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S. HRG. 107–1114

MEDIA CONCENTRATION

HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JULY 17, 2001

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ERNEST F. HOLLINGS, South Carolina, Chairman

DANIEL K. INOUYE, Hawaii

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, Massachusetts

JOHN B. BREAUX, Louisiana

BYRON L. DORGAN, North Dakota

RON WYDEN, Oregon

MAX CLELAND, Georgia

BARBARA BOXER, California

JOHN EDWARDS, North Carolina

JEAN CARNAHAN, Missouri

BILL NELSON, Florida

JOHN McCAIN, Arizona

TED STEVENS, Alaska

CONRAD BURNS, Montana

TRENT LOTT, Mississippi

KAY BAILEY HUTCHISON, Texas

OLYMPIA J. SNOWE, Maine

SAM BROWNBACK, Kansas

GORDON SMITH, Oregon

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

GEORGE ALLEN, Virginia

KEVIN D. KAYES, Democratic Staff Director

MOSES BOYD, Democratic Chief Counsel

MARK BUSE, Republican Staff Director

JEANNE BUMPUS, Republican General Counsel

(III)

CONTENTS

Page

Hearing held on July 17, 2001 ............................................................................... 1

Statement of Senator Allen ..................................................................................... 84

Statement of Senator Breaux ................................................................................. 82

Statement of Senator Burns ................................................................................... 9

Prepared statement .......................................................................................... 9

Statement of Senator Cleland ................................................................................. 9

Statement of Senator Dorgan ................................................................................. 11

Statement of Senator Fitzgerald ............................................................................ 12

Columbia Journalism Review, ownership list ................................................ 12

Statement of Senator Hollings ............................................................................... 1

Prepared statement .......................................................................................... 2

Statement of Senator Inouye .................................................................................. 6

Prepared statement .......................................................................................... 6

Statement of Senator Kerry .................................................................................... 8

Statement of Senator McCain ................................................................................. 3

Prepared statement .......................................................................................... 5

Statement of Senator Wyden .................................................................................. 7

WITNESSES

Baker, William F., President and CEO, Thirteen/WNET .................................... 64

Prepared statement .......................................................................................... 66

Frank, Alan, President, Post-Newsweek Stations, Inc. ........................................ 26

Prepared statement and attachments ............................................................ 28

Fuller, Jack, President, Tribune Publishing Company ........................................ 57

Prepared statement .......................................................................................... 59

Karmazin, Mel, President and Chief Operating Officer, Viacom, Inc. ................ 18

Prepared statement .......................................................................................... 20

Kimmelman, Gene, Co-Director, Consumers Union ............................................. 87

Prepared statement .......................................................................................... 89

Noam, Dr. Eli M., Professor of Finance and Economics, Columbia University;

Director, Columbia Institute of Tele-Information; former Commissioner of

Public Services, New York State ........................................................................ 93

Prepared statement .......................................................................................... 95

APPENDIX

Paxson, Lowell ‘‘Bud,’’ Chairman of Paxson Communications Corporation,

prepared statement .............................................................................................. 101

Wades, James A., Radio and Television Broadcast Industry Veteran, prepared

statement .............................................................................................................. 102

(1)

MEDIA CONCENTRATION

TUESDAY, JULY 17, 2001

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC.

The Committee met, pursuant to notice, at 9:35 a.m. in room

SR–253, Russell Senate Office Building, Hon. Ernest F. Hollings,

Chairman of the Committee, presiding.

OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,

U.S. SENATOR FROM SOUTH CAROLINA

The CHAIRMAN. Good morning. The hearing will come to order.

I know that there is a good start there with this outstanding panel.

Let me see if I can include my full statement in the record, and

summarize it in a sense. We have a hearing this morning, of

course, on media concentration, and for years now, the genius of

the American broadcast system, which is the best in the world, has

emphasized diversity. Diversity in ownership creates opportunities

for the smaller companies, local businessmen and women. Diversity

in ownership allows creative programs and controversial points of

view to find an outlet. Diversity in ownership promotes choices for

advertisers and diversity in ownership preserves localism, promotes

competition, and in fact, it gives us on the Committee and the citizens, generally of the country, our freedom of speech.

I have heard, ‘‘Wait a minute, we have got to do away with these

ownership rules to give the owner the freedom of speech.’’ The

truth of the matter is that that is a temporary license to amplify

his freedom, but to make sure that it is not exclusive, we have injected diversity for at least the past 30 years.

Now, what’s happened is that we are being attacked from every

particular angle. In other words, you have got the insatiable industry. We have got the courts and judges that appear to be ignoring

the Supreme Court when they set the precedent about the government’s strong interest in preserving a multiplicity of information

sources, and, of course, we have had our distinguished Chairman

of the Federal Communications Commission.

And I read a quote from him at the latter part of last year, and

Chairman Powell, and I quote: ‘‘I start with the proposition that

the rules are no longer necessary and demand that the Commission

justify their continued validity.’’ Well, that is not the law—which

I read again this morning in an article about this particular hearing that these are all rules dating back to 1970. You should have

been here, gentlemen of the panel, in 1996, just 5 years ago. The

tremendous debate that we had about just this, these rules. We

2

had a vote on the broadcast ownership cap on the Senate side and

it only prevailed—at one time it prevailed one way by 1 vote, and

then on a revote, Senator Dole changed and we had the reestablishment—reaffirmment, I should say—of these particular rules by

2 votes.

So it had been thoroughly debated. The Congress has been

watching these, and the problem is certainly not too little mergers,

too little consolidations. But we might hear differently. We have

been preparing a bill, I have been working with the colleagues on

both sides of the aisle trying to fashion a bill because I like to get

things done, not just make headlines, but see if we can make headway. In that light, we really appreciate the appearance of these

witnesses here this morning. Let me stop there and yield to our

distinguished Ranking Member.

[The prepared statement of Senator Hollings follows:]

PREPARED STATEMENT OF HON. ERNEST F. HOLLINGS,

U.S. SENATOR FROM SOUTH CAROLINA

Today, we test the claims of those who would further consolidate the media marketplace. We will hear from two balanced panels who will debate whether our

changed media landscape warrants the repeal or relaxation of two existing, sensible

restrictions on media ownership—the 35 percent national television broadcast ownership cap and the newspaper-broadcast cross ownership rule.

The last several years have wrought unprecedented concentration in the entertainment and media industries. AOL and Time Warner have merged, Viacom and

CBS have united, and Tribune has acquired Times Mirror. These transactions and

other consolidation in the industry have decreased, rather than increased competition among media outlets. Yet some of these vertically integrated entertainment

conglomerates would like to grow even bigger, and are here before our Committee

today seeking to eliminate more of the remaining restrictions on media ownership.

