast  media  (e.  g.,  cable  or  satellite)  and  migrating  them  to  broadcast  networks.  However, 
 the  rule  prohibits  ABC,  CBS,  Fox,  and  NBC  from  developing  multiple  broadcast  networks  by  merging  with  one  another. 


 597.  In  the  Notice,  we  sought  comment  on  whether  the  present  dual  network  rule  is  necessary  in  the  public  interest  as  the  result  of  competition.  We  asked  whether  it  promotes  the  goals  of  competition, 
 diversity,  or  localism.  We  further  asked  whether,  if  the  rule  serves  some  of  our  purposes  and  disserves  others,  the  balance  of  its  effects  argue  for  keeping,  modifying,  or  abolishing  the  dual  network  rule.  1241 


 598.  Despite  the  voluminous  record  developed  in  this  proceeding,  few  commenters  addressed  the  dual  network  rule.  1242  Several  commenters  assert  that  the  top-  four  networks  are  unique  in  that  they 
 regularly  compete  against  each  other  for  viewers  (i.  e.,  their  programming  is  targeted  at  similar  national  audiences,  as  opposed  to  the  niche  audiences  smaller  broadcast  networks  and  cable  networks  target),  that 
 they  each  consistently  generate  the  largest  national  audiences  for  their  programming  (thereby  receiving  the  most  advertising  revenue,  which,  in  turn,  provides  the  funding  to  purchase  the  most  desired 
 programming),  and  that  competition  would  be  harmed  by  allowing  any  of  them  to  merge.  1243  Several  commenters  also  assert  that  concentration  of  ownership  in  the  top-  four  networks  would  result  in  harms  to 
 diversity  by  providing  fewer  national  and  local  viewpoints  in  news  reporting  and  fewer  programming  choices  for  viewers.  1244  One  commenter  also  argues  that  localism  would  be  harmed  by  a  top-  four  network 
 merger  because  the  merger  would  increase  the  economic  leverage  the  networks  have  over  their  affiliates.  1245  The  sole  commenter  arguing  for  elimination  of  the  rule,  Fox,  asserts  that  competition  will 


 1240  Id.  at  11124-  25,  31    24-  25,  37. 
 1241  Notice,  17  FCC  Rcd  at  18552-  53    159. 
 1242  Those  specifically  mentioning  the  dual  network  rule  in  their  comments  are:  AFL-  CIO;  AFTRA;  CCC; 
 Children  Now;  CWA;  Fox;  NAB/  NASA;  Smith;  Stapleton;  UCC;  and  Writers  Guild.  Of  these  eleven  commenters,  five  devoted  one  paragraph  or  less  to  a  discussion  of  the  rule. 


 1243  See  CCC  Comments  at  17;  NAB/  NASA  Comments  at  73-  74,  77;  Stapleton  Comments  at  16;  Writers  Guild,  et 
 al.  Comments  at  16. 
 1244  See  AFL-  CIO  Comments  at  63-  64;  AFTRA  Comments  at  36-  38;  CCC  Comments  at  18-  19;  UCC,  et  al. 
 Comments  at  59-  60;  Writers  Guild,  et  al.  Comments  at  14. 
 1245  See  NAB/  NASA  Comments  at  75-  76. 
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 not  be  harmed  because  consumers  have  access  to  a  vast  array  of  other  media  outlets,  that  diversity  will  be  maintained  because  common  network  ownership  provides  incentives  to  produce  a  diverse  schedule  of 
 programming,  and  that  localism  will  not  be  affected  because  stations  have  strong  financial  incentives  to  provide  local  programming  regardless  of  their  network  affiliation.  1246  We  analyze  these  arguments  below 
 in  discussing  whether  the  rule  is  necessary  in  the  public  interest  as  the  result  of  competition.  1247 
 2.  Discussion 
 599.  Under  Section  202(  h),  we  consider  whether  the  dual  network  rule  continues  to  be  necessary  in  the  public  interest  as  the  result  of  competition.  In  determining  whether  the  rule  meets  this 


 standard,  we  consider  whether  the  rule  promotes  competition,  localism,  and  diversity.  We  conclude  that  the  dual  network  rule  continues  to  be  necessary  in  the  public  interest  to  promote  competition  and 
 localism. 
 a.  Competition 
 600.  We  begin  by  summarizing  the  complex  roles  played  by  broadcast  networks.  Broadcast  networks  acquire  a  collection  of  programs  from  program  producers.  The  programs  are  selected  based  on 


 their  ability  to  attract  audiences  that  can  be  sold  to  advertisers.  These  programs  -  with  advertisements  embedded  -  are  then  made  available  to  television  audiences  through  the  broadcast  networks  owned  and 
 operated  broadcast  television  stations  (  O&  Os),  and  also  through  contractual  arrangements  with  affiliated  broadcast  television  stations.  Thus,  a  broadcast  network  serves  many  roles.  It  is  an 
 intermediary  between  local  broadcast  stations  and  advertisers  and  program  producers.  Because  the  top-four  broadcast  networks  are  participants  in  the  program  acquisition  market  and  the  national  advertising 
 market,  mergers  among  them  can  affect  competition  in  each  of  these  markets. 
 601.  Given  the  level  of  vertical  integration  of  each  of  the  top-  four  networks,  as  well  as  their  continued  operation  as  a  strategic  group  1248  in  the  national  advertising  market,  a  top-  four  network 
 merger  would  give  rise  to  competitive  concerns  that  the  merged  firm  would  be  able  to  reduce  its  program  purchases  and/  or  the  price  it  pays  for  programming.  As  a  result,  we  conclude  that  the  dual  network  rule 
 remains  necessary  in  the  public  interest  to  foster  competition. 
 (i)  Program  Acquisition  Market 
 602.  The  top-  four  networks  are  the  broadcasting  components  of  vertically-  integrated  firms,  which  compete  against  each  other  to  acquire  programming  that  will  attract  the  largest  national 


 audiences.  1249  Competition  in  the  program  acquisition  market  is  important  because  networks  compete 


 1246  See  Fox  Comments  at  44-  45,  47-  48. 
 1247  In  its  Comments,  NAB/  NASA  states  that  NAB  takes  no  position  on  whether  the  Commission  should  retain 
 the  current  version  of  the  dual  network  rule.  NAB/  NASA  Comments  at  72;  NAB/  NASA  Reply  Comments  at  57.  The  arguments  opposing  changes  to  the  dual  network  rule  are  therefore  made  by  NASA. 


 1248  A  strategic  group  refers  to  a  cluster  of  independent  firms  within  an  industry  that  pursue  similar  business 
 strategies.  See  footnote  1259,  infra,  for  a  discussion  of  strategic  groups. 
 1249  ABC  (a  broadcast  network)  is  vertically  integrated  with  Disney  (a  program  supplier);  CBS  (a  broadcast 
 network)  is  vertically  integrated  with  Viacom  (a  program  supplier);  Fox  (a  broadcast  network)  is  vertically  (continued.) 
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 with  each  other  to  acquire  new,  diverse,  and  innovative  programming.  A  top-  four  network  merger  would  give  rise  to  competitive  concerns  that  the  merged  firm  would  restrict  the  consumption  of  programming  by 
 using  its  market  power  to  limit  competitors  access  to  sources  of  programming.  In  addition,  the  merged  network  could  use  its  market  power  to  control  the  price  it  pays  for  programming  or  to  raise  competitors 
 costs  of  acquiring  programming.  In  concentrated  markets,  viewers  have  access  to  fewer  programming  choices  if  the  number  of  national,  independent  purchasers  of  programming  decreases  due  to  limited  access 
 to  programming  and  higher  programming  costs. 
 603.  NASA  argues  that  a  merger  of  two  or  more  of  the  top-  four  networks  would  result  in  a  less  competitive  program  acquisition  market,  evidenced  by  lower  output,  fewer  choices,  and  less  technological 
 progress.  1250  CCC  argues  that  the  top-  four  networks  represent  a  distinct  and  important  resource  for  viewers  because  only  they  are  able  to  consistently  distribute  both  news  and  entertainment  programming  to 
 a  mass  audience,  using  their  cable  subsidiaries  and  local  broadcast  affiliates.  1251  Fox,  on  the  other  hand,  argues  that  the  rule  actually  undermines  the  Commissions  competition  policy  by  discouraging  broadcast 
 investment  to  the  detriment  of  consumers  of  free  over-  the-  air  television.  1252  Fox  also  argues  that  the  program  acquisition  market  is  only  moderately  concentrated,  having  an  HHI  of  approximately  1120.  1253 
 In  support  of  this  argument,  Fox  asserts  that  the  program  acquisition  market  is  characterized  by  a  large  number  of  purchasers  of  exhibition  rights,  including  broadcast  networks,  broadcast  stations,  cable 
 networks,  DBS  operators,  premium  cable  networks,  pay-  per-  view  providers,  and  distributors  of  video  cassettes  and  DVDs.  1254  NASA  counters  that  the  major  broadcast  networks  do  not  compete  with  the  cable 
 networks  for  mass-  audience,  prime-  time  programs,  and  that  the  only  avenue  of  distribution  for  such  programs  is  the  television  broadcast  networks.  1255  NASA  therefore  asserts  that  only  the  major 
 broadcasting  networks  should  be  considered  in  an  analysis  of  concentration  in  the  purchase  of  national  video  programming.  1256 


 604.  We  agree  with  Fox  and  NASA  that  the  context  for  analyzing  the  program  acquisition  market  is  to  consider  the  shares  of  expenditures  on  video  entertainment  programming.  We  conclude, 
 however,  that  a  more  accurate  assay  of  the  market  includes  the  shares  of  broadcast  networks,  broadcast  (Continued  from  previous  page) 
 integrated  with  News  Corp  and  20  th  Century  Fox  (a  program  supplier);  and  NBC  (a  broadcast  network)  is  vertically  integrated  with  NBC  Entertainments  subsidiary  NBC  Studios  (a  program  supplier). 


 1250  See  NAB/  NASA  Comments  at  58-  60. 
 1251  See  CCC  Comments  at  17-  18. 
 1252  Fox  Comments  at  48. 
 1253  Fox  Economic  Study  E  at  1.  Fox  economists  excluded  expenditures  on  news  and  sports  programming 
 because  most  of  the  inputs  used  in  creating  such  programs  are  not  readily  substitutable  with  the  inputs  used  in  creating  entertainment  television  programs  and  theatrical  films. 


 1254  Id. 
 1255  NAB/  NASA  Reply  Comments  at  57.  By  NASAs  estimate,  which  is  based  on  an  analysis  of  Foxs  Economic 
 Study  E,  Table  E2,  the  top-  four  networks  account  for  over  87  percent  of  programming  expenditures  by  broadcasting  networks,  and  the  video  entertainment  program  acquisition  market  has  an  HHI  of  approximately 


 2100,  a  result  considered  highly  concentrated  under  the  DOJ/  FTC  Merger  Guidelines.  Id. 
 1256  Id.,  citing  its  Comments  at  74-  75. 
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 stations,  basic  cable  networks,  pay  cable  networks,  and  pay-  per-  view  networks.  We  reject  NASAs  narrow  definition  because  they  provide  no  evidentiary  reason  to  exclude  other  video  programming 
 purchasers  and  they  dismiss  the  range  of  programming  choices  available  to  viewers  over  the  air,  via  cable  and  via  satellite.  We  do  not  agree  with  Foxs  more  expansive  definition,  specifically  the  inclusion  of 
 home  video,  as  that  requires  additional  action  on  the  part  of  individual  viewers,  such  as  purchasing  a  DVD  player,  driving  to  a  video  rental  store,  and  renting  a  DVD.  We  conclude  that  using  broadcast 
 networks,  broadcast  stations,  basic  cable  networks,  pay  cable  networks,  and  pay-  per-  view  networks  in  our  analysis  accurately  represents  the  market  participants,  and  their  role  in  delivering  programming  to  large, 
 passive  audiences.  In  order  to  examine  the  effect  of  mergers  among  broadcast  television  networks  subject  to  this  rule,  we  can  construct  hypothetical  merger  scenarios,  building  on  the  scenario  developed  in  the 
 national  cap  section  of  this  Order.  In  the  absence  of  actual  figures  for  the  network  companies  broadcast  station  expenditures,  we  can  only  examine  the  effects  of  mergers  amongst  the  networks  (i.  e.,  without  their 
 complement  of  O&  Os,  but  including  the  cable  networks  they  own).  For  the  same  reason,  we  can  only  calculate  the  change  in  the  HHI,  not  the  base  level  HHI.  So,  for  example,  if  Fox  merged  with  GE  and 
 Disney  merged  with  Viacom,  the  HHI  would  increase  by  almost  767  points.  Then,  if  these  two  companies  merged  with  each  other,  the  HHI  would  increase  by  2,246  points.  Either  of  these  changes  in 
 the  HHI  would  be  scrutinized  under  DOJ  Merger  Guidelines.  Since  these  networks  own  television  stations,  the  change  in  the  HHI  would  actually  be  higher  than  in  these  examples. 