These ownership restrictions are based on factors outside the bounds of a traditional antitrust analysis. For example, the national broadcast ownership cap preserves the balance of power between the networks and their affiliates, and thereby

serves to promote localism and diversity in individual markets. Similarly, the newspaper-broadcast cross-ownership Rule enhances the proliferation of diverse, and separate points of view in individual markets.

The reasons for these rules are simple, and they reflect the underpinnings of the

Commission’s statutory public interest authority. Diversity in ownership promotes

competition. Diversity in ownership creates opportunities for smaller companies,

and local businessmen and women. Diversity in ownership allows creative programming and controversial points of view to find an outlet. Diversity in ownership promotes choices for advertisers. And diversity in ownership preserves localism—so individuals in towns across America are afforded access to at least several sources for

their local news and information.

The rules in question have encouraged the growth of locally relevant, independent

programmers and distributors of media content. These critically important, independent voices energize our civic discourse and help separate our Nation from those

that prohibit the free flow of information. And yet, we are having this hearing

today, because the rules are under attack: (1) from an insatiable industry that is

unsatisfied with the tremendous consolidation that has already taken place; (2) in

the courts from judges who appear to be ignoring Supreme Court precedent about

the government’s strong interest in preserving a ‘‘multiplicity of information

sources’’ in the marketplace; (3) and, most importantly, at the FCC, from a Commission that seems intent on relaxing or eliminating many of the existing ownership

rules without regard to the tremendous consolidation that has already occurred.

Last year, Chairman Powell stated, and I quote: ‘‘I start with the proposition that

the rules are no longer necessary and demand that the Commission justify their

continued validity.’’

That, my friends, is not the law. And that is why we are having this hearing

today—to set the record straight. The biennial review process we set up in the Telecommunications Act of 1996 did not presume that the ownership limits ‘‘are no

longer necessary,’’ and must be justified to be retained. It simply requires the FCC

to review its ownership rules in light of competition in the market and in view of

3

their ongoing public interest obligations, which require them to promote and protect

diversity and localism, values recognized by the U.S. Supreme Court as satisfying

a ‘‘governmental purpose of the highest order.’’

To those who advocate further consolidation, I say, prove your claims. The burden

must lie with the proponents of deregulation to demonstrate that a further loosening of the broadcast ownership cap or the newspaper/broadcast cross-ownership

rule would be consistent with the public interest.

I would propose a different route. Given the consolidation that has occurred already, I believe that we need to take a breather before permitting further concentration to occur. Let’s recall—

First, the FCC instituted the Financial Interest in Syndication rules (Fin/Syn) in

1970, that imposed significant limitations on the percentage of ‘‘in-house’’ programs

the networks could produce. Those rules also prevented the networks from having

a financial interest in syndicated programming on the second run market.

In the late 1970s, the Department of Justice entered into consent decrees with

the major networks to settle litigation dating back to the Johnson Administration,

that sought to also curb the networks’ ownership of in-house programming.

In 1995, the FCC eliminated the Fin-Syn rules, giving the major broadcast networks the right to own an unlimited amount of programming that they broadcast,

and to syndicate programming by selling it directly to stations. The DOJ consent

decrees lapsed around the same time.

A year later, in 1996, Congress raised the broadcast ownership cap from 25 to 35

percent, allowing companies like News Corporation and Viacom to purchase yet

more TV stations.

Two years ago, in 1999, the FCC relaxed the duopoly rules to allow a single owner

to acquire two TV stations in some of the larger markets across the country.

Last year, Tribune acquired Times Mirror and took advantage of the FCC’s weak

enforcement of the newspaper-broadcast cross-ownership rule. In practice, the FCC

has allowed the owner of a broadcast station to acquire a newspaper in the same

market without applying the rule until the station’s broadcast license is renewed,

which can be years later.

Finally, earlier this year, the FCC did away with a portion of the dual network

rule and permitted Viacom’s UPN to exist under common ownership with CBS.

It is directly because of these rule changes and lax FCC enforcement that we have

these massive, vertically integrated companies like Viacom and Tribune which—because of their ability to promote and share their content and news products across

multiple distribution platforms—are immensely profitable corporations. And yet

today they come before us and ask for more.

So we’ve come to a crossroads and there are two paths we can take. One leads

to further consolidation and an erosion of diversity in our local markets. The other

provides for maintenance of rational ownership restrictions to allow local media outlets to retain some ability to control and disseminate locally relevant news and information, as well as programming that is uniquely suited to their particular community.

That is why I am considering legislation, along with Senators Inouye and Dorgan,

that will hopefully restore some sense to today’s debate. Our bill, which we may introduce today, requires FCC licensees to alert the Commission when they acquire

a newspaper that creates a cross-ownership situation. The FCC is then directed to

review the appropriateness of the acquisition, and determine whether any action is

needed to bring the licensee in compliance with the rule.

In addition, our bill requires the FCC to report to this Committee, and to the

House Committee on Commerce, with any proposed rule changes that would relax

or repeal existing media ownership limits. Such proposed changes could go into effect 18 months after we receive such a report—which must include the FCC’s explanation of how its rules changes will promote competition, diversity, and localism in

the public interest.

I look forward to testimony from today’s witnesses. These are important topics—

more important in many ways than the typical debates between competing industry

sectors. Today we debate the impact of media ownership on the diversity of outlets,

viewpoints, and ultimately, the discourse of our democracy.

STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA

Senator MCCAIN. Thank you very much, Mr. Chairman. I also

welcome our distinguished panel. And I agree that this is an important hearing. Existing regulatory caps on broadcast station and

4

newspaper ownership were created decades ago to preserve competition in a mass media market consisting of a limited number of

radio stations, television stations and newspapers. But since that

time, the mass media market has expanded exponentially. As a result, broadcasters and others are now saddled with anachronistic

ownership rules that limit their ability to compete in the modern

mass media market.

Changes in the mass media market are self-evident. To put the

matter bluntly, in the digital era, insight and commentary on matters of public policy will no longer be dominated by Cronkite,

Brinkley, The New York Times and The Washington Post. In their

place have risen CNN, CNBC, MSNBC, Salon, Wired, Slashdot and

innumerable other sources of information and news. Last night I

was flipping through the channels and saw BBC News. I hope that

our panelists will look at BBC News and take a page from their

book and cover some foreign news for a change as well.

This new mass media market is dominated not by broadcasters

and newspapers, but by multichannel mass media entities like

cable TV, direct broadcast satellite television, wireless cable, and of

course, the Internet. These new media are not only powerful economic competitors, they are also driving all forms of media to become more interactive.

Interactive communications limit mass media’s ability to dictate

public opinion and they allow ordinary citizens to be more than

passive recipients of institutionalized news. Many websites, for example, let readers respond to a story by posting their reactions,

rebuttals or questions.

In the face of these new competitors, new technologies and new

market demands, ownership restrictions on traditional media have

not only become unnecessary, they have become anticompetitive.

Faced with new sources and new methods of competition, broadcasters and newspapers saddled with potentially outdated infrastructure desperately need the increased efficiency that relaxed

ownership rules permit.

None of these observations are new to this debate or to this Congress. Indeed, Congress recognized all of these points when it enacted the 1996 Telecommunications Act that directed the FCC to

review all of its broadcast ownership rules every 2 years. But unfortunately, that directive has gone unfulfilled. To be sure, the

Commission has overhauled some of its ownership rules, but it left

others in place, including the rules that are arguably the most

anachronistic and anticompetitive, the newspaper broadcast crossownership ban and the 35 percent national broadcast ownership

cap.

These actions are inconsistent with the letter and intent of the

1996 Telecommunications Act. That Act directed the Commission to

review all of the rules every 2 years because changes rendered

those rules inherently suspect.

Unfortunately, change in the market has proved once again that

it can and will outpace change in government bureaucracy.

There are several sources feeding the bureaucratic inertia that

have kept these ownership rules in place even as permanent and

unmistakable changes in the mass media market continue to

render them obsolete. Some of these sources sprang from a misVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00008 Fmt 6601 Sfmt 6601 D:\DOCS\89019.TXT SSC1 PsN: SSC1
5

guided notion that we should more heavily regulate broadcasters

who profit from the free use of valuable public spectrum. Others

sprang from ingrained notions about the power of the broadcast

networks and newspapers. But if we are truly to serve the American people, then none of these concerns can justify continued inaction.

I firmly believed that broadcasters should pay for the spectrum

they use, but burdensome and pointless regulation is no substitute

for public revenues obtained from a competitive broadcast industry.

I firmly believe that this Congress and the FCC should remain

vigilant to prevent undue concentration of power in the mass media

markets, but punishing yesterday’s victors will only aid tomorrow’s

would-be monopolists.

Mr. Chairman, thank you for convening this hearing today.

[The prepared statement of Senator McCain follows:]

PREPARED STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA

Thank you Mr. Chairman for having this hearing today regarding this very important topic.

Existing regulatory caps on broadcast station and newspaper ownership were created decades ago to preserve competition in a mass media market consisting of a

limited number of radio stations, TV stations and newspapers. But since that time,

the mass media market has expanded exponentially. As a result, broadcasters and

others are now saddled with anachronistic ownership rules that limit their ability

to compete in the modern mass media market.

The changes in the mass media market are self-evident. To put the matter bluntly: In the digital era, insight and commentary on matters of public policy will no

longer be dominated by Cronkite, Brinkley, the Times and the Post. In their place

have arisen CNN, CNBC, MSNBC, Salon, Wired, Slashdot and innumerable other

sources of information and news.

This new mass media market is dominated, not by broadcasters and newspapers,

but by multichannel mass media entities like cable TV, direct broadcast satellite

TV, wireless cable, and, of course, the Internet. These new media are not only powerful economic competitors; they are also driving all forms of media to become more

interactive. Interactive communications limit mass media’s ability to dictate public

opinion, and they allow ordinary citizens to be more than passive recipients of institutionalized news. Many websites, for example, let readers respond to a story by

posting their reactions, rebuttals or questions.

In the face of these new competitors, new technologies and new market demands,

ownership restrictions on traditional media have not only become unnecessary, they

have become anticompetitive. Faced with new sources and new methods of competition, broadcasters and newspapers saddled with potentially outdated infrastructure

desperately need the increased efficiencies that relaxed ownership rules permit.

None of these observations are new to this debate, or this Congress. Indeed, Congress recognized all of these points when it enacted a 1996 Telecommunications Act

that directed the FCC to review all of its broadcast ownership rules every 2 years.

But unfortunately, that directive has gone unfulfilled. To be sure, the Commission

has overhauled some of its ownership rules. But it left others in place, including the

rules that are arguably the most anachronistic and anticompetitive—the newspaper/

broadcast cross-ownership ban and the 35 percent national broadcast ownership cap.

These actions are inconsistent with the letter and the intent of the 1996 Telecommunications Act. That Act directed the Commission to review all of the rules

every 2 years because change has rendered those rules inherently suspect. Unfortunately, change in the market has proved once again that it can and will outpace

change in government bureaucracy.

There are several sources feeding the bureaucratic inertia that have kept these

ownership rules in place even as permanent and unmistakable changes in the mass

media market continue to render them obsolete. Some of these sources spring from

the misguided notion that we should more heavily regulate broadcasters who profit

from the free use of valuable public spectrum. Others spring from ingrained notions

about the power of the broadcast networks and newspapers.

6

But if we are truly to serve the American public, then none of these concerns can

justify continued inaction. I firmly believe that broadcasters should pay for the spectrum that they use, but burdensome and pointless regulation is no substitute for

public revenues obtained from a competitive broadcast industry. I firmly believe

that this Congress and the FCC should remain vigilant to prevent undue concentration of power in the mass media markets, but punishing yesterday’s victors will only

aid tomorrow’s would-be monopolists.

Again, Mr. Chairman, thank you for convening this important hearing today.

The CHAIRMAN. Thank you.

Senator Inouye.

STATEMENT OF HON. DANIEL K. INOUYE,

U.S. SENATOR FROM HAWAII

Senator INOUYE. Mr. Chairman, I commend you for calling this

hearing. I have a rather lengthy statement, but if I may, I would

like to just summarize it and ask that my full statement be made

part of the record.

Last year, we had received reports that all four networks turned

a profit. And I understand that the newspaper industry continues

to generate profits at a pace much greater than many American industries. Therefore, Mr. Chairman, I believe that we must be exceedingly cautious before we give into industry’s claim that absent

regulatory relief, their businesses will suffer.

In many ways, Mr. Chairman, these companies occupy a public

trust. Broadcasters, through their grant of free spectrum, inform

the public of local and national relevant news and information; and

newspapers do the same. The ownership restrictions that limit aggregation of these businesses are premised on the need to protect

that public trust. These ownership restrictions help preserve diversity of ownership and viewpoints both nationally and market-bymarket. In turn, that diversity enhances a vibrant localism that

keeps our citizens informed when they pick up the morning paper

and turn on the evening news. Such localism permits the coverage

in local papers and stations to more truly reflect the communities

they serve

Mr. Chairman, I ask that my full statement be made part of the

record.

[The prepared statement of Senator Inouye follows:]

PREPARED STATEMENT OF HON. DANIEL K. INOUYE,

U.S. SENATOR FROM HAWAII

I want to commend Chairman Hollings for holding this important hearing. It is

past time for the Commerce Committee to examine the vitally important issues of

consolidation in the broadcast and newspaper industries, and I look forward to the

debate over these topics on today’s panels.