 605.  Accordingly,  we  conclude  that  a  merger  between  or  among  any  of  the  top-  four  networks  would  harm  competition  in  the  program  acquisition  market.  As  noted,  we  determine  in  our  analysis  of  the 
 national  ownership  cap  that  an  increase  in  the  cap  would  not  harm  the  program  acquisition  market,  principally  because  networks  would  be  enhancing  their  owned  and  operated  distribution  base.  Our 
 analysis  of  a  merger  between  two  or  more  of  the  top-  four  broadcast  networks,  however,  indicates  a  significant  potential  for  harm  to  this  market.  In  addition  to  acquiring  an  entire  group  of  owned  and 
 operated  stations  and  all  of  the  affiliation  agreements  of  the  stations  aligned  with  the  network,  a  merger  would  also  entail  the  acquisition  of  significant  program  purchasing  power  by  the  vertically  integrated 
 merging  networks.  The  vertically  integrated  networks  would  limit  competitors  access  to  programming  by  denying  remaining  networks  access  to  the  production  output  of  the  merged  network.  1257  In  addition 
 the  merged  firm  can  raise  the  price  paid  by  those  competitors  for  programming  created  and  produced  by  the  merged  networks  program  production  assets.  The  rule,  therefore,  remains  necessary  to  promote 
 competition  in  the  program  acquisition  market. 
 (ii)  National  Advertising  Market 
 606.  Networks  sell  national  advertising  by  creating  large  national  audiences  for  their  programming  and  delivering  those  audiences  to  advertisers.  Sellers  in  the  national  advertising  market 


 include  national  broadcast  networks,  cable  networks,  and  syndicators.  Network  O&  Os,  network-  affiliated  stations,  and  independent  stations  sell  national  spot  advertising  time,  which  is  advertising  sold  on  a 
 market-  by-  market  basis  to  national  advertisers.  National  spot  advertising  time  provides  a  competitive  alternative  to  national  advertising  time  to  a  certain  extent.  These  sellers  compete  against  each  other  not 
 only  based  on  the  price  they  charge  for  advertising  spots,  but  also  based  on  their  ability  to  deliver  the  largest  number  of  viewers  to  their  advertisers.  If  a  merger  were  to  reduce  competition  for  advertising 


 1257  Currently,  one  network  studio  may  produce  programming  that  is  ultimately  purchased  by  another  network. 
 For  example,  Paramount,  a  subsidiary  of  Viacom,  produces  the  long  running  NBC  series  Frasier  and  the  NBC  series  Ed.  Also,  in  addition  to  producing  shows  for  The  WB  network,  Warner  Brothers  has  produced  shows  for 


 ABC  (  The  Drew  Carey  Show  and  George  Lopez)  and  NBC  (  ER  and  West  Wing). 
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 dollars,  networks  would  have  less  incentive  to  compete  against  each  other  for  viewers,  which  would  lead  them  to  pay  less  attention  to  viewers  needs  and  to  produce  less  varied,  lower  quality,  and  less  innovative 
 programming. 
 607.  In  our  discussion  above  of  the  necessity  of  maintaining  the  national  TV  ownership  rule,  1258  we  conclude  that  the  networks  compete  with  each  other  and  with  cable  networks  for  national  advertising 
 revenues  and  that  the  current  ownership  cap  was  not  necessary  to  ensure  competition  in  the  national  advertising  market.  However,  while  we  find  that  the  top-  four  networks  do  not  possess  market  power 
 today,  that  would  change  if  two  or  more  of  them  were  to  merge  with  each  other.  Moreover,  as  explained  in  the  Dual  Network  Order,  the  top-  four  networks  comprise  a  strategic  group  within  the  national 
 advertising  market.  1259  The  top-  four  networks  compete  largely  among  themselves  for  advertisers  that  seek  to  reach  large,  national,  mass  audiences    a  significant  portion  of  the  national  advertising  market  that 
 provides  the  top-  four  networks  with  a  significant  portion  of  their  profits.  We  therefore  conclude  that  a  merger  of  two  or  more  of  the  top-  four  networks  would  substantially  lessen  competition  in  the  national 
 advertising  market,  especially  within  the  strategic  group,  1260  with  the  concomitant  harm  to  viewers  described  above. 


 608.  The  recent  growth  of  cable  and  DBS  does  not  alter  our  conclusion.  Despite  that  growth,  the  top-  four  networks  continue  to  provide  the  greatest  reach  of  any  medium  of  mass  communications. 
 The  top-  four  networks  attract  much  larger  prime-  time  audiences  in  relation  to  advertisement-  supported  cable  networks.  1261  Broadcastings  percentage  share  of  advertising  revenue  continues  to  exceed  its 


 1258  See  Section  VII(  A),  supra. 
 1259  Dual  Network  Order,  16  FCC  Rcd  at  11122-  23    20.  A  strategic  group  refers  to  a  cluster  of  independent 
 firms  within  an  industry  that  pursue  similar  business  strategies.  For  example,  the  top-  four  networks  supply  their  affiliated  local  stations  with  programming  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,  Q  J  ECON  91  (May  1977):  241-  261.  Also  see  Michael  E.  Porter,  COMPETITIVE  STRATEGY: 
 TECHNIQUES  FOR  ANALYZING  INDUSTRIES  AND  COMPETITION  (New  York:  The  Free  Press,  1980),  Ch.  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)  at  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. 


 1260  Our  analysis  suggests  that  economic  concentration  within  the  strategic  group  for  2001,  as  measured  by  the 
 HHI,  is  2646.  This  is  based  on  advertising  revenue  and  on  shares  of  the  top-  four  broadcast  networks  as  reported  by  Richard  Bilotti,  supra  note  1103.  Any  HHI  above  1800  indicates  a  highly  concentrated  market.  See 


 DOJ/  FTC  Merger  Guidelines.  A  merger  between  two  or  more  of  the  top-  four  networks  would  produce  a  change  in  the  HHI  of  over  100  points,  which,  according  to  DOJ  guidelines,  is  an  indication  that  such  a  merger  should  be 
 reviewed  to  ensure  that  it  would  not  enhance  market  power  or  facilitate  its  exercise.  Id. 
 1261  For  example,  during  the  month  of  February,  2003  (1/  27/  03    2/  23/  03),  CBS,  NBC,  ABC,  and  Fox  delivered 
 prime-  time  household  ratings  of  8.9,  8.1,  6.7,  and  6.7,  respectively,  as  compared  to  the  top  advertiser-  supported  cable  network,  TNT,  which  garnered  a  1.8  share  rating.  (A  rating  point  is  equal  to  1.067  million  households.)  See 


 Television  Bureau  of  Advertising,  Viewer  Track,  Monthly  Broadcast  vs.  Cable  Primetime  Ratings:  Feb-  2003  vs.  (continued.) 
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 percentage  share  of  viewing.  1262  Moreover,  despite  a  decrease  in  audience  share,  the  top-  four  networks  continue  to  command  increases  in  advertising  rates,  a  further  testament  to  the  strength  of  broadcasting 
 television  as  an  advertising  medium.  1263 
 609.  We  agree  with  NASA  that  despite  the  emergence  of  new  media  on  cable,  DBS,  and  the  Internet,  the  top-  four  broadcast  networks  still  have  the  largest  concentration  of  viewers  and  television 
 economic  power.  1264  A  recent  survey  shows  that  each  of  the  top  twenty-  five  prime-  time  broadcast  programs  during  the  week  of  December  9-  15,  2002,  all  of  which  were  aired  by  CBS,  ABC,  NBC,  or  Fox, 
 achieved  considerably  higher  household  ratings  than  any  of  the  25  highest  ranked  cable  programs.  1265  The  highest-  ranked  broadcast  program  had  a  rating  larger  than  the  top  five  cable  programs  ratings 
 combined.  1266  We  also  agree  that  as  it  becomes  more  difficult  to  reach  a  large  number  of  viewers,  television  broadcasters  that  can  still  deliver  a  mass  audience  become  more  valuable.  1267 


 610.  We  further  conclude,  as  we  did  in  the  Dual  Network  Order,  that  obtaining  a  sufficient  number  of  affiliated  stations  remains  a  major  obstacle  to  developing  a  new  broadcast  network  capable  of 
 attracting  national  advertisers  seeking  to  reach  a  mass  audience.  1268  As  long  as  mobility  barriers  1269  deter  entry  into  the  major  network  strategic  group,  the  pricing  of  network  advertising  will  be  sensitive  to  the 
 number  of  network  competitors.  1270  We  therefore  conclude  that  the  current  dual  network  rule  is  necessary  (Continued  from  previous  page) 
 Feb-  2002,  at  http://  www.  tvb.  org/  rcentral/  viewertrack/  monthly/  mon-  b-  c/  mon-  b-  c.  asp?  ms=  Feb-  2003_  vs_  Feb-2002.  html  (visited  March  7,  2003). 


 1262  See  e.  g.,  NAB/  NASA  Comments  at  13,  stating  that  broadcastings  share  of  advertising  revenue  in  2001  was 
 71.5%  whereas  its  audience  share  stood  at  53.7%.  In  addition,  the  networks  have  been  able  to  increase  the  quantity  of  advertising  availabilities  for  sale  by  adding  more  commercial  minutes  per  hour.  Id. 


 1263  The  networks  have  raised  prices  for  advertising  on  a  cost  per  thousand  (  CPM)  viewers  basis  steadily. 
 Prime-  time  broadcast  network  CPMs  have  increased  from  $9.74  in  1990  to  $13.42  in  2000,  an  average  annual  growth  rate  of  3.8%.  See  OPP  Working  Paper  37  at  28.  In  addition,  an  advertising  industry  compilation  indicates 


 that  the  top-  four  commercial  networks  increased  hourly  commercial  minutes  by  16.4%  from  1991  to  2000,  from  an  average  of  seven  minutes  and  47  seconds  to  an  average  of  nine  minutes  and  three  seconds.  Id. 


 1264  NAB/  NASA  Comments  at  74. 
 1265  Id.,  citing  Television  Bureau  of  Advertising,  Inc.,  Viewer  Track,  Top  25  Programs  on  Broadcast  and  Cable: 
 Week  Ending  Dec.  15,  2002,  at  http://  www.  tvb.  org/  rcentral/  index.  html  (visited  Jan.  1,  2003). 
 1266  Id.,  citing  also  its  earlier  notes  34-  35  and  accompanying  text  (observing  that  99  of  the  100  top-  rated  prime-time 
 programs  are  broadcast  programs,  and  that  the  combined  average  viewership  for  the  four  major  broadcast  networks  is  almost  six  times  as  high  as  that  of  the  top  ten  ad-  supported  cable  networks). 


 1267  See  NAB/  NASA  Comments  at  75. 
 1268  Dual  Network  Order,  16  FCC  Rcd  at  11123    20.  See  also  NAB/  NASA  Comments  at  73. 
 1269  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. 
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 to  maintain  competition  in  national  advertising  market. 
 b.  Localism 
 611.  We  conclude  that  the  dual  network  rule  also  is  necessary  to  retain  the  balance  of  bargaining  power  between  the  top-  four  networks  and  their  affiliates.  As  noted  in  the  national  TV 


 ownership  rule  section,  we  conclude  that  affiliates  play  an  important  role  in  assuring  that  the  needs  and  tastes  of  local  viewers  are  served.  1271  Elimination  of  the  dual  network  rule  would  harm  localism  by 
 providing  the  top-  four  networks  with  increased  economic  leverage  over  their  affiliates,  thereby  diminishing  the  ability  of  the  affiliates  to  serve  their  communities.  1272 


 612.  The  top-  four  networks  have  an  economic  incentive  to  promote  the  widest  distribution  nationwide  of  the  programming  that  they  produce  and  to  assure  that  it  is  carried  simultaneously  across  the 
 country.  To  reach  the  most  viewers,  the  top-  four  networks  acquire  their  own  stations  (  O&  Os),  usually  in  the  largest  television  markets,  and  enter  into  affiliation  agreements  with  station  owners  throughout  the 
 remainder  of  the  country.  Through  affiliation,  the  networks  benefit  from  the  wide-  area  delivery  of  their  programming.  Network  affiliates  benefit,  in  turn,  by  gaining  access  to  high-  quality  programming. 


 613.  Affiliates  have  an  economic  incentive  to  tailor  their  programming  to  their  local  audiences.  Affiliates  can  influence  network  programming  decisions  by  joining  forces  with  other  network  affiliates  in 
 collective  negotiations  to  ensure  that  the  programming  provided  by  the  network  serves  local  needs  and  interests.  The  strength  of  an  affiliates  influence  with  its  network  lies  in  its  power  as  part  of  a  critical 
 mass  to  join  forces  with  other  network  affiliates  in  collective  negotiations  to  try  to  influence  network  programming.  1273  On  an  individual  basis,  affiliates  may  also  decide  to  preempt  network  programming  if 
 other  programming  is  available  that  better  suits  local  needs. 
 614.  As  noted  by  NASA,  because  of  the  costs  of  programming  and  promotional  expenses,  network  affiliation  remains  critical  for  the  economic  survival  of  most  local  television  stations.  1274  NASA 
 argues  that  if  the  dual  network  rule  were  eliminated,  a  top-  four  network  merger  would  result  in  the  networks  gaining  an  unfair  advantage  over  their  affiliates,  noting  that  a  merger  would  reduce  alternative 
 choices  of  program  providers  for  affiliates  as  the  number  of  network  owners  decreases.  1275  As  an  example,  NASA  notes  that  if  NBC  and  CBS  were  permitted  to  merge,  a  terminated  CBS  affiliate  would 
 no  longer  be  able  to  turn  to  NBC  for  affiliation.  1276  The  harm  would  be  exacerbated  if  more  than  two  of  the  top-  four  networks  were  to  combine. 


 (Continued  from  previous  page)  1270  See  also  NAB/  NASA  Comments  at  75. 
 1271  See  Section  VII(  A),  supra. 
 1272  See  id.  for  a  discussion  of  localism  and  its  importance  in  the  balance  of  power  between  networks  and  their 
 affiliates. 
 1273  NAB/  NASA  Comments  at  2-  3. 