Over a decade ago, I chaired similar hearings in this Committee. The tale told

then was much like the one we’ll hear today. The marketplace has changed, our

business is getting tougher and tougher to run in the modern economy. Competition

is undermining our profits, and without relief, there may be fewer outlets to provide

Americans with quality news and programming. In short—let us combine so we can

compete, and if we can compete, news and programming will improve along the way.

I wish I were convinced.

Last year, all four networks turned a profit. And I understand the newspaper industry continues to generate profits at a pace greater than many American industries.

We must be exceedingly cautious before we give in to industry’s claims that absent regulatory relief, their businesses will suffer. In many ways, these companies

occupy a public trust. Broadcasters through their grant of free spectrum, inform the

7

public of local and nationally relevant news and information. Newspapers do the

same.

The ownership restrictions that limit aggregation of these businesses are premised on the need to protect that public trust. The ownership restrictions help preserve diversity of ownership and viewpoints both nationally and market by market.

In turn, that diversity enhances a vibrant localism, that keeps our citizens informed

when they pick up the morning paper or turn on the evening news. Such localism

permits the coverage in local papers and stations to more truly reflect the communities they serve.

Without these ownership restrictions, I believe that diversity and localism would

suffer. I believe that these businesses would do what I would do—maximize returns

to the detriment of our public discourse—by reducing costs, promoting efficiencies

and synergies, re-running the same stories and repurposing the same news and information. There is nothing wrong with that. It’s the American way.

But that profit motive is in conflict with another American value—the exchange

of ideas and information that informs our cultural and political debate. Accordingly,

we have for years had reasonable restrictions that prevented a single owner from

exercising undue power over that debate: nationally, we have prevented the networks from owning too many stations. And locally, we restrict the joint ownership

of stations and newspapers.

These rules make sense to me. That is why I look forward to co-sponsoring legislation with Chairman Hollings and Senator Dorgan to bring some sense to this debate, by requiring the FCC to explain to the Committee how relaxing the ownership

limits will serve the public interest.

I expect some of today’s witnesses to feel differently about these issues. I look forward to the debate.

The CHAIRMAN. It will be included in the record.

Senator Wyden.

STATEMENT OF HON. RON WYDEN,

U.S. SENATOR FROM OREGON

Senator WYDEN. Thank you very much, Mr. Chairman. Mr.

Chairman I want to commend you because I think you are holding

hearings on an extraordinarily important subject and I just want

to walk through briefly an example of what could happen if all of

these rules on media consolidation are lifted. You are correct in

noting that there are some in this country who are saying let us

just throw them all out the window.

If that was the case, you could have AOL/Time Warner going out

and buying AT&T Cable, which would give it a huge percentage of

the Nation’s cable market. That new entity could go out and buy

NBC if all the rules were lifted, and then start snapping up individual television and radio stations until they had a nationwide

chain with a very large presence in most major markets. That new,

very large entity then could go out and buy Gannett, giving them

newspapers in many of the same markets where they already control cable, broadcast TV, and radio.

My concern, Mr. Chairman, and why I think your hearings are

so important, is that if you just went out and lifted all these rules

as some have proposed, you could have on our watch the most radical media consolidation in this country’s history and so I think it

is important that we take the time to think through the ramifications of this possibility, and that is why I think your hearings are

so important and I look forward to working with you and our colleagues to examine these questions.

The CHAIRMAN. Very good.

Senator Kerry.

8

STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS

Senator KERRY. Mr. Chairman, thank you for having these hearings. Let me just very briefly say that we have been through this

a number of times in the last years, 1996 most recently. We saw

the ownership shifted to the 35 percent from the 25. And we have

seen the shift from sort of the finite number of stations to a percentage of national audience, and I think that shift reflected a

change in the marketplace itself and in our perceptions of it.

Like Senator McCain, I think I would observe that the marketplace has changed even further very significantly in a lot of different ways, and all of us understand that this fight, to a large degree, is over advertising revenues, and the structure by which local

affiliates are able to make their pitch and what kind of package

they can present versus the consolidated packages that other larger, more diverse entities are able to present. Our interest, I think,

Mr. Chairman, has to still remain to the question of protecting people’s access to diversity in information, and there is a principle of

localism which you have very articulately and forcefully advocated

both in your letter to the FCC and otherwise here this morning. I

agree with that fundamental concept of both the diversity and localism.

On the other hand, I think it is appropriate for this Committee

at this juncture to be analyzing whether or not that marketplace

has changed in a way that the mix is different, in the way in which

diversity may be protected currently, or the way in which people

will have access to information, which is obviously on its face so

different from the original broadcast structure that we sought to

protect when the principle was first established.

We do notice, however, that there has been this extraordinary

media consolidation: AOL purchasing Time Warner, Viacom, CBS;

News Corp. presently trying to get 10 television stations from

Chris Kraft, so that in the television broadcast industry, you have

got, I think, the percentage of commercial television stations controlled by the largest 25 groups has climbed from 25 percent to 45

percent since passage of the 1996 Act.

But none of that, none of those percentages adequately reflect

the other kinds of changes that have taken place in how people

have accessed information, what information they have available to

them. I have a sense this issue is probably going to be decided either by the FCC or the courts because I think they may do so faster than we are capable of, but it is entirely appropriate that we

look at it, and examine whether or not any of those changes in the

marketplace currently and in the way people get information mandate that we perhaps think differently about how we are measuring what the impact in diversity and localism really is and how

it is best protected. So I think it is appropriate that we are measuring today, and apologize to the witnesses and to my colleagues.

We have a markup on two trade bills in the Finance Committee in

about 10 minutes, so I can’t be here for all the testimony, but I will

try to come back.

The CHAIRMAN. Very good.

Senator Burns.

9

STATEMENT OF HON. CONRAD BURNS,

U.S. SENATOR FROM MONTANA

Senator BURNS. I would just ask that my statement be made part

of the record, and I will listen to the witnesses before I make up

my mind.

[The prepared statement of Senator Burns follows:]

PREPARED STATEMENTOF HON. CONRAD BURNS,

U.S. SENATOR FROM MONTANA

Thank you, Mr. Chairman. I thank the Chairman for calling the hearing on media

consolidation today. This is certainly a topic that warrants the Committee’s full and

serious attention.

I would first like to touch on the debate surrounding the current 35 percent national cap on broadcast ownership. I strongly support the current cap, which was

raised from 25 percent as part of the 1996 Telecommunications Act.