 1274  Id. 
 1275  Id.  at  75-  76. 
 1276  Id. 
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 615.  We  agree  with  NASA  that  a  top-  four  network  merger  would  harm  localism  by  providing  the  networks  with  undue  economic  leverage  over  their  affiliates.  While  a  top-  four  network  merger  may 
 not  result  in  fewer  networks,  it  would  result  in  fewer  network  owners.  We  conclude  that  a  top-  four  network  merger  would  reduce  the  ability  of  affiliates  to  bargain  with  their  network  for  favorable  terms  of 
 affiliation,  and  would  result  in  less  influence  of  affiliates  on  network  programming.  As  the  number  of  network  owners  declines,  affiliates  lose  the  ability  to  use  the  availability  of  other  top  independently-owned 
 networks  as  a  bargaining  tool  with  their  own  networks.  In  the  same  way,  a  combined  top-  four  networks  increased  leverage  could  be  used  to  overwhelm  affiliate  bargaining  power  with  respect  to 
 programming  issues.  A  top-  four  network  merger  would  lead  to  fewer  alternatives  for  affiliates,  which  would  lead  to  reduced  bargaining  power  of  affiliates,  and  less  influence  of  affiliates  on  network 
 programming,  including  the  ability  to  preempt  network  programming  that  affiliates  find  to  not  serve  their  local  communities.  We  therefore  conclude  that  the  dual  network  rule  remains  necessary  to  foster 
 localism. 
 c.  Diversity 
 616.  In  the  Notice,  we  sought  comment  on  the  dual  network  rules  effect  on  program  diversity  and  viewpoint  diversity.  1277  As  noted  in  the  national  TV  ownership  rule  section,  we  conclude  that  the 


 market  for  diversity  is  local,  not  national.  1278  As  also  noted,  we  conclude  that  viewpoint  diversity  is  the  most  pertinent  aspect  of  diversity  for  purposes  of  our  ownership  rules.  1279  Nevertheless,  since  several 
 commenters  argue  that  elimination  of  the  dual  network  rule  would  result  in  a  diminution  of  program  diversity,  we  address  their  arguments.  1280 


 617.  Several  commenters  argue  that  elimination  of  the  dual  network  rule  would  result  in  less  diverse  programming  and  that  national  viewpoints  in  news  reporting  would  be  diminished.  1281  AFL-  CIO 
 and  AFTRA  argue  that  recent  mergers  and  consolidation  in  the  industry  have  resulted  in  instances  of  reduced  viewpoint  diversity  and  program  diversity  in  local  markets.  1282  AFTRA  also  argues  that 
 elimination  of  the  rule  will  quell  new  voices  and  diverse  viewpoints,  as  emerging  networks  are  quashed 


 1277  Notice,  17  FCC  Rcd  at  18553-  54    160-  163. 
 1278  See  Section  VII(  A)  supra. 
 1279  See  id. 
 1280  See  UCC  Comments  at  59-  61;  NAB/  NASA  Comments  at  78;  AFL-  CIO  Comments  at  61-  62;  AFTRA 
 Comments  at  34;  and  CCC  Comments  at  19. 
 1281  See  CCC  Comments  at  19;  UCC  Comments  at  59;  AFL-  CIO  Comments  at  61-  62;  AFTRA  Comments  at  34-35; 
 and  NAB/  NASA  Comments  at  78. 
 1282  AFL-  CIO  Comments  at  61-  62,  gives  the  following  as  examples:  Viacom  in  Philadelphia  owns  the  local  CBS 
 and  UPN  television  stations  and  KYW-  AM  radio,  and  has  assigned  radio  anchors  to  produce  news  for  UPN;  Viacom  in  Detroit  dropped  its  local  CBS-  TV  news  and  has  contracted  WXYZ  to  produce  its  UPN-  TV  news;  and 


 NBC  is  combining  its  news  operations  with  Telemundo.  AFL-  CIO  further  states  that  BET,  which  is  now  owned  by  Viacom,  has  cancelled  several  news-  related  and  public  affairs  shows,  and  that  NBC  O&  Os  have  begun  to 
 merge  station  operations  with  Paxson  TV  affiliates,  only  rebroadcasting  NBC  news  on  PAX  stations.  See  also  AFTRA  Comments  at  34-  35. 
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 in  favor  of  more  cost-  effective  means  of  delivering  content.  1283  CCC  argues  that  because  CBS  is  repurposing  its  original  programming  on  UPN,  diversity  between  the  two  networks  is  reduced.  1284  CCC 
 also  argues  that  WB,  UPN,  and  the  cable  networks  do  not  have  the  audience  reach  or  the  resources  to  fill  the  diversity  void  created  if  the  national  networks  were  reduced  by  elimination  of  the  rule.  1285  Fox 
 disagrees,  arguing  that  the  vast  array  of  other  media  outlets  will  provide  the  public  with  sufficiently  diverse  information  and  views.  1286 


 618.  One  commenter,  UCC,  argues  that  despite  recent  gains  in  the  popularity  of  other  forms  of  media,  national  broadcast  television  continues  to  be  the  publics  most  important  source  for  national  and 
 international  news.  1287  UCC  argues  that  the  average  weekday  reach  of  the  evening  newscasts  of  ABC,  CBS  and  NBC  is  about  10  times  the  combined  reach  at  6:  30  p.  m.  for  Fox,  CNN,  CNN  Headline  News, 
 MSNBC,  and  CNBC.  1288  Because  network  news  on  broadcast  television  is  expensive  to  produce,  UCC  argues,  a  top-  four  network  merger  would  result  in  the  consolidation  of  news  departments  in  order  to 
 achieve  economic  efficiency.  1289 
 619.  In  the  Dual  Network  Order,  the  Commission  found  that  program  diversity  at  the  national  level  would  not  likely  be  harmed  by  the  combination  of  an  emerging  network  (i.  e.,  UPN  or  WB)  with  one 
 of  the  top-  four  networks.  The  Commission  found  it  likely  that  a  common  owner  would  have  strong  incentives  to  produce  a  diverse  schedule  of  programming  for  each  set  of  local  TV  outlets  in  the  same 
 market.  1290  In  this  proceeding,  we  address  possible  combinations  among  only  the  top-  four  networks,  which  are  distinct  from  combinations  between  a  top-  four  network  and  an  emerging  network.  1291  Also,  we 


 1283  AFTRA  Comments  at  34. 
 1284  CCC  Comments  at  19. 
 1285  Id.  at  18. 
 1286  Fox  Comments  at  44-  45. 
 1287  UCC  Comments  at  60. 
 1288  Id.  at  60  (citation  omitted). 
 1289  Id.  at  60-  61. 
 1290  Dual  Network  Order,  16  FCC  Rcd  at  11131    37.  Fox  argues  in  this  proceeding  that  a  top-  four  network 
 merger  would  result  in  the  same  incentives  for  the  merged  firm,  and  that  all  network  outlets,  regardless  of  ownership,  will  continue  to  pursue  the  elusive  goal  of  divining  audience  tastes.  Fox  Comments  at  45-  47. 


 1291  We  agree  with  NAB/  NASA  that  the  Viacom/  UPN  (top-  four  network/  emerging  network)  example  cannot  be 
 extrapolated  to  a  situation  in  which  a  top-  four  network  takes  over  another  one  (with  which  it  directly  competes),  because,  as  admitted  by  Viacom,  CBS  and  UPN  do  not  compete  for  the  same  viewers.  See  NAB/  NASA  Reply 


 Comments  at  59-  60.  NAB/  NASA  notes  that  in  the  2001  Dual  Network  proceeding,  Viacom  argued  that  CBS  did  not  really  compete  with  UPN.  Rather,  it  stated  that  its  principal  competition  came  from  the  broad-  based 
 traditional  networks  operated  by  ABC,  NBC,  and  increasingly  Fox.  NAB/  NASA  Comments  at  77,  citing  Viacoms  Comments  to  the  Notice  of  Proposed  Rulemaking  in  MM  Docket  No.  00-  108,  15  FCC  Rcd  11253 
 (2000)  at  22.  See  also  Fox  Comments  at  46,  where  Viacom  states  that  CBS  and  UPN  have  set  their  sights  on  entirely  different  demographics. 
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 find  in  this  proceeding  that  the  market  for  diversity  is  local,  not  national.  1292  Further,  as  noted  in  the  Policy  Goals  section  above,  we  find  that  program  diversity  is  best  achieved  by  reliance  on  competition 
 among  delivery  systems  rather  than  by  government  regulation.  1293 
 620.  We  are  unable  to  conclude  that  the  dual  network  rule  can  be  justified  on  program  diversity  or  viewpoint  diversity  grounds.  Although  we  received  conjectural  statements  regarding  the  repurposing 
 of  some  programming,  and  stories  of  news  operations  being  shared  in  a  few  markets,  these  reports  do  not  evidence  a  systematic  reduction  in  diversity  as  a  result  of  media  mergers.  The  record  provides  no 
 evidence  that,  because  some  stations  share  news  operations,  viewpoint  diversity  is  diminished.  Further,  even  if  a  merger  among  ABC,  CBS,  or  NBC  would  result  in  the  loss  of  one  weekday  evening  newscast,  a 
 substantial  number  of  outlets  that  report  national/  international  news  would  remain  to  provide  diverse  viewpoints  throughout  the  day  to  the  public.  1294  Finally,  to  the  extent  that  we  consider  programming 
 diversity  an  issue,  the  record  provides  no  evidence  that  the  repurposing  of  programming  on  different  networks  results  in  a  diminution  of  program  diversity.  In  fact,  we  found  in  the  Dual  Network  Order  that 
 the  repurposing  of  programming  between  two  merged  networks  was  likely  to  produce  net  benefits  to  viewers  of  network  television.  1295 


 3.  Conclusion 
 621.  Given  the  level  of  vertical  integration  of  each  of  the  top-  four  networks,  as  well  as  their  continued  operation  as  a  strategic  group  in  the  national  advertising  market,  a  top-  four  network  merger 


 would  give  rise  to  competitive  concerns  that  the  merged  firm  would  be  able  to  reduce  its  program  purchases  and/  or  the  price  it  pays  for  programming.  These  competitive  harms  would,  in  turn,  harm 
 viewers  through  reductions  in  program  output,  program  choices,  program  quality,  and  innovation.  We  further  conclude  that  a  top-  four  network  merger  would  harm  localism  by  providing  the  networks  with 
 undue  economic  leverage  over  their  affiliates,  reducing  the  ability  of  affiliates  to  bargain  with  their  network  for  favorable  terms  of  affiliation,  giving  the  networks  greater  power  in  program  selection,  and 
 diminishing  alternative  choices  of  programming  for  affiliates.  As  a  result,  we  conclude  that  the  dual  network  rule  remains  necessary  in  the  public  interest  to  foster  competition  and  localism. 


 VIII.  MISCELLANEOUS  REQUESTS 
 622.  Numerous  parties  submitted  comments  on  issues  not  specifically  raised  in  the  Notice.  As  discussed  below,  we  dismiss  most  of  these  requests  on  procedural  grounds  because  they  fall  outside  the 


 scope  of  this  proceeding.  We  do  not  review  the  merits  of  these  requests.  To  the  extent  appropriate,  parties  are  free  to  re-  file  these  requests  as  petitions  for  rulemakings.  We  deny  others  for  the  reasons 
 discussed  herein. 
 1292  See  Section  VII(  A),  supra. 


 1293  See  Section  III(  A)(  2),    37,  supra. 
 1294  These  outlets  include  cable  news  networks,  daily  and  weekly  newspapers,  magazines,  and  the  numerous 
 news-  related  websites  on  the  Internet.  See  Appendix  B,  listing  all  national  news  sources.  In  any  event,  we  question  the  assumption  that  a  merger  among  ABC,  CBS,  or  NBC  would  result  in  the  elimination  of  a  news 


 department,  particularly  considering  that  each  network  currently  attracts  a  substantial  number  of  viewers  to  its  weekday  evening  newscast. 


 1295  See  Dual  Network  Order,  16  FCC  Rcd  at  11124-  25    24. 
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 A.  Requests  That  Are  Outside  the  Scope  of  the  Proceeding 
 1.  Proposed  Behavioral  Rules. 
 623.  Several  parties  ask  that  we  impose  behavioral  rules  to  achieve  a  number  of  alleged  public  interest  goals.  We  invited  comment  in  the  Notice  as  to  whether  behavioral  rules  might  render  structural 


 rules  unnecessary  to  achieve  our  public  interest  goals  of  diversity,  competition,  and  localism.  1296  The  following  proposals,  however,  relate  to  policy  goals  that  are  unrelated  to  those  served  by  our  structural 
 rules  and  are  therefore  outside  the  scope  of  the  Notice. 
 624.  TV  Viewing.  TV  Turnoff  Network  requests  that  we  require  all  broadcast  stations  to  run  announcements  reminding  the  viewing  public  that:  (1)  excessive  television  viewing  has  negative  health, 


 academic,  and  other  consequences  for  children;  and  (2)  parents  and  guardians  retain  and  should  exercise  their  First  Amendment  right  and  ability  to  turn  off  their  television  sets  and  limit  their  children's  viewing 
 time.  1297  We  dismiss  this  request  because  it  is  outside  the  scope  of  this  proceeding,  which  reviews  our  structural  broadcast  ownership  rules  pursuant  to  Section  202(  h).  Indeed,  the  goals  sought  to  be  advanced 
 by  the  proposal  bear  no  relation  to  diversity,  competition,  or  localism. 
 625.  PEG.  Alliance  requests  that  we  promulgate  behavioral  regulations  that  guarantee  public,  educational,  and  governmental  (  PEG)  access  on  cable  and  direct  broadcast  satellite  (  DBS)  to  ensure 


 diversity  of  voices.  Alliance  argues  that  such  federal  regulations  are  necessary  because  PEG  access  is  not  mandated  by  federal  legislation,  but  rather  derives  from  a  statute  that  allows  local  communities  to  regulate 
 it.  1298  We  dismiss  Alliances  request  as  outside  the  scope  of  this  proceeding  and  our  authority,  generally.  The  Commission  once  had  access  requirements  of  the  type  suggested  by  Alliance,  but  the  Supreme  Court 
 struck  them  down  as  beyond  our  statutory  authority.  1299  Section  611  of  the  Act,  as  amended  by  the  Cable  Communications  Policy  Act  of  1984,  states  that  franchising  authorities  may  require  operators  to  designate 
 channel  capacity  for  public,  educational  and  governmental  access  use  as  part  of  their  franchise  agreement.  1300  Congress  did  not  authorize  the  Commission,  however,  to  implement,  enforce,  or  oversee 
 the  broad  local  access  requirements  advocated  by  Alliance.  1301  We  note,  however,  that  noncommercial  educational  television  stations  may  request  mandatory  carriage  on  cable  systems  1302  and  also  have  satellite 
 carriage  rights  in  markets  where  DBS  provides  local-  into-  local  service  pursuant  to  the  carry-  one-  carry- 


 1296  Notice,  17  FCC  Rcd  at  18520,  18521    49. 
 1297  TV-  Turnoff  Comments  at  1-  8. 
 1298  Alliance  Comments  at  4-  6.  47  U.  S.  C.    542(  c)(  2). 
 1299  See  FCC  v.  Midwest  Video  Corp.,  440  U.  S.  689  (1979)  (authority  to  compel  cable  operators  to  provide 
 common  carriage  of  public-  originated  transmissions  must  come  specifically  from  Congress).  Id.  at  708. 
 1300  47  U.  S.  C.    531. 


 1301  Although  DBS  is  required  to  set  aside  4%  of  capacity  for  public  interest  (  non-  commercial,  educational,  and 
 informational)  programming  pursuant  to  Section  335  of  the  Act,  we  do  not  have  authority  to  adopt  the  broader  rights  advocated.  47  U.  S.  C.    335(  b)  and  47  C.  F.  R.  25.701. 


 1302  47  U.  S.  C.    535. 
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 all  requirements  under  Section  338  of  the  Act.  1303 
 626.  Payola.  Future  of  Music  Coalition  alleges  that  a  new  form  of  payola  exists  in  which  record  companies  pay  independent  promoters  to  ensure  that  the  companies'  records  are  played  on  the 


 radio.  The  independent  promoters,  Future  of  Music  Coalition  alleges,  then  establish  exclusive  relationships  with  radio  stations  and  pay  these  radio  stations  a  large  portion  of  the  money  received  from 
 the  record  companies  in  the  form  of  promotional  expenses.  Future  of  Music  Coalition  asks  that  we  ban  this  practice,  thereby  promoting  diversity  in  radio  programming.  1304  We  dismiss  Future  of  Music 
 Coalitions  request  because  it  is  outside  the  scope  of  the  Notice  and  this  proceeding. 
 2.  Ownership  Issues  Outside  the  Scope  of  the  Proceeding. 
 627.  Some  parties  request  action  regarding  ownership  or  attribution  issues  that  were  not  raised  in  the  Notice  and  that  are  therefore  outside  the  scope  of  the  proceeding.  1305  We  dismiss  these  requests. 


 628.  Alien  Ownership.  CanWest  suggests  that  our  biennial  review  of  media  ownership  rules  and  the  multilateral  trade  in  services  negotiations  underway  in  the  World  Trade  Organization  provide  a 
 timely  occasion  to  review  foreign  ownership  rules  for  broadcasting.  1306  We  decline  to  undertake  such  a  review  because  it  would  be  outside  the  scope  of  this  proceeding.  Moreover,  to  the  extent  that  our  foreign 
 ownership  regulations  are  statutorily  based,  1307  we  do  not  have  the  discretion  to  modify  or  repeal  them  in  the  biennial  review  process,  pursuant  to  Section  202(  h). 


 629.  Attribution.  MMTC  asks  us  to  expand  this  proceeding  to  include  review  of  the  attribution  rules.  1308  We  deny  this  request  because,  as  we  stated  in  the  Notice,  the  attribution  limits  are  not  properly 
 reviewed  in  the  biennial  review  process,  1309  except  for  review  of  radio  joint  sales  agreements  (  JSAs), 


 1303  47  U.  S.  C.    338. 
 1304  Future  of  Music  Coalition  Comments  at  91-  92. 
 1305  We  decline  to  engage  in  a  far  reaching  inquiry  into  possible  harms  in  markets  that  are  outside  the 
 Commissions  jurisdiction  or  outside  the  scope  of  this  proceeding.  See,  e.  g.,  Jennifer  Poole  Comments  at  1-  2  (arguing  that  consolidation  will  lead  to  a  loss  of  pay  and  benefits  for  editorial  writers). 


 1306  CanWest  Comments  at  8-  10. 
 1307  47  U.  S.  C.    310. 
 1308  MMTC  Dec.  9,  2002  Comments  at  4. 
 1309  The  attribution  rules  do  not  themselves  prohibit  or  restrict  ownership  of  interests  in  any  entity,  but  rather 
 determine  what  interests  are  cognizable  under  the  ownership  rules.  The  focus  of  the  biennial  review  process  is  whether  the  ownership  rules  are  necessary  in  the  public  interest  as  a  result  of  competition.  The  attribution  limits 


 are  set  at  the  level  the  Commission  believes  conveys  influence  or  control  and,  as  these  limits  are  not  related  to  any  changes  in  competitive  forces,  they  are  not  reviewed  biennially.  Notice  at  n.  13.  See  1998  Biennial  NOI,  13  FCC 
 Rcd  at  11280    10. 
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 which  we  address  in  the  Local  Radio  Ownership  section  above.  1310 
 630.  LPFM.  REC  Networks  requests  that  we  refrain  from  changing  our  Low  Power  FM  (  LPFM)  rules  relating  to  ownership  caps  and  assignment  of  stations  because  these  rules  are  consistent 


 with  our  intentions  in  establishing  LPFM.  1311  LPFM  ownership  and  assignment  rules  are  addressed  in  Sections  73.855,  73.858,  73.860,  and  73.865  of  the  Commission's  rules,  adopted  in  2000,  1312  and  are  not 
 addressed  in  the  context  of  this  proceeding.  These  are  non-  commercial  stations  and  therefore  a  consideration  of  ownership  limits  for  these  stations  is  outside  the  scope  of  this  proceeding.  REC  also  asks 
 that  we  impose  new  ownership  restrictions  on  non-  commercial  educational  stations.  We  dismiss  that  request  as  such  limits  are  outside  the  scope  of  this  proceeding. 


 631.  Broadcast  Auction  Process.  Hodson  recommends  that  we  modify  the  new  entrant  bidding  credit  in  the  broadcast  auction  process  from  the  current  percentages  of  25  percent  and  35  percent  to  30 
 percent  and  45  percent.  Hodson  also  recommends,  in  its  proposed  30  percent  tier,  that  we  allow  an  attributable  interest  in  five  mass  media  facilities  nationwide  instead  of  the  current  three,  with  the 
 condition  that  the  winning  bidder  has  no  attributable  interest  in  a  broadcast  presence  already  in  the  market  the  proposed  broadcast  station  intends  to  serve.  Finally,  for  entities  eligible  for  Hodsons  proposed  45 
 percent  tier,  Hodson  recommends  that  we  establish  a  relaxed  payment  plan  for  the  winning  bid  balance  that  would  include  an  extended  payment  schedule.  1313  Hodson's  proposals  go  to  our  broadcast  auction 
 rules  and  process,  not  our  ownership  rules.  These  proposals  are  not  a  logical  outgrowth  of  the  Notice  and  they  are  therefore  outside  the  scope  of  this  proceeding.  1314 


 3.  Translator/  Spectrum  Issues  Outside  the  Scope. 
 632.  REC  also  makes  other  requests  involving  our  rules  applying  to  use  of  translators.  REC  claims  that  the  current  rules  allow  distant  translators  and  discourage  establishment  of  new  local  LPFM 


 stations.  1315  Nickolas  Leggett  asks  that  we  provide  alternative  opportunities  to  small  broadcasters  including:  (1)  a  frequency  band  for  manually  operated  low-  power  commercial  broadcasters;  (2)  a  citizens 


 1310  As  addressed  more  fully  in  our  Local  Radio  Ownership  section  above,  in  2001,  we  sought  comment  on 
 whether  JSAs  should  be  attributable.  See  Local  Radio  Ownership  NPRM,  16  FCC  Rcd  at  19894    82,  83.  That  NPRM  was  incorporated  into  this  proceeding. 


 1311  REC  Networks  Comments  at  2-  4. 
 1312  47  C.  F.  R.    73.855,  73.858,  73.860,  73.865.  See  Creation  of  Low  Power  Radio  Service,  15  FCC  Rcd  2205 
 (2000). 
 1313  Hodson  Reply  Comments  at  75-  81;  Hodson  IRFA  Comments,  MM  Dkt.  No.  01-  317,  MM  Dkt.  No.  00-  244, 
 Feb.  28,  2002  at  VII. 
 1314  We  addressed  the  broadcast  auction  process  in  a  prior  rulemaking  proceeding.  In  1998,  the  Commission 
 determined  that  it  would  fulfill  its  obligations  under  Section  309(  j)  of  the  Communications  Act  of  1934,  47  U.  S.  C    309(  j)(  3)(  B),  to  promote  economic  opportunity  and  competition  for  designated  entities,  including  small  businesses, 


 by  providing  new  entrant  bidding  credits.  Implementation  of  Section  309(  j)  of  the  Communications  Act  --  Competitive  Bidding  for  Commercial  Broadcast  and  Instructional  Television  Fixed  Service  Licenses,  First  Report 
 and  Order,  13  FCC  Rcd  15920,  15992-  97  (1998),  granted  in  part  and  denied  in  part,  14  FCC  Rcd  8724  (1999),  amended  by  14  FCC  Rcd  14521  (1999).  Changes  to  these  bidding  credits  would  require  a  separate  rule  making. 


 1315  REC  Networks  Comments  at  2-  4. 
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 broadcasting  band;  and  (3)  open-  microphone  neighborhood  broadcasting  supported  by  the  consolidated  broadcasters.  1316  We  deny  these  requests  that  we  change  our  translator  rules  or  afford  spectrum  to  small 
 broadcasters  because  they  are  outside  the  scope  of  the  proceeding. 
 B.  Proposals  Addressed  in  Other  Commission  Proceedings. 
 633.  Cable  Ownership.  CCC  requests  that  we  retain  our  30%  national  cable  system  ownership  limits.  1317  We  dismiss  CCCs  request  because  it  is  outside  the  scope  of  this  proceeding  and  it  relates  to  an 


 issue  that  is  the  subject  of  a  separate  rulemaking.  1318 
 634.  DTV.  USCCB  asks  us  to  promulgate  regulations  that  define  digital  television  (  DTV)  broadcasters  public  interest  obligations.  1319  We  dismiss  USCCBs  request  because  it  is  outside  the  scope 


 of  this  proceeding.  CST  requests  that  we  amend  or  eliminate  any  of  our  rules  that  hinder  the  digital  conversion  of  broadcasters,  cable  systems,  and  telephone  systems,  and  that  we  establish  regulatory 
 policies  to  encourage  the  introduction  of  digital  technologies.  1320  We  dismiss  CSTs  requests  because  they  are  outside  the  scope  of  this  proceeding.  1321  Further,  CST  proposes  that  all  broadcast  licensees  and 
 cable  systems  that  expand  their  operations  as  a  result  of  rule  relaxations  be  required  to  loan  a  percentage  of  their  expansion  revenues  to  a  Digital  Conversion  Fund.  1322  We  decline  to  adopt  CST's  proposal 
 because  there  is  no  basis  for  the  Commission  to  directly  fund  industrys  transition  to  digital  television.  When  Congress  established  the  framework  for  the  digital  television  transition  in  the  Telecommunications 
 Act  of  1996,  it  gave  no  indication  that  the  Commission  should  directly  fund  industry  transition  costs  for  digital  television.  Even  if  CST's  proposal  fell  within  Congress's  directives,  the  establishment  of  such  a 
 fund  raises  extraordinarily  complex  and  controversial  issues  such  as  the  measurement  by  the  Commission  of  'merger  efficiencies'  and  how  the  fund  would  be  administered.  CST  provides  us  with  no  meaningful 
 basis  to  assess  the  viability  or  effectiveness  of  such  a  program.  Finally,  as  explained  in  Section  VI  above,  the  Commission  already  has  considered  the  relationship  between  local  television  consolidation  and  the 


 1316  Nickolas  Leggett  Oct.  28,  2002  Comments  at  5. 
 1317  CCC  Comments  at  24. 
 1318  See  Implementation  of  Section  11  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992, 
 16  FCC  Rcd  17312  (2001). 
 1319  USCCB  Reply  Comments  at  1-  13. 