Many argue that the increasing variety of consumer choices for video programming renders the need for any restrictions on broadcast ownership obsolete. It is

true that the array of multichannel video media has increased significantly. Currently, many consumers can choose from direct satellite, cable or even the Interent

for video programming. However, even when consumers do have this variety of

video distribution to choose from, many of these competing technologies are not true

alternatives to locally based programming. For rural consumers in particular, alternatives increasingly exist only between different national distribution networks.

Free, local, over-the-air television broadcasting still serves a vital and unique role

in providing community information. The ability to receive local television signals

is more than just having access to local sports or entertainment programming. It

is a critical and immediate way to receive important local news, weather and community information.

Additionally, natural tensions exist between the desire of networks to maximize

national audiences and the sensitivities of local affiliates to their specific audiences.

I am very concerned that any lifting of the cap would significantly increase the leverage the networks currently have in negotiations with their. affiliates and lower

the degree of flexibility that stations have in providing local programming.

In a drastically different course of events than has taken place in the video marketplace, the number of daily newspapers in the country has plummeted significantly in recent years. Since 1975, the year the ban on newspaper broadcast crossownership was instituted by the FCC, the number of daily newspapers has declined

from nearly 1,800 to roughly 1,500. If community-based newspapers are to survive,

they must be given the option to increase 3 efficiencies by entering into co-ownership with local broadcast stations.

The Commission’s outdated position on cross-ownership is of great concern to me,

particularly given its failure to offer a substantive, objective analysis of the actual

effect of the cross-ownership ban in the current media marketplace. Even though

the previous Commission announced a Notice of Proposed Rulemaking on the crossownership restriction as a result of its 1998 biennial review, nothing ever happened.

I understand that the new Commission plans to rectify this situation and I plan to

follow developments in this critical area with great interest.

Thank you, Mr. Chairman. I look forward to the testimony of today’s witnesses.

The CHAIRMAN. Very good. That is a change.

Senator BURNS. Minority status does that.

The CHAIRMAN. Senator Cleland.

STATEMENT OF HON. MAX CLELAND,

U.S. SENATOR FROM GEORGIA

Senator CLELAND. Thank you very much, Mr. Chairman. I understand that antitrust is defined as, ‘‘opposing or intending to regulate business monopolies such as trusts or cartels, especially in the

interest of promoting competition.’’ Well, these Federal laws that

we are talking about were created to protect American citizens

from the concentration of power in too few hands and govern all

industries.

10

While these laws are enforced by the Department of Justice,

there are often other agencies involved in merger reviews with the

responsibility of examining aspects other than antitrust, but complimentary to the merger review. With regard to broadcasting

mergers the FCC has an appropriate role of reviewing of broadcast

license transfers to ensure they are in the public interest.

Essentially, regulations and laws like ownership caps are designed to be additional protections for the public. In this case, these

regulations promote a diverse and free exchange of ideas. When

one entity reaches 35 percent of the Nation’s homes, is that enough

to attract the attention of antitrust officials? Maybe not. But this

single entity is now able to reach millions of homes. In this case,

I believe that the law limiting broadcast ownership enables and

promotes diversity, above that of antitrust review by itself.

However, I can certainly understand why a group would want to

exceed this cap. According to Kevin Saunter in the broadcast television industry book, the profit margin for network-owned and operated stations can still reach an amazing 25 percent or more

which translates into yearly profits that can be in the tens of millions of dollars, a significant amount for networks struggling with

decreasing viewership and increasing costs.

The FCC as the guardian of the public’s interest and the public’s

manager of radio spectrum owes the American public an appropriate review of the transfer of broadcast licenses. Although multichannel service providers have increased the number of outlets people can turn to for video information and entertainment, about 20

percent of Americans still remain dependent on free over-the-air

television for their information. This portion of the population

should not be overlooked when contemplating removing or increasing the cap.

I support the continuation of the FCC’s biennial review of the

broadcast ownership cap and the newspaper broadcast ownership

cap as they have been directed. Although relaxation of these two

caps has been rejected up to this point, I will be watching closely

for the results of the FCC’s next review. Given the relaxation of the

duopoly rules, I believe we will be able to see more clearly the potential for greater consolidation.

Antitrust officials play an important role in our economy, however, there are additional factors that might be overlooked if other

agencies are removed from the merger review process. When we

are discussing the precious and finite commodity of our national

spectrum, I believe it is appropriate for the FCC to examine these

mergers.

I also believe due deference should be given to its decisions. I

look forward to the Commission’s continuing examination of ownership rules, keeping in mind that every regulation should be continued to be examined for its rlevance in this ever-changing world.

Thank you, Mr. Chairman

The CHAIRMAN. Thank you.

Senator Dorgan.

11

STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA

Senator DORGAN. Mr. Chairman, thank you very much. I apologize. I was at a leadership meeting and I missed your opening

statement, which I am sure would have been illuminating for me.

The CHAIRMAN. I did mention your amendment. Don’t you remember, when we voted with respect to change of ownership. Only

by 2 votes did we have the 35.

Senator DORGAN. In 1996, when the Committee reported out a

bill that expanded the audience cap to 35 percent, I believe, and

I offered an amendment on the floor of the Senate which about 4

o’clock in the afternoon prevailed, Senator Dole was on the other

side and I actually prevailed and I was the most surprised man in

Washington, DC., and then I believe Senator D’Amato changed his

vote at the request of Senator Dole so that they can reconsider it,

and then dinner intervened and several Senators had some sort of

an epiphany over their dinner and we had a revote about 4 hours

later, and I ended up losing. Such is the work of the Senate, well

within the rules, I might add.

But I felt the need to offer the amendment at that time because

I worried about what was going to happen. Even then I was worried about what was happening, but we have had since then as you

know an orgy of mergers in this industry. I think in 1996, the largest radio ownership group had 39 stations. Now, 1100 stationsplus. What’s happening in broadcast, in my judgment, is

unhealthy.

There are competing interests. The private interests of those who

are engaged in this and they have every right to hold that interest

and want to become big and big and bigger, and the public interest,

and I would say to the FCC, and I hope they pay some attention

to this hearing, Mr. Chairman, I am pleased you are holding the

hearing, the question of whether we ought to have ownership limits

and the question of whether caring about localism is some old-fashioned anachronism is a very important question. I answer it one

way. Some others might answer it another way. But I feel very

strongly about it.

The FCC has a responsibility to us, a responsibility to this country to understand that these airways belong to the American people

and that localism is not some old-fashioned notion about what we

ought to have as a public policy, and I think the burden—the FCC

somehow seems to suggest the burden is on the Congress to demonstrate why there should be limits. That is not the case at all in

my judgment. The burden ought to be on the FCC and the broadcasters to demonstrate why the limits ought to be increased.