 1320  CST  Reply  Comments  at  4-  5. 
 1321  The  Commission  is  undertaking  a  second  periodic  review  of  the  progress  of  the  transition  to  DTV.  See  Second 
 Periodic  Review  of  the  Commission's  Rules  and  Policies  Affecting  the  Conversion  to  Digital  Television,  18  FCC  Rcd  1279  (2003).  This  Notice  of  Proposed  Rulemaking  seeks  additional  comment  from  the  public  to  refresh  the 


 record  in  three  outstanding  DTV  public  interest  rulemaking  proceedings:  Notice  of  Inquiry,  Public  Interest  Obligations  of  TV  Broadcast  Licensees,  14  FCC  Rcd  21633  (1999);  Notice  of  Proposed  Rule  Making,  Standardized 
 and  Enhanced  Disclosure  Requirements  for  Television  Broadcast  Licensee  Public  Interest  Obligations,  15  FCC  Rcd  19816  (2000);  and  Notice  of  Proposed  Rule  Making,  Children's  Television  Obligations  of  Digital  Television 
 Broadcasters,  15  FCC  Rcd  22946  (2000).  The  second  DTV  periodic  review  Notice  of  Proposed  Rule  Making  also  seeks  comment  on  a  large  number  of  issues  related  to  the  progress  of  the  DTV  transition  and  steps  the  Commission 
 could  take  to  facilitate  the  transition. 
 1322  CST  Reply  Comments  at  7. 
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 transition  to  digital  television.  We  determined  that  the  efficiencies  from  relaxing  the  local  television  ownership  limit  would  likely  promote  the  transition  to  digital  television. 
 C.  Requests  That  We  Delay  the  Proceeding  or  Seek  Further  Information 
 635.  Some  parties  ask  us  to  undertake  additional  studies  or  delay  taking  action  until  after  some  future  events.  1323  We  decline  to  delay  action  in  this  proceeding.  Our  statutory  obligation  is  to  review  the 


 rules  biennially;  we  have  no  discretion  to  willfully  deviate  from  that  schedule. 
 636.  IBOC-  DAB.  VCPP  requests  that  there  be  no  relaxation  on  ownership  restrictions  until  several  years  after  100%  rollout  of  In  Band  On  Channel  Digital  Audio  Broadcasting  (  IBOC-  DAB), 


 arguing  that  this  technology  will  destroy  competition.  1324  We  deny  VCPPs  request.  The  courts  require  us  to  base  our  ownership  decisions  on  today's  marketplace  and  the  facts  presently  before  us.  We  are  not 
 free  to  adopt  a  wait  and  see  approach.  1325  The  impact  of  IBOC-  DAB  on  diversity,  competition,  and  localism  in  local  media  markets  will  be  accounted  for  in  future  biennial  reviews. 


 637.  SBA  asks  us  to  issue  a  Further  Notice  of  Proposed  Rulemaking  in  this  proceeding,  claiming  the  Notice  is  not  specific  enough  to  comply  with  the  Administrative  Procedure  Act  or  the 
 Regulatory  Flexibility  Act.  1326  We  disagree  with  SBA  and  deny  its  request.  Contrary  to  the  implication  of  SBA,  the  actual  rules  at  issue  in  this  proceeding  are  specifically  identified  in  the  Notice  and  well 
 known  to  all  interested  parties    they  are  our  current  broadcast  ownership  rules.  Congress  has  directed  us  to  review  those  rules  every  two  years  to  determine  whether  those  exact  rules  remain  necessary  in  the 
 public  interest.  That  we  have  done  in  this  proceeding  in  accordance  with  the  Notice.  Further,  Congress  directed  the  Commission  to  eliminate  or  modify  any  of  its  broadcast  ownership  rules  that  no  longer  are 
 necessary.  Again,  it  was  explicit  in  the  Notice  that  we  might  eliminate  any  rule  that  could  not  be  justified  in  light  of  the  current  media  marketplace.  To  the  extent  that  we  have  eliminated  rules  herein,  therefore, 
 there  has  been  no  failure  of  notice.  With  respect  to  those  rules  that,  having  been  found  unnecessary,  have  been  modified  herein,  the  question  is  the  familiar  one    were  the  modifications  a  logical  outgrowth  of 
 the  issues  identified  in  the  Notice.  We  conclude  that  this  Order  and  its  accompanying  rules  are  a  logical 


 1323  MMTC  filed  a  motion  requesting  that  we  postpone  our  vote  on  this  Order.  MMTC  argues  that  because  our 
 Electronic  Comment  Filing  System  (  ECFS)  was  overloaded  with  filings  immediately  prior  to  our  June  2,  2003  vote,  the  record  does  not  accurately  reflect  all  comments  received  in  this  proceeding  and,  therefore,  parties  are 


 unable  to  respond  to  the  complete  record.  MMTC  Motion  for  a  Brief  Postponement  of  the  Vote  (May  31,  2003).  We  deny  the  motion.  The  Reply  Comment  period  closed  Feb.  3,  2003,  more  than  four  months  ago. 
 Nonetheless,  in  the  interests  of  assembling  a  full  record,  the  Commission  has  continued  to  accept  comments,  and  more  than  500,000  comments  were  filed  in  this  proceeding,  many  of  which  were  filed  at  the  last  minute. 
 Given  the  large  volume  of  last  minute  filings,  it  is  inevitable  that  a  small  percentage  would  not  be  placed  on  our  ECFS  system  or  be  available  in  the  public  reference  room  in  sufficient  time  for  replies.  Nonetheless,  the  record  is 
 complete,  and  MMTC's  failure  to  file  its  comments  or  requests  in  a  timely  fashion  is  no  excuse  to  delay  the  proceeding.  Nickolas  Leggett  asks  us  to  engage  in  detailed  political  science  analysis  of  the  impact  of  removal  of 
 ownership  caps  on  the  legitimacy  of  government  and  business.  Nickolas  Leggett  Nov.  15,  2002  Comments  at  4.  We  deny  this  request  because  it  is  unclear. 


 1324  VCPP  Comments  at  1-  2. 
 1325  Fox  Television,  280  F.  3d  at  1042. 
 1326  SBA  March  13,  2002  Comments  at  2-  5;  SBA  April  9,  2003  Comments  at  3-  5. 
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 outgrowth  of  the  questions  posed  in  the  Notice.  The  modifications  made  herein  are  consistent  with  the  issues  and  questions  posed  in  the  Notice,  and  take  account  of  the  full  record  in  this  proceeding.  Finally, 
 we  take  seriously  the  mandate  of  Section  202(  h)  to  review  our  broadcast  ownership  rules  every  two  years.  It  would  be  impractical  to  complete  such  a  Herculean  task,  in  this  case,  to  review  six  different  rules,  and 
 to  complete  that  review  in  time  to  start  another  review,  if  we  issued  a  separate  notice  detailing  modifications  to  rules  and  initiated  another  comment  period. 


 638.  Children  Now  asks  that  we  reserve  our  decision-  making  on  media  ownership  until  its  research  on  the  effects  of  media  consolidation  on  children  is  complete  and  can  be  incorporated  into  our 
 record.  1327  Laura  Smith  requests  that  we  expand  the  scope  of  our  public  hearings  on  media  ownership  and  that  we  conduct  additional  research  before  concluding  this  proceeding.  1328  We  decline  to  further  delay 
 this  proceeding.  The  public,  industry,  and  government  agencies  alike  have  an  interest  in  finality,  economy,  and  the  avoidance  of  unnecessary  delay.  The  public  is  not  served  by  bureaucratic  inaction; 
 industries  suffer  when  rules  that  restrain  behavior  without  cause  continue  in  force;  and  agencies  fail  in  their  responsibility  when  they  commit  public  resources  to  meaningless  exercises  of  no  decisional 
 significance.  As  a  corollary,  agencies  should  not  refrain  from  acting  on  an  issue  once  a  robust  record  has  been  developed.  It  is  the  agencys  responsibility,  in  the  first  instance,  to  determine  when  that  point  has 
 been  reached.  1329 
 639.  In  this  case,  we  see  no  overriding  need  to  augment  the  record,  nor  do  we  believe  that  the  expenditure  of  additional  time  and  resources  in  an  effort  to  do  so  will  provide  us  with  a  significantly  more 


 accurate  or  current  assessment  of  the  media  markets.  To  the  contrary,  the  record  in  the  current  proceeding  is  one  of  the  most  factually  complete  and  thorough  ever  assembled  in  a  Commission  rulemaking.  In 
 addition,  the  court  in  Fox  Television  made  it  quite  clear  that  regulatory  delay  in  the  biennial  ownership  review  process  is  causing  hardship  to  the  parties  and  should  not  be  tolerated.  1330  Accordingly,  we  deny 
 the  requests  of  Children  Now  and  Laura  Smith.  1331 
 D.  Independent  Producers. 
 640.  Independent  Production  Rules.  The  Coalition  for  Program  Diversity  (  CPD)  asks  us  to  take  content  neutral  action  by  adopting  a  25%  Independent  Producer  Rule  that  will  insure  [sic]  that  the 


 1327  Children  Now  Comments  at  1-  2.  Also,  on  May  21,  2003,  Children  Now  issued  a  study  finding  that,  in  the  Los 
 Angeles,  California  DMA,  the  number  of  hours  of  childrens  programming  aired  by  television  broadcast  stations  decreased  by  more  than  50%  between  1998  and  2003,  and  that  the  largest  decreases  in  programming  hours  occurred 


 at  commonly  owned  stations.  See  Section  VI  supra  for  a  discussion.  Children  Now  Report  2,  5-  6,  9. 
 1328  Laura  Smith  Reply  Comments  at  27-  33. 


 1329  United  States  v.  FCC,  652  F.  2d  72,  90-  91  (D.  C.  Cir.  1980)  (en  banc)  (  Someone  must  decide  when  enough 
 data  is  enough.  In  the  first  instance  that  decision  must  be  made  by  the  Commission  .  .  .  .  To  allow  others  to  force  the  Commission  to  conduct  further  evidentiary  inquiry  would  be  to  arm  interested  parties  with  a  potent  instrument 


 for  delay.). 
 1330  Fox  Television,  280  F.  3d  at  1039  (  retention  of  the  Rules  in  the  interim  significantly  harms  both  the  networks 
 and  Time  Warner). 
 1331  We  address  other  requests  of  Children  Now  supra. 
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 prime  time  programming  aired  by  the  four  networks  is  as  diverse  as  possible.  1332  In  a  similar  vein,  the  Writers  Guild  of  America  (  WGA)  proposes  a  requirement  that  broadcast  and  cable  national  program 
 services  purchase  at  least  50  percent  of  the  entertainment  for  their  prime  time  schedules  from  independent  producers.  1333  In  essence,  CPD  and  WGA  ask  us  to  re-  impose  some  version  of  our  prior  financial 
 interest/  syndication  rules,  first  adopted  by  the  Commission  in  1970.  1334  We  reject  these  requests  (collectively,  the  Fin/  Syn  Proposals). 


 641.  To  begin  with,  there  is  substantial  doubt  as  to  whether  we  have  adequate  notice  to  adopt  the  Fin/  Syn  Proposals.  In  the  Notice,  we  invited  comment  on,  among  other  issues,  whether  diversity  could  be 
 better  promoted  by  alternatives  to  structural  regulation,  such  as  behavioral  requirements  and,  if  so,  what  behavioral  requirements  would  be  recommended.  1335  The  Commission  also  sought  comment  on  whether 
 the  effects  of  the  1996  change  in  the  national  ownership  cap  [can]  be  separated  from  the  effects  of  the  repeal  of  the  fin/  syn  and  [prime  time  access]  rules?  The  Commission  asked  commenters  to  identify 
 those  effects.  1336 
 642.  Although  we  invited  comment  as  to  whether  we  should,  in  lieu  of  structural  rules,  adopt  behavioral  rules  to  serve  our  public  interest  goals,  we  did  not  propose  a  re-  imposition  of  the  fin/  syn  rules, 


 or  anything  related.  The  Fin/  Syn  Proposals,  therefore,  are  not  squarely  within  the  four  corners  of  our  Notice.  Moreover,  to  the  extent  that  we  asked  general  questions  about  the  effect  of  the  repeal  of  our 
 former  fin/  syn  rules,  or  whether  some  behavioral  rules  might  obviate  structural  regulation,  we  did  not  intend,  nor  do  we  think  the  Notice  can  be  fairly  read  to  suggest,  that  a  fin/  syn  overlay  would  or  could 
 substitute  for  structural  regulation  as  a  means  of  protecting  our  desiderata  --  localism,  competition,  and  diversity.  Accordingly,  we  do  not  believe  that  the  Fin/  Syn  Proposals  are  responsive  to  the  Notice,  or  that 
 the  adoption  of  such  rules  could  be  thought  to  be  a  logical  outgrowth  of  the  Notice. 
 643.  In  any  event,  we  are  not  inclined  to  adopt  the  Fyn/  Syn  Proposals.  The  original  fin/  syn  rules  prohibited  a  television  network  (defined  at  the  time  to  include  only  ABC,  NBC,  and  CBS)  from 


 syndicating  television  programming  in  the  U.  S.,  or  from  syndicating  outside  the  U.  S.  programming  for  which  it  was  not  the  sole  producer,  or  from  having  any  option  or  right  to  share  in  the  revenues  from 
 domestic  or  foreign  syndication.  These  rules  also  prohibited  a  network  from  acquiring  any  financial  or  proprietary  right  or  interest  in  the  exhibition,  distribution,  or  other  commercial  use  of  television 
 programming  produced  by  someone  other  than  the  network  for  distribution  on  non-  network  stations.  1337  In  1983,  the  Commission  proposed  repealing  the  rules  based  on,  inter  alia:  (i)  a  44%  increase  in  the 
 number  of  TV  stations  available  to  the  average  viewer  since  1970;  (ii)  the  dramatic  increase  in  the  availability  of  cable  television;  and  (iii)  evidence  of  vigorous  competition  among  the  television 


 1332  CPD  Comments  at  i,  8-  10,  34-  37;  Reply  Comments  of  CPD  at  9;  see  also  Malla  Pollack  Comments  at  2. 
 1333  Joint  Comments  of  Writers  Guild  of  America,  et  al.,  at  3. 
 1334  Ex  Parte  Filing  of  ABC,  Disney,  FOX,  NBC,  Viacom  (Apr.  29,  2003)  at  1  (referencing  Amendment  of  Part  73 
 of  the  Commissions  Rules  and  Regulations  with  Respect  to  Competition  and  Responsibility  in  Network  Television  Broadcasting,  23  F.  C.  C.  2d  382  (1970)). 


 1335  Notice,  17  FCC  Rcd  at  18520-  21    49. 
 1336  Id.    141. 
 1337  Schurz  Communications,  Inc,  982  F.  2d  at  1045. 
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 networks.  1338 
 644.  In  1991,  however,  the  Commission  opted  not  to  repeal  the  rules,  but  instead  modified  them.  Among  other  things,  the  Commission  imposed  a  new  restriction  on  networks,  which  provided  that  no 


 more  than  40  percent  of  a  networks  own  prime-  time  entertainment  schedule  may  consist  of  programs  produced  by  the  network  itself.  1339  In  1992,  the  U.  S.  Court  of  Appeals  for  the  Seventh  Circuit  vacated 
 the  rules.  1340  The  Court  criticized  the  Commission  for  not  addressing  earlier  Commission  findings,  in  1983,  that  the  networks  lacked  significant  market  power.  The  Court  found  that  the  development  of  cable, 
 video  recorders,  and  the  advent  of  the  Fox  network  buttressed  the  earlier  findings.  1341 
 645.  In  the  proceedings  on  remand,  the  Commission  decided  to  repeal,  on  a  graduated  basis,  most  of  its  fin/  syn  rules.  1342  In  repealing  the  40  percent  cap,  the  Commission  observed  that  the  cap  does  not 


 necessarily  foster  diversity.  1343  The  Commission  also  noted  that  the  decline  in  network  audience  share,  which  largely  explained  the  rules  relaxation  in  1991,  has  continued  unabated.  1344  On  appeal,  the 
 Seventh  Circuit  affirmed  that  decision,  stating  that  if  the  Commission  ever  decided  to  re-  impose  similar  fin/  syn  restrictions  on  the  networks,  it  had  better  have  an  excellent,  a  compelling  reason  to  do  so.  1345 


 646.  In  1995,  the  Commission  removed  the  remaining  fin/  syn  restrictions,  finding  that  there  was  no  clear  trend  toward  increased  network  ownership  of  [prime  time  entertainment  programming]  that  is 
 attributable  to  the  relaxation  of  our  fin/  syn  rules  or  that  constitutes  a  cause  for  concern  from  a  public  interest  standpoint.  1346  At  the  time,  independent  producers  provided  80.97%  of  the  prime  time 
 programming  hours  for  ABC,  CBS  and  NBC.  1347  Although  there  had  been  a  decline  in  the  number  of  packagers  of  programming  included  in  the  prime  time  schedules  for  ABC,  CBS  and  NBC,  the 
 Commission  believed  that  the  decline  could  not  be  attributed  to  elimination  of  the  fin/  syn  rules,  but  was  instead  attributable  to  the  inherent  riskiness  of  prime  time  programming.  1348  Moreover,  ABC,  CBS,  and 
 NBC  faced  more,  rather  than  less,  competition  in  broadcast  television  due  to  the  emergence  of  FOX  and  two  additional  broadcast  networks  (United  Paramount  and  Warner  Brothers).  1349  The  Commission  also 


 1338  Amendment  of  the  Syndication  and  Financial  Interest  Rules,  94  F.  C.  C.  2d  1019,  1057-  63  (1983). 
 1339  Schurz  Communications,  982  F.  2d  at  1046. 
 1340  Id.  at  1055. 
 1341  Id.  at  1046,  1053. 
 1342  Evaluation  of  the  Syndication  and  Financial  Interest  Rules,  8  FCC  Rcd  3282  (1993). 
 1343  Id.  at  3299    38. 
 1344  Id.  at  3303    44. 
 1345  Capital  Cities/  ABC,  Inc.  v.  FCC,  29  F.  3d  309,  316  (7  th  Cir.  1994). 
 1346  Review  of  the  Syndication  and  Financial  Interest  Rules,  10  FCC  Rcd  12165    21  (1995). 
 1347  Id. 
 1348  Id.  at  12169    20. 
 1349  Id.  at  12170    26. 
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 reaffirmed  its  finding  in  1993  that  alternative  video  delivery  systems,  such  as  DBS  and  wireless  cable,  provided  sufficient  competition  to  the  broadcast  networks  to  obviate  fin/  syn  restrictions.  1350 
 647.  CPD  now  argues  that,  despite  the  growth  of  cable  and  DBS  providers  in  the  video  programming  distribution  market,  there  still  is  a  strong  public  interest  supporting  limitations  on  network 
 programming  because  43  million  consumers  receive  only  broadcast  network  television.  1351  CPD  also  points  out  that  in  1992,  66.4  percent  of  the  networks  prime  time  schedule  consisted  of  programs 
 produced  and  owned  by  independent  producers.  Today,  they  argue,  only  24  percent  of  the  four  largest  networks  prime  time  schedule  is  supplied  by  independent  producers.  1352  CPD  argues  that  the 
 Commission  should  preserve  25  percent  of  the  networks  prime  time  schedule  for  independent  producers. 
 648.  WGA  asks  that  the  Commission  adopt  measures  designed  to  insure  [sic]  that  national  program  services  on  broadcast  and  cable  television  purchase  at  least  50%  of  their  prime  time 


 programming  from  independent  producers.  1353  WGA  contends  that  consolidation  in  the  market  for  video  programming  makes  any  appearance  of  diversity  a  mirage.  Although  there  are  230  national  cable 
 programming  networks,  according  to  WGA,  there  are  just  91  networks  that  can  be  considered  major  networks  (defined  by  WGA  as  available  in  more  than  16  million  homes).  Of  these  91  networks,  80 
 percent  (73)  are  owned  or  co-  owned  by  6  entities:  AOL  Time  Warner,  Viacom,  Liberty  Media,  NBC,  Disney  and  News  Corporation.  1354 


 649.  Four  major  networks  (ABC,  CBS,  FOX,  and  NBC,  collectively  the  Networks)  filed  a  joint  ex  parte  pleading  opposing  any  cap  on  the  amount  of  network  programming  a  network  may  air  during 
 prime  time.  The  Networks  invoke  much  of  the  rationale  that  the  Seventh  Circuit  used  when  it  vacated  the  Commissions  prior  fin/  syn  rules.  1355  To  those  arguments,  the  Networks  add  that  the  broadcast  networks 
 prime  time  audience  share  has  dropped  from  72  percent  in  1993-  1994  to  58.9  in  2001-  2002.  1356  The  Networks  assert  that  CPDs  argument  ignores  the  fact  that,  whereas  there  were  only  three  broadcast 
 networks  in  1970  when  the  Commission  first  adopted  the  fin/  syn  rules,  there  are  now  seven  networks  providing  English  language  programming.  1357  The  Networks  also  argue  that  the  growth  in  use  of  the 
 DVD  player,  personal  video  recorder,  and  the  Internet  continues  to  add  to  the  diversity  in  video  programming  and  continues  to  undermine  any  rationale  for  fin/  syn  rules.  1358  Even  accepting  WGAs 
 assertion  that  six  companies  own  many  of  the  major  cable  networks,  the  Networks  argue  that  the  market  for  video  programming  is  more  diverse  today  because  six  is  double  the  number  of  companies  that  owned 


 1350  Id.  at  12171    27. 
 1351  CPD  Reply  Comments  at  2. 
 1352  Id.  at  4. 
 1353  WGA  Comments  at  3. 
 1354  Id.  at  10. 
 1355  ABC,  NBC,  Disney,  Fox  and  Viacom  Apr.  29,  2003  Ex  Parte  at  2-  3. 
 1356  Id.  at  2-  5. 
 1357  Id.  at  2-  8. 
 1358  Id.  at  2-  7. 
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 broadcast  networks  when  the  fin/  syn  rules  were  adopted.  1359 
 650.  Although  CPD  and  WGA  appear  to  be  correct  that  fewer  of  the  programs  in  the  Networks  prime-  time  lineup  are  produced  by  independent  producers  than  at  times  in  the  past,  the  evidence  in  the 


 record  does  not  address  whether  the  decline  in  the  number  of  independently-  produced  programs  is  attributable  to  changes  in  the  regulatory  environment  (i.  e.,  the  elimination  of  the  fin/  syn  rules)  or  to  other 
 changes  that  have  taken  place  in  the  media  business  in  the  intervening  years  that  have  increased  the  risk  of  producing  prime  time  programming.  1360 


 651.  Moreover,  the  reduction  in  independently  produced  prime  time  programming  on  a  small  subset  of  television  networks  is  not,  by  itself,  a  public  interest  harm.  Our  concern  is  to  promote  the 
 interests  of  consumers  and  viewers,  not  to  protect  the  financial  interests  of  independent  producers.  The  record  does  not  demonstrate  that  consumers  and  viewers  are  harmed  as  a  result  of  network  financial 
 interests  in  the  programming  they  carry,  particularly  in  light  of  the  quantity  and  variety  of  media  outlets  for  programming  in  today's  media  marketplace. 


 652.  In  particular,  the  record  does  not  convince  us  that  an  access  rule  for  independent  producers  will  advance  viewpoint  diversity.  CPDs  argument,  for  example,  is  premised  on  the  notion  that 
 the  Networks  are  gatekeepers;  1361  if  they  are  not,  there  are  other  outlets  for  independently-  produced  fare  and  no  basis  to  impose  fin/  syn  restrictions.  To  the  extent  that  the  Networks  actually  are  gatekeepers, 
 however,  fin/  syn  rules  cannot  logically  advance  viewpoint  diversity  because  the  Networks,  as  gatekeepers,  can  filter  messages  at  the  distribution  stage  just  as  they  can  at  the  production  stage. 
 Adopting  the  Fin/  Syn  Proposals,  therefore,  is  not  likely  to  promote  viewpoint  diversity. 
 653.  Even  if  we  were  to  adopt  a  broader  definition  of  diversity  to  include  general  entertainment  programming,  1362  a  gatekeeper  at  distribution  still  may  filter  unwanted  programming  whether  or  not  the 


 programming  is  produced  in-  house.  For  example,  if  a  network  were  to  decide  that  its  prime  time  lineup  should  consist  only  of  reality  programming,  or  that  it  should  target  a  particular  audience  demographic, 
 there  is  no  reason  to  believe  that  it  could  not  give  effect  to  those  plans  with  independently-  produced  programming  as  easily  as  it  could  with  programming  produced  by  itself  or  an  affiliated  company    it 
 simply  would  make  known  its  programming  intent  and  allow  independent  producers  to  fill  the  void.  The  Fin/  Syn  Proposals,  therefore,  cannot  be  justified  on  grounds  of  programming  diversity. 


 1359  Id. 
 1360  Whatever  the  pros  and  cons  of  the  original  financial  interest  and  syndication  rules,  in  the  years  since  they 
 were  promulgated  the  structure  of  the  television  industry  has  changed  profoundly.  Schurz  Communications,  982  F.  2d  at  1046.  The  Commission  previously  has  questioned  whether  changes  in  the  mix  of  programming  on  the 


 prime  time  lineup  can  be  attributed  to  regulatory  changes  or  to  business  considerations.  See  Review  of  the  Syndication  and  Financial  Interest  Rules,  10  FCC  Rcd  12165    20  (1995). 


 1361  Ex  Parte  Filing  of  CPD  (May  15,  2003)  at  2. 
 1362  Although  CPD  premised  its  proposal  on  the  goals  of  promoting  both  source  diversity  and  program  diversity, 
 its  main  arguments  appear  to  be  premised  on  a  program  diversity  rationale.  See,  e.  g.,  CPD  Reply  Comments  at  20  (arguing  that  its  proposal  would  substantially  increase  the  possibility  that  more  diverse  genres  of  programming 


 will  emerge).  As  discussed  above,  our  core  interest  in  this  proceeding  is  in  protecting  viewpoint  diversity;  we  generally  rely  upon  market  forces  to  deliver  programming  that  will  appeal  to  viewers. 
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 654.  Both  CPD  and  WGA  also  fail  to  justify  their  definitions  of  the  relevant  market  for  purposes  of  their  proposals.  CPD,  for  example,  has  targeted  its  proposal  only  at  the  four  major  broadcast  networks, 
 and  only  at  their  prime  time  schedule.  However,  aside  from  conclusory  allegations  that  the  prime  time  television  programming  marketplace  is  a  narrow,  unique  market,  1363  CPD  has  provided  no  reason  to 
 exclude  other  video  programming  outlets  and  other  day-  times,  were  we  inclined  to  adopt  a  fin/  syn-  like  rule.  Viewers  today  have  more  programming  choices  available  to  them  over-  the-  air,  through  cable, 
 satellite,  or  home  video,  than  ever  before.  1364  Indeed,  WGA  considers  a  much  larger  market  for  these  purposes  (although  it,  too,  provides  little  in  the  way  of  support  for  its  market  definition),  and  other 
 commenters  have  suggested  that  non-  prime  time  broadcast  hours  should  be  included  in  any  analysis  relating  to  programming  diversity.  1365  Lacking  the  foundation  of  a  sustainable  market  definition,  the 
 Fin/  Syn  Proposals  cannot  stand.  1366 
 655.  Finally,  to  the  extent  that  the  Fin/  Syn  Proposals  are  based  on  an  assertion  that  the  quality  of  independently-  produced  entertainment  programming  is  superior  to  that  of  the  Networks,  1367  we  find  the 


 record  devoid  of  evidence  to  that  effect.  1368  We  have  no  means  or  methodology  to  measure  the  quality  of  entertainment  programming,  and  were  we  to  favor  one  type  or  genre  of  programming  over  another,  we 
 would  run  squarely  into  the  teeth  of  the  First  Amendment.  1369  It  is  up  to  consumers  and  viewers  to  determine  what  programming  they  want  to  watch,  and  networks,  as  they  compete  for  viewers,  must  be 
 responsive  to  those  demands.  It  is  not  for  this  agency  to  intervene  in  the  decisions  that  determine  the  content  of  programming  (absent  obscenity  or  indecency  concerns). 