In my judgment, there is no basis and no case that can be made

to increase these broadcast limits. If anything, we ought to go back

to the 1996 limits. But I fear that that horse is long out of the

barn. Mr. Chairman, thank you for calling these hearings. They are

very important.

The CHAIRMAN. Thank you.

Senator Fitzgerald.

12

STATEMENT OF HON. PETER G. FITZGERALD,

U.S. SENATOR FROM ILLINOIS

Senator FITZGERALD. Well, thank you, Mr. Chairman. I would

like to welcome one of my constituents, Mr. Jack Fuller, who is

from Evanston, Illinois and President of the Tribune Company. The

Tribune, in addition to owning newspapers and television stations,

is the owner of the Chicago Cubs, a great baseball team, and they

are doing very well this year and I hope we can have a World Series at least sometime this century. The Cubs have not won a

World Series since 1908. Anybody can have a bad century, I guess,

in Chicago.

Senator BURNS. Seven years ahead of time.

Senator FITZGERALD. But anyway, I am glad that the Chairman

has called this hearing. I think it is an important issue. I do agree

that the public owns the airwaves. I do have questions, however,

as to whether the ownership restrictions make sense in today’s current climate, where you have so many media outlets, so many cable

television stations and so many satellite TV channels and so many

radio and other broadcast outlets, so I look forward to this hearing

as far as going into depth and exploring the issue. I do wonder

whether the restrictions that date back to the late 1940s or 1946,

when there were only three broadcast networks around the country, continue to make sense.

Thank you, Mr. Chairman, for holding this hearing.

The CHAIRMAN. Thank you. In presenting these witnesses, let me

make it as part of the record, unless there is objection, the Columbia Journalism Review ownership listing of Viacom’s assets, and

the Columbia Journalism Review ownership listing of Tribune’s assets. I was just trying to summarize. For example, Viacom has got

19 Paramount stations; and the MTV networks, Nickelodeon channels, Showtime Networks, eight channels; Black Entertainment

Television with six channels; and Paramount production and distribution and right on down—and publishing, CBS television ownership of some 17 stations there. In radio, it is just too much to

count. I counted 40 different cities, and there are several radio stations in each city.

[The information referred to follows:]

[From the Columbia Journalism Review]

WHO OWNS WHAT

Viacom, 1515 Broadway, New York, NY

Broadcast and Cable

Paramount Stations Group

WUPA—Atlanta

WSBK—Boston

WWHO—Columbus

KTXA—Dallas, Ft. Worth

WKBD—Detroit

KTXH—Houston

WNDY—Indianapolis

WBFS—Miami

WLWC—New Bedford/Providence

WUPL—New Orleans

WGNT—Norfolk

KAUT—Oklahoma City

WPSG—Philadelphia

13

WNPA—Pittsburgh

KMAX—Sacramento

KSTW—Seattle

WTOG—Tampa

WDCA—Washington, DC

WTVX—West Palm Beach

UPN

The Paramount Channel

MTV: Music Television

M2

MTV

MTV Asia (joint venture with PolyGram)

MTV Australia (licensing agreement)

MTV Brazil (joint venture with Abril S.A.)

MTV Europe

MTV India (joint venture)

MTV Indie

MTV Japan (licensing agreement)

MTV Latin America

MTV Mandarin (joint venture with PolyGram)

MTV Productions

MTV Ritmo

MTV Rocks

MTV Russia

Nickelodeon

Nickelodeon Australia (joint venture—includes News Corp.)

Nickelodeon Germany (joint venture with Ravensburger, and Bear Stearns)

Nickelodeon Hungary

Nickelodeon Iceland

Nickelodeon Latin America

Nickelodeon Nordic

Nickelodeon United Kingdom (joint venture with BSKYB)

Nick at Nite

Nick at Nite’s TV Land

Nick Jr.

Nickelodeon Books

Nickelodeon Magazine

Nickelodeon Movies

Noggin

VH1

VH1 Country

VH1 Soul

VH1 Germany (joint venture with Bear Stearns)

VH1 United Kingdom

Comedy Central (joint venture with Time-Warner)

Showtime Networks Inc.

SET Pay-Per-View (pay-per-view marketer of Mike Tyson fights)

Showtime

Showtime en Espanol

Showtime Extreme

Sundance Channel (joint venture with Robert Redford, and PolyGram)

The Movie Channel

FLIX

BET—Black Enteratinment Television

BET on Jazz: The Jazz Channel

BET Action Pay Per View

BET International

BET Movies/STARZ!

BET Pictures I

Viacom Interactive Services

Viacom—Film & Television Production/Distribution

Paramount Pictures

Paramount Television

Paramount Home Video

14

CIC Video (joint venture)

Viacom Productions

MTV Films

MTV Productions

Nickelodeon Studios

Nickelodeon Movies

Wilshire Court Productions

Spelling Entertainment Group (80%)

Spelling Films

Spelling Television

Republic Entertainment

Big Ticket Television

Worldvision Enterprises

Hamilton Projects

Viacom—Video and Music/Parks

Retail

Blockbuster Video

Blockbuster Music

Viacom Entertainment Stores

Paramount Parks

Paramount’s Carowinds (located in Charlotte, NC)

Paramount’s Great America (located in Santa Clara, CA)

Paramount’s Kings Dominion (located in Richmond, VA)

Paramount’s Kings Island (located in Cincinnati, OH)

Paramount Canada’s Wonderland (located in Toronto)

Raging Waters (located in San Jose, CA)

Star Trek: The Experience (located in Las Vegas, NV)

Other

Viacom Consumer Products

Famous Music (copyright owners)

Viacom Interactive Services

Star Trek Franchise

Viacom—Publishing

Anne Schwartz Books

Archway Paperbacks and Minstrel Books

Lisa Drew Books

Fireside

The Free Press

MTV Books

Nickelodeon Books

Simon & Schuster Consumer Group

Simon & Schuster

Simon & Schuster Audio Books

Simon & Schuster Children’s Publishing

Simon & Schuster Editions

Simon & Schuster Interactive

Simon & Schuster Interactive Distribution

Simon & Schuster Libros en Espanol

Pocket Books

Scribner

Star Trek

Touchstone

Washington Square Press

Viacom—Theaters and Film Distribution

Paramount Theaters

Paramount (Europe)

United Cinemas International (UCI) (joint venture with Universal)

United International Pictures (UIP) (joint venture with Universal)

Music

Famous Music

Famous Players

CBS Television

Television-owned and operated stations

15

WCBS—New York

KCBS—Los Angeles

WBBM—Chicago

WCCO—Minneapolis

WFRV—Green Bay

WWJ—Detroit

WJZ—Baltimore

WBZ—Boston

KCNC—Denver

WFOR—Miami

KYW—Philadelphia

KDKA—Pittsburgh

KUTV—Salt Lake City

KPIX—San Francisco

KEYE—Austin Cable

TNN: The Nashville Network

CMT: Country Music Television

Group W Network Services—technology services for the cable and broadcast

industries

New Media—Online

CBS.com

CBSNews.com

CBSSportsLine.Com (partial)