 656.  When  the  Seventh  Circuit  affirmed  the  Commissions  decision  repealing  all  of  the  fin/  syn  rules,  it  questioned  whether  the  rules  ever  had  much  basis  and  cautioned  that,  if  the  Commission  ever 
 decided  to  re-  impose  similar  restrictions,  it  had  better  have  an  excellent,  a  compelling  reason  to  do  so.  1370  None  appears  on  this  record.  Accordingly,  we  reject  the  Fin/  Syn  Proposals.  1371 


 1363  CPD  Comments  at  3-  4. 
 1364  See  Joint  Comments,  Bruce  M.  Owen  and  Michael  G.  Baumann,  Economic  Study  E,  Concentration  Among 
 National  Purchasers  of  Video  Entertainment  Programming,  at  2. 
 1365  NASA  Comments  at  63-  64  (arguing  that  the  35%  national  cap  should  be  retained  to  promote  programming 
 diversity  during  non-  prime  time). 
 1366  See  Review  of  the  Syndication  and  Financial  Interest  Rules,  10  FCC  Rcd  at  12171    27  (concluding  that  the 
 fin/  syn  rules  focused  too  narrowly  on  the  broadcast  networks  to  the  exclusion  of  other  distribution  channels). 
 1367  E.  g.,  CPD  Reply  Comments  at  i,  6,  13;  WGA  Comments  at  10. 


 1368  Cf.  MOWG  Study  No.  5,  Program  Diversity  and  the  Program  Selection  Process  on  Broadcast  Network 
 Television  by  Mara  Einstein  (Sept.  2002). 
 1369  To  be  considered  content-  neutral,  regulations  must  have  neutral  means  and  ends.  See  News  America 
 Publishing,  Inc.  v.  FCC,  844  F.  2d  800  (D.  C.  Cir.  1988)  (strict  scrutiny  applied  to  structural  regulations  that  had  a  direct  effect  on  content  and  viewpoint);  Lutheran  Church-  Missouri  Synod  v.  FCC,  141  F.  3d  344,  354  (D.  C.  Cir. 


 1998)  (invalidating  EEO  regulations  under  strict  scrutiny  to  the  extent  that  they  would  implicate  programming  content). 


 1370  Capital  Cities/  ABC,  Inc.  v.  FCC,  29  F.  3d  309,  316  (7  th  Cir.  1994). 
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 IX.  NOTICE  OF  PROPOSED  RULEMAKING 
 657.  In  the  Local  Radio  Section  of  this  Order,  we  replaced  our  current  contour-  overlap  methodology  for  defining  radio  markets  with  a  geography-  based  market  definition.  For  areas  of  the 


 country  covered  by  Arbitron  Metro  markets,  we  adopted  the  Metro  market  as  the  relevant  radio  market  for  purposes  of  determining  compliance  with  the  local  radio  ownership  rule.  A  significant  portion  of  the 
 country,  however,  is  not  covered  by  Metro  markets.  We  initiate  this  rulemaking  proceeding  to  define  radio  markets  for  those  areas. 


 658.  We  seek  comment  on  how  to  draw  specific  market  boundaries  in  areas  of  the  country  not  located  in  Arbitron  Metros.  What  factors  should  we  consider  in  grouping  radio  stations  into  markets? 
 We  propose  that  radio  markets  be  county-  based,  as  Arbitron  Metros  are.  We  seek  comment  on  that  proposal.  In  the  western  United  States,  counties  are  significantly  larger.  We  seek  comment  on  whether 
 we  should,  like  Arbitron,  divide  counties  into  separate  radio  markets  in  certain  circumstances.  We  also  propose  that  radio  stations  be  assigned  to  radio  markets  based  on  the  location  of  their  communities  of 
 license.  We  seek  comment  on  this  proposal. 
 659.  We  seek  comment  on  whether  we  should  rely  on  any  pre-  existing  market  definitions  in  delineating  radio  markets  for  non-  Metro  areas.  As  indicated  in  the  Local  Radio  Section,  Arbitron 


 traditionally  has  based  its  Metro  definitions  on  the  Metropolitan  Area  (MA)  definitions  developed  by  OMB.  Should  we  also  do  the  same  for  non-  Metro  areas?  OMB  recently  released  new  MA  definitions 
 based  on  the  results  of  the  2000  Census.  1372  The  935  new  MAs,  moreover,  cover  a  greater  portion  of  the  country.  Previously,  MAs  were  defined  only  for  urban  areas  with  a  population  of  50,000.  1373  The  new 
 MA  definitions  cover  areas  with  a  population  of  10,000  to  50,000  (known  as  Micropolitan  Statistical  Areas),  which  should  greatly  increase  the  number  of  radio  stations  located  in  MAs.  1374  If  we  rely  on 
 MAs,  how  should  we  address  future  changes  to  MA  definitions,  and  the  creation  of  a  new,  or  the  deletion  of  an  existing,  MA?  1375  In  addition,  even  with  the  expanded  reach  of  the  new  MAs,  there  will  be  areas 
 that  they  do  not  cover.  How  should  the  radio  market  be  defined  in  those  areas  if  MAs  are  used?  One  possible  method  is  to  establish  geographic  markets  based  on  the  location,  distribution,  and  density  of 
 populated  areas.  1376  Because  population  clusters  are  likely  to  indicate  areas  of  economic  and  social  interaction,  the  location  and  distribution  of  the  centers  of  population  should  give  us  a  reasonable  indicator 
 of  the  boundaries  of  the  relevant  geographic  market  in  which  radio  stations  compete.  Because  the 
 (Continued  from  previous  page)  1371  Aside  from  the  reasons  enumerated  above,  we  reject  WGAs  proposal  because  it  is  far  from  clear  that  the 


 Commission  has  jurisdiction  over  the  programming  carried  on  cable  networks. 
 1372  See  OMB  Bulletin  No.  03-  04,  http://  www.  whitehouse.  gov/  omb/  omb/  bulletins/  b03-  04.  html.  In  2000,  OMB 
 revised  its  procedures  for  defining  MAs.  In  addition,  it  adopted  the  more  generic  term  Core  Based  Statistical  Area  (CBSA)  to  cover  both  traditional  Metropolitan  Areas  and  the  new  Micropolitan  Statistical  Areas.  See  generally 


 Standards  for  Defining  Metropolitan  and  Micropolitan  Statistical  Areas,  65  Fed.  Reg.  82228  (2000).  Although  less  accurate,  we  will  use  former  term    i.  e.,  MAs    to  avoid  confusion. 


 1373  See  U.  S.  Census  Bureau,  Cartographic  Boundary  Files,  http://  www.  census.  gov/  geo/  www/  cob/ 
 ma_  metadata.  html  (visited  May  30,  2003). 
 1374  See  65  Fed.  Reg.  at  82236-  37  for  a  detailed  description  of  the  standards  OMB  uses  to  define  MAs. 


 1375  See  id.  at  82237  for  the  rules  governing  future  updates  to  MAs. 
 1376  Population  data  is  available  over  the  Internet  from  the  Census  Bureau. 
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 geographic  areas  involved  generally  will  be  low-  density  and  rural  areas  of  the  country,  moreover,  we  believe  that  population  data  could  provide  a  fairly  reliable  and  easily  determinable  market  definition.  We 
 seek  comment  on  this  and  any  other  methods. 
 660.  Another  possibility  is  to  treat  Cellular  Market  Areas  (CMAs)  as  the  relevant  geographic  market  for  radio.  CMAs  were  developed  in  the  mid-  1980s  to  be  the  geographic  basis  for  licensing 


 cellular  spectrum.  CMAs  consist  of  MAs  (as  they  were  defined  after  the  1980  census)  and  Rural  Service  Areas  (RSAs),  1377  which  the  Commission  delineated  for  areas  of  the  country  not  located  in  MAs.  1378 
 Although  CMAs  were  not  developed  in  the  context  of  radio  broadcasting,  they  were  designed  to  follow  natural  social  and  economic  communities  through  multi-  county  groupings  drawn  along  .  .  .  county 
 boundaries.  1379  Are  CMAs  a  reasonable  proxy  for  radio  markets  in  non-  Metro  areas  of  the  country?  We  seek  comment  on  this  issue. 


 661.  For  any  market  definition  we  establish,  how  should  we  address  situations  in  which  that  market  overlaps  an  Arbitron  Metro.  If  we  use  MAs  or  CMAs,  there  will  be  existing  areas  of  overlap. 
 Even  if  we  define  radio  markets  around  existing  Arbitron  Metros,  Metro  boundaries  may  change,  or  Arbitron  may  create  or  delete  a  Metro.  We  seek  comment  on  how  to  address  the  possibility  of  a  market 
 overlap  (or  in  the  case  of  a  deleted  Metro,  the  possibility  of  an  undefined  market). 
 662.  The  goal  of  this  rulemaking  proceeding  is  to  generate  a  map  or  a  list  of  markets  for  radio  stations  across  the  entire  country,  using  Arbitron  Metros  where  available  and  a  Commission-  endorsed 


 market  definition  everywhere  else.  We  therefore  encourage  parties  to  use  this  opportunity  to  submit  specific  information  that  would  assist  is  in  properly  delineating  the  boundaries  of  the  local  radio  markets 
 in  which  they  are  interested. 
 663.  Comments  and  Reply  Comments.  Pursuant  to  applicable  procedures  set  forth  in  sections  1.415  and  1.419  of  the  Commission's  rules,  1380  interested  parties  may  file  comments  on  the  notice  of 


 proposed  rulemaking  on  or  before  30  days  after  date  of  publication  in  the  Federal  Register,  and  reply  comments  on  or  before  45  days  after  date  of  publication  in  the  Federal  Register.  Comments  may  be  filed 
 using  the  Commission's  Electronic  Comment  Filing  System  (ECFS)  or  by  filing  paper  copies.  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24121  (1998). 


 664.  Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Generally,  only  one  copy  of  an  electronic  submission  must  be 
 filed.  In  completing  the  transmittal  screen,  commenters  should  include  their  full  name,  U.  S.  Postal  Service  mailing  address,  and  the  applicable  docket,  which  in  this  instance  is  MB  Docket  No.  03-  130. 
 Parties  may  also  submit  an  electronic  comment  by  Internet  e-  mail.  To  get  filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-  mail  to  ecfs@  fcc.  gov,  and  should  include  the  following  words 
 in  the  body  of  the  message,  get  form  <your  e-  mail  address>.  A  sample  form  and  directions  will  be  sent  in  reply.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  Filings 


 1377  See  Amendment  of  the  Commissions  Rules  for  Rural  Cellular  Service,  1985  WL  260366,  FCC  85-  646,    1 
 (rel.  Dec.  17,  1985). 
 1378  Amendment  of  the  Commissions  Rules  for  Rural  Cellular  Service,  60  Radio  Reg.  (P&  F)  1029,    1  (1986). 


 1379  Id.  at    11. 
 1380  47  C.  F.  R.    1.415  and  1.419. 
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 can  be  sent  by  hand  or  messenger  delivery,  by  commercial  overnight  courier,  or  by  first-  class  or  overnight  U.  S.  Postal  Service  mail  (although  we  continue  to  experience  delays  in  receiving  U.  S.  Postal  Service 
 mail).  The  Commission's  contractor,  Vistronix,  Inc.,  will  receive  hand-  delivered  or  messenger-  delivered  paper  filings  for  the  Commission's  Secretary  at  236  Massachusetts  Avenue,  N.  E.,  Suite  110,  Washington, 
 D.  C.  20002.  The  filing  hours  at  this  location  are  8:  00  a.  m.  to  7:  00  p.  m.  All  hand  deliveries  must  be  held  together  with  rubber  bands  or  fasteners.  Any  envelopes  must  be  disposed  of  before  entering  the  building. 
 Commercial  overnight  mail  (other  than  U.  S.  Postal  Service  Express  Mail  and  Priority  Mail)  must  be  sent  to  9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  U.  S.  Postal  Service  first-  class  mail,  Express 
 Mail,  and  Priority  Mail  should  be  addressed  to  445  12th  Street,  SW,  Washington,  D.  C.  20554.  All  filings  must  be  addressed  to  the  Commission's  Secretary,  Office  of  the  Secretary,  Federal  Communications 
 Commission. 
 665.  Parties  must  also  serve  either  one  copy  of  each  filing  via  e-  mail  or  two  paper  copies  to  Qualex  International,  Portals  II,  445  12  th  Street,  S.  W.,  Room  CY-  B402,  Washington,  D.  C.,  20554, 


 telephone  (202)  863-  2893,  facsimile  (202)  863-  2898,  or  e-  mail  at  qualexint@  aol.  com.  In  addition,  parties  should  serve  one  copy  of  each  filing  via  email  or  one  paper  copy  to  Amy  Brett,  Media  Bureau,  445  12  th 
 Street,  S.  W.,  2-  C134,  Washington,  D.  C.,  20554.  Parties  should  serve  one  copy  of  each  filing  via  email  or  five  paper  copies  to  Linda  Senecal,  445  12  th  Street,  S.  W.,  2-  C438,  Washington,  D.  C.,  20554. 