CBSMarketWatch.com (with Pearson PLC)

CBSHealthWatch.com (partial)

Office.com (33.3% with Winstar)

ThirdAge (30%)

Big Entertainment—Hollywood.com (30%)

Contentville.com (35% with Brill Media Holdings 34%, Primedia Inc., NBC,

Ingram Book Group and EBSCO)

StoreRunner.com (partial)

CBS Radio—Infinity Broadcasting

Atlanta: WAOK-AM; WVEE-FM; WZGC-FM

Austin: KJCE-AM; KAMX-FM; KKMJ-FM; KQBT-FM

Baltimore: WJFK-AM; WLIF-FM; WXYV-FM; WQSR-FM; WWMX-FM

Boston: WBZ-AM; WODS-FM; WBCN-FM; WBMX-FM; WZLZ-FM

Buffalo: WECK-AM; WBLK-FM; WJYE-FM; WLCE-FM; WYRK-FM

Charlotte: WFNZ-AM; WGIV-AM; WBAV-FM; WNKS-FM; WPEG-FM; WSOC-FM;

WSSS-FM

Chicago: WBBM-AM/FM; WSCR-AM; WXRT-FM; WCKG-FM; WJMK-FM; WUSNFM

Cincinnati: WGRR-FM; WYRQ-FM; WYLX-FM; WUBE-FM

Cleveland: WDOK-FM; WQAL-FM; WZJM-FM

Columbus: WLVQ-FM; WAZU-FM; WHOK-FM

Dallas: KHVN-AM; KLUV-FM; KOAI-FM; K000-AM; KRBV-FM; KRLD-AM; KVILFM; KYNG-FM

Denver: KDJM-FM; KIMN-FM; KXKL-FM

Detroit: WWJ-AM; WVMV-FM; WKRK-FM; WOMC-FM; WXYT-AM; WYCD-FM

Fresno: KMJ-AM; KOOR-AM; KNAX-FM; KOQO-FM; KRNC-FM; KSKS-FM; KVSRFM

Greensboro, NC: WMFR-AM; WSJS-AM; WSML-AM

Hartford: WTIC-AM/FM; WZMK-FM; WRCH-FM

Houston: KILT-AM/FM; KIKK-AM/FM

Kansas City: KBEQ-FM; KFKF-FM; KXMV-FM; KOZN-FM

Las Vegas: KSFN-AM; KXNT-AM; KLUC-FM; KMXB-FM; KMZQ-FM; KXTE-FM

Los Angeles: KNX-AM; KFWB-AM; KCBS-FM; KTWV-FM; KLSX-FM; KRLA-AM;

KROQ-FM; KRTH-FM

Minneapolis: WCCO-AM; KSGS-AM; KMJZ-FM; WLTE-FM

Monterey-Salinas: KLUE-FM

New York: WCBS-AM/FM; WINS-AM; WNEW-FM; WFAN-AM; WXRK-FM

Orlando: WJHM-FM; WOCL-FM; WOMX-FM

Palm Springs: KEZN-FM

Philadelphia: KYW-AM; WPHT-AM; WOGL-FM; WIP-AM; WYSP-FM

Phoenix: KMLE-FM; KOOL-FM; KZON-FM

Pittsburgh: KDKA-AM; WBZZ-FM; WDSY-FM; WZPT-FM

Portland: KUPL-AM; KBBT-FM; KINK-FM; KKJZ-FM; KUFO-FM; KUPL-FM

16

Riverside: KFRG-FM; KXFG-FM

Rochester: WCMF-FM; WPXY-FM; WRMM-FM; WZNE-FM

Sacramento: KHTK-AM; KQPT-AM; KZZO-FM; KNCI-FM; KRAK-FM; KSFM-FM;

KYMX-FM

San Diego: KPLN-FM; KYXY-FM

San Jose: KEZR-FM; KBAY-FM

San Francisco: KCBS-AM; KFRC-AM/FM; KITS-FM; KYCY-FM/AM; KLLC-FM

Seattle: KRPM-AM; KBKS-FM; KMPS-FM; KYCW-FM; KZOK-FM

St. Louis: KEZK-FM; KYKY-FM; KMOX-AM

Tampa: WQYK-AM/FM

Washington, DC: WHFS-FM; WJFK-FM; WPGC-AM/FM; WARW-FM

West Palm Beach: WEAT-FM; WIRK-FM

Westwood One (equity interest-radio network syndicated program/producer

Metro Networks

TDI Worldwide—outdoor advertising

Outdoor Systems

Production

CBS Production

EYEMARK—marketing and production of syndicated programming

King World Productions—first-run television syndication

Tribune Company, Chicago, IL

Broadcast and Cable

WPIX—New York

KTLA—Los Angeles

WGN—Chicago

WPHL—Philadelphia

WLVI—Boston

KDAF—Dallas

WGNX—Atlanta

KHTV—Houston

KTZZ—Seattle

WBZL—Miami-Ft. Lauderdale

KWGN—Denver

KTXL—Sacramento

WXIN—Indianapolis

KSWB—San Diego

WTIC—Hartford/New Haven

WTXX—Hartford

WXMI—Grand Rapids

WGNO—New Orleans

WPMT—Harrisburg

WBDC—Washington (not owned, but operated under a Lease Managment

Agreement)

WNOL—New Orleans

Tribune Entertainment—production and distribution

Qwest Broadcasting LLC

Tribune Co. holds a 25% stake in Time Warner’s WB Network

Cable

CLTV—Chicago area 24 hour news and sports

TV Food Network (31%)

Central Florida News 13 (CFN 13)—24 hour local news channel—joint venture

between Tribune and Time Warner Communications

Radio

WGN—AM (Chicago)

KKHK—FM (Denver)

KOSI—FM (Denver)

KEZW—AM (Denver)

Tribune Company—Publishing

Daily Newspapers

Chicago Tribune

Fort Lauderdale Sun-Sentinel

Orlando Sentinel

South Florida Newspaper Network

Daily Press (Hampton Roads, VA. and area)

17

The Advocate (Stamford, CT)

The Baltimore Sun

Greenwich Time (CT)

The Hartford Courant

LaOpinion (50%, Spanish language newspaper in Southern California)

Los Angeles Times

Los Angeles Times Syndicate (syndication service)

Los Angles Times-Washington Post News Service (50%)

The Morning Call (Allentown, PA)

Newsday (Long Island, NY)

Tribune Media Services—syndicated content for print and online

On The Mark Media

TMS TV—television programming information

TVData—television programming information

Zap2it.com—Website offering TV listings

Online Publications

Black Voices—Afro-centric news and information

Exito—South Florida Hispanic community news

Relcon—listing of Chicago area apartments

US/Express—weekly entertainment news

Digital City Atlanta

Digital City Boston

Digital City Chicago

Digital City Denver

Digital City Hampton Roads

Digital City Los Angeles

Digital City Orlando

Digital City South Florida

cars.com—national Web site for vehicle listings—venture with Times Mirror

and Washington Post Co.

apartments.com—national Web site for apartment listings—venture with Times

Mirror and Washington Post Co. (cars.com and apartments.com are part of

Classified Ventures LLC)

CareerBuilder.com (16%)—online employment information

Tribune Company—Other

Sports Franchise

Chicago Cubs

Tribune Ventures: Investment in and partnerships with the following ventures; percentage indicates how much ownership Tribune Co. has with:

America Online (1.5%)

CheckFree (1.0%)—electronic payment processor

Digital City (20.1%)—local interactive content

Excite (4.3%)—World Wide Web search engine

ImageBuilder Software (23%)—software developer

Discourse Technologies (14%)—multimedia education products

Infobeat (12.6%)—customized content

iVillage (7.8%)—online content

Lightspan Partnership (6.6%)—new—media education products

Open Market (2.6%)—electronic commerce

Peapod (10.7%)—online grocery shopping service

Picture Network International (NA)—online content

The Learning Company (11%)—multimedia education products

SoftKey International (NA)—digital education products

StarSight TeleCast (NA)

Interealty Corp. (25%)—real estate information

Knight—Ridder/Tribune Information services (50%)—news wire

Baring Communications Equity (Asia—Pacific) Ltd. Fund (NA)

Classified Ventures LLC (33%)

The Washington Post Co., Washington, DC

Newspapers

The Washington Post

The Washington Post National Weekly Edition

The Washington Post Writers Group (syndication)

The Herald (Everett, WA)

18

Gazette Newspapers, Inc. (community weekly newspapers and a monthly business publication, in Maryland; 11 military newspapers)

International Herald Tribune (50%)—with The New York Times Company

Los Angeles Times—Washington Post News Service (50% with Times-Mirror)

Enterprise Newspapers—4 weekly community newspapers in Snohomish County, WA

Magazines

Newsweek

Newsweek International

Newsweek Japan (Newsweek Nihon Ban)

Newsweek Korea (Newsweek Hankuk Pan)

Newsweek En Espanol

Itogi—Russian language newsweekly

Tempo—Greek language newsweekly with New Communications, S.A.

Post-Newsweek Business Information—trade magazines and trade shows

Television

Post-Newsweek Stations, Inc.

WDIV—(Detroit) (NBC)

KPRC—(Houston) (NBC)

WPLG—(Miami) (ABC)

WKMG—(Orlando) (CBS)

KSAT—(San Antonio) (ABC)

WJXT—(Jacksonville) (CBS)

ACTV, Inc. (20%)—Interactive television for entertainment and education

Newsweek Productions

Cable Operations

Cable One—MSO based in Phoenix, AZ

Other

Kaplan Educational Centers

Digital Ink Co.—new media and electronic publishing

Classified Ventures—with Times-Mirror and Tribune Co.

LEGI-SLATE—online Federal Government and regulatory information

Robinson Terminal Warehouse—newsprint facility in Virginia

Capitol Fiber—recycling center in Washington/Baltimore area

Bowater Mersey Paper Company (49%)—newsprint manufacturer in Nova Scotia

Dearborn Publishing Group, Inc.—a publisher and provider of licensing training

for securities, insurance and real estate professionals

The CHAIRMAN. So, but excuse me, Mr. Karmazin, you are behind

Tribune. You got to play catch-up ball with the Tribune. I am putting them in there also. Let me present and introduce Mr. Mel

Karmazin, the President and Chief Operating Officer of Viacom;

Mr. Alan Frank, the Chief Executive Officer of Post-Newsweek Stations; Jack Fuller, President of Tribune Publishing; William Baker,

President of WNET in New York. The Committee is indebted to

each of you for coming.

Mr. Karmazin, we will start with you, sir.

STATEMENT OF MEL KARMAZIN, PRESIDENT AND

CHIEF OPERATING OFFICER, VIACOM, INC.

Mr. KARMAZIN. Thank you, Mr. Chairman, Senator McCain and

other Members. I really appreciate the opportunity to be here

today. I did not think you wanted to hear what I was going to say.

I am sorry.

The CHAIRMAN. I would love to hear what you are going to say.

If I were running CBS, I’d hire you this afternoon, so do not worry

about that.

Mr. KARMAZIN. By way of background, I do go back a long time

in the broadcasting business. I went to work in 1967 for Mr.

Paley’s CBS and had as mentors Mr. Paley and John Kluge. Both

19

of those fine broadcasters. And, I like to call myself a broadcaster

who has talked about localism and diversity, so let there be no mistake; obviously we are very interested, as are all of our television

stations and all of our radio stations in localism, and certainly are

prepared to demonstrate our localism in our communities, whichever community you are sitting with, as compared to any other

broadcaster, whether or not they live in the market or do not live

in the market. Certainly, localism and diversity are something that

we think is very important.

I’d like to go back to those days, by the way, if you can mandate

it, to where there were only three networks, and the diversity was

just those three. So I do not think that, Senator as you said, the

horse left the barn. But I think those days are gone. When I first

started in the business, there were three networks, 9 out of 10 people watched prime time on network television. The average viewer

had seven television stations available to them, and there was no

VCR.

Today, the three networks, together in prime time, have less

than 35 percent of the audience on television. The average home

has 54 channels available to them. There are VCRs in almost 90

percent or actually over 90 percent of the country. There are items

like TiVo and UltimateTV and the Internet. But even more important than what’s here today, is there are more choices coming and

the changes are going to be even more dramatic. There is going to

be available very soon in every car, satellite radio, so that you will

be able to receive 100 radio stations in your car here in Washington, DC. in CD quality, controlled by one company. It will be a

subscription service, so the American public is going to have to pay

to receive those 100 different radio stations and we, free over-theair broadcasting, are going to have to compete with them.

There is also, if you follow what’s going on with technology, the

Internet which is also going to be available in your car. Internet

access is available today on your PDA. It is available on your cell

phone. It is going to be available in your car. There are 4,000 radio

stations on the Internet that you are going to be able to reach in

your home or you are going to be able to reach in your car, and

the whole world is changing. Technology is changing dramatically.

We are not just in a vacuum. Consolidation is taking place in every

industry, so we are now competing