 666.  Availability  of  Documents.  Comments,  reply  comments,  and  ex  parte  submissions  will  be  available  for  public  inspection  during  regular  business  hours  in  the  FCC  Reference  Center,  Federal 
 Communications  Commission,  445  12th  Street,  S.  W.,  CY-  A257,  Washington,  D.  C.  20554.  Persons  with  disabilities  who  need  assistance  in  the  FCC  Reference  Center  may  contact  Bill  Cline  at  (202)  418-  0267, 
 (202)  418-  7365  TTY,  or  bcline@  fcc.  gov.  These  documents  also  will  be  available  electronically  at  the  Commissions  Disabilities  Issues  Task  Force  web  site:  www.  fcc.  gov/  dtf,  and  from  the  Commissions 
 Electronic  Comment  Filing  System.  Documents  are  available  electronically  in  ASCII  text,  Word  97,  and  Adobe  Acrobat.  Copies  of  filings  in  this  proceeding  may  be  obtained  from  Qualex  International,  Portals 
 II,  445  12  th  Street,  S.  W.,  Room,  CY-  B402,  Washington,  D.  C.,  20554,  telephone  (202)  863-  2893,  facsimile  (202)  863-  2898,  or  via  e-  mail  at  qualexint@  aol.  com.  To  request  materials  in  accessible  formats 
 for  people  with  disabilities  (Braille,  large  print,  electronic  files,  audio  format),  send  an  e-  mail  to  fcc504@  fcc.  gov  or  call  the  Consumer  and  Governmental  Affairs  Bureau  at  202-  418-  0531  (voice),  202- 
 418-  7365  (TTY). 
 667.  Ex  Parte  Rules.  This  proceeding  will  be  treated  as  a  permit-  but-  disclose  proceeding,  subject  to  the  permit-  but-  disclose  requirements  under  section  1.1206(  b)  of  the  Commissions  rules.  1381 


 Ex  parte  presentations  are  permissible  if  disclosed  in  accordance  with  Commission  rules,  except  during  the  Sunshine  Agenda  period  when  presentations,  ex  parte  or  otherwise,  are  generally  prohibited.  Persons 
 making  oral  ex  parte  presentations  are  reminded  that  a  memorandum  summarizing  a  presentation  must  contain  a  summary  of  the  substance  and  not  merely  a  listing  of  the  subjects  discussed.  More  than  a  one  or 
 two  sentence  description  of  the  views  and  arguments  presented  is  generally  required.  1382  Additional  rules  pertaining  to  oral  and  written  presentations  are  set  forth  in  section  1.1206(  b)  of  the  Commissions  rules. 
 Parties  submitting  written  ex  parte  presentations  or  summaries  of  oral  ex  parte  presentations  are  urged  to  use  the  ECFS  in  accordance  with  the  Commission  rules  discussed  above.  Parties  filing  paper  ex  parte 
 submissions  must  file  an  original  and  one  copy  of  each  submission  with  the  Commissions  Secretary, 
 1381  47  C.  F.  R.    1.1206(  b). 
 1382  See  id.    1.1206(  b)(  2). 
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 Marlene  H.  Dortch,  at  the  appropriate  address  as  shown  above  for  filings  sent  by  either  U.  S.  mail,  overnight  delivery,  or  hand  or  messenger  delivery.  Parties  must  also  serve  either  one  copy  of  each  ex 
 parte  filing  via  e-  mail  or  two  paper  copies  to  Qualex  International,  Portals  II,  445  12  th  Street,  S.  W.,  Room  CY-  B402,  Washington,  D.  C.,  20554,  telephone  (202)  863-  2893,  facsimile  (202)  863-  2898,  or  e-  mail  at 
 qualexint@  aol.  com.  In  addition,  parties  should  serve  one  copy  of  each  ex  parte  filing  via  email  or  one  paper  copy  to  Amy  Brett,  Media  Bureau,  445  12  th  Street,  S.  W.,  2-  C134,  Washington,  D.  C.,  20554. 
 Parties  should  serve  one  copy  of  each  ex  parte  filing  via  email  or  five  paper  copies  to  Linda  Senecal,  445  12  th  Street,  S.  W.,  2-  C438,  Washington,  D.  C.,  20554. 


 668.  Initial  Regulatory  Flexibility  Analysis.  As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended  (RFA),  1383  the  Commission  has  prepared  an  Initial  Regulatory  Flexibility  Analysis 
 (IRFA)  of  the  possible  significant  economic  impact  on  a  substantial  number  of  small  entities  by  the  policies  and  rules  considered  in  the  Notice  of  Proposed  Rulemaking  initiated  herein.  The  IRFA  is  set  forth 
 in  Appendix  I.  Written  public  comments  are  requested  on  this  IRFA.  These  comments  must  be  filed  in  accordance  with  the  same  filing  deadlines  for  comments  on  the  Notice  of  Proposed  Rulemaking,  and  they 
 should  have  a  separate  and  distinct  heading  designating  them  as  responses  to  the  IRFA.  The  Commissions  Consumer  and  Governmental  Affairs  Bureau,  Reference  Information  Center,  will  send  a 
 copy  of  this  Notice  of  Proposed  Rulemaking,  including  this  IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration  (SBA),  in  accordance  with  the  Regulatory  Flexibility  Act.  1384 


 669.  Paperwork  Reduction  Act.  This  Notice  of  Proposed  Rulemaking  contains  modified  information  collection(  s)  subject  to  the  Paperwork  Reduction  Act  of  1995  (PRA),  Public  Law  104-  13.  It 
 will  be  submitted  to  the  Office  of  Management  and  Budget  (OMB)  for  review  under  Section  3507(  d)  of  the  PRA.  OMB,  the  general  public,  and  other  Federal  agencies  are  invited  to  comment  on  the  new  or 
 modified  information  collection(  s)  contained  in  this  proceeding. 
 670.  Authority.  This  Notice  is  issued  pursuant  to  authority  contained  in  Sections  4(  i),  303,  and  307  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  303,  and  307,  and  Section 


 202(  h)  of  the  Telecommunications  Act  of  1996. 
 X.  ADDITIONAL  ADMINISTRATIVE  MATTERS 
 PAPERWORK  REDUCTION  ACT 


 671.  This  Order  contains  both  new  and  modified  information  collection(  s)  subject  to  the  Paperwork  Reduction  Act  of  1995  (PRA),  Public  Law  104-  13.  They  will  be  submitted  to  the  Office  of 
 Management  and  Budget  (OMB)  for  review  under  Section  3507(  d)  of  the  PRA.  OMB,  the  general  public,  and  other  Federal  agencies  are  invited  to  comment  on  the  new  or  modified  information  collection(  s) 
 contained  in  this  proceeding. 
 REGULATORY  FLEXIBILITY  ACT 


 1383  See  5  U.  S.  C.    603.  The  RFA,  5  U.  S.  C.    601  et.  seq.,  has  been  amended  by  the  Small  Business  Regulatory 
 Enforcement  Fairness  Act  of  1996  (  SBREFA),  Pub.  L.  No.  104-  121,  Title  II,  110  Stat.  847  (1996). 
 1384  See  5  U.  S.  C.    603(  a). 
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 672.  Pursuant  to  the  Regulatory  Flexibility  Act  of  1980,  as  amended,  1385  the  Commissions  Final  Regulatory  Flexibility  Act  Analysis  is  contained  Appendix  G. 
 DOCUMENT  AVAILABILITY 
 673.  This  document  is  available  for  public  inspection  and  copying  during  regular  business  hours  at  the  FCC  Reference  Information  Center,  Portals  II,  445  12  th  Street,  S.  W.,  Room  CY-  A257, 


 Washington,  D.  C.  20554.  This  document  may  also  be  purchased  from  the  Commissions  duplicating  contractor,  Qualex  International,  Portals  II,  12  th  Street,  S.  W.,  Room  CY-  B402,  Washington,  D.  C.  20554, 
 telephone  202-  863-  2893,  facsimile  202-  863-  2898,  or  via  e-  mail  qualexint@  aol.  com.  This  document  is  available  in  accessible  formats  (computer  diskettes,  large  print,  audio  recording,  and  Braille)  to  persons 
 with  disabilities  by  contacting  Brian  Millin  in  the  Consumer  &  Governmental  Affairs  Bureau  at  202-  418-  7426,  TTY  202-  418-  7365,  or  at  bmillin@  fcc.  gov. 


 XI.  ORDERING  CLAUSES 
 674.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in  sections  1,  2(  a),  4(  i),  303,  307,  309,  and  310  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    151,  152(  a), 


 154(  i),  303,  307,  309,  and  310  and  section  202(  h)  of  the  Telecommunications  Act  of  1996,  this  Report  and  Order  in  MB  Docket  No.  02-  277  and  MM  Docket  Nos.  01-  235,  01-  317,  and  00-  244  IS  ADOPTED. 


 675.  IT  IS  FURTHER  ORDERED  that  Part  73  of  the  Commissions  Rules  IS  AMENDED  as  indicated  in  Appendix  H. 
 676.  IT  IS  FURTHER  ORDERED  that  the  Interim  Policy  set  forth  herein  IS  ADOPTED. 
 677.  IT  IS  FURTHER  ORDERED  that  the  Motion  for  Revision  of  Procedural  Dates,  Expansion  of  the  Scope  of  the  Proceeding,  and  Inclusion  of  Additional  Studies  in  the  Record,  filed  on 


 October  9,  2002  by  Minority  Media  and  Telecommunications  Council  and  National  Association  of  Black  Owned  Broadcasters,  is  DENIED  in  part  and  GRANTED  in  part  to  the  extent  described  herein;  the 
 Motion  to  Bifurcate  and  Repeal,  filed  on  March  11,  2003  by  Media  General,  Inc.,  IS  DISMISSED;  and  the  Motion  to  Postpone,  filed  on  May  31,  2003  by  the  Diversity  and  Competition  Supporters,  et  al.,  IS 
 DENIED. 
 678.  IT  IS  FURTHER  ORDERED,  pursuant  to  the  authority  contained  in  sections  1,  2(  a),  4(  i),  303,  307,  309,  and  310  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    151,  152(  a), 


 154(  i),  303,  307,  309,  and  310  and  section  202(  h)  of  the  Telecommunications  Act  of  1996,  that  the  ownership  requirements  and  rules  adopted  in  this  Report  and  Order  SHALL  BECOME  EFFECTIVE 
 thirty  (30)  days  after  publication  of  the  text  or  summary  thereof  in  the  Federal  Register,  except  for  those  rules  and  requirements  involving  Paperwork  Reduction  Act  burdens,  which  SHALL  BECOME 
 EFFECTIVE  immediately  upon  announcement  in  the  Federal  Register  of  OMB  approval. 
 679.  This  action  is  taken  pursuant  to  the  authority  contained  in  sections  1,  2(  a),  4(  i),  303,  307,  309,  and  310  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    151,  152(  a),  154(  i),  303, 


 307,  309,  and  310  and  section  202(  h)  of  the  Telecommunications  Act  of  1996.  If  any  section,  subsection,  paragraph,  sentence,  clause  or  phrase  of  this  Report  and  Order  or  the  rules  adopted  herein  is  declared 
 invalid  for  any  reason,  the  remaining  portions  of  this  Report  and  Order  and  the  rules  adopted  herein 
 1385  See  5  U.  S.  C.    604. 
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 SHALL  BE  severable  from  the  invalid  part  and  SHALL  REMAIN  in  full  force  and  effect. 
 680.  IT  IS  FURTHER  ORDERED  THAT  the  proceedings  in  MB  Docket  No.  02-  277,  MM  Docket  No.  01-  235,  MM  Docket  No.  01-  317,  and  MM  Docket  No.  00-  244  ARE  TERMINATED. 


 681.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  and  Governmental  Affairs  Bureau,  Reference  Information  Center,  SHALL  SEND  a  copy  of  this  Report  and  Order,  including  the 
 Final  Regulatory  Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration. 


 682.  IT  IS  FURTHER  ORDERED  that  pursuant  to  the  authority  contained  in  sections  1,  2(  a),  4(  i),  303,  307,  309,  and  310  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    151,  152(  a), 
 154(  i),  303,  307,  309,  and  310  and  section  202(  h)  of  the  Telecommunications  Act  of  1996,  this  Notice  of  Proposed  Rule  Making  in  MB  Docket  No.  03-  130  IS  ADOPTED. 


 683.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  and  Governmental  Affairs  Bureau,  Reference  Information  Center,  will  send  a  copy  of  this  Notice  of  Proposed  Rule  Making, 
 including  the  Initial  Regulatory  Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Marlene  H.  Dortch 
 Secretary 
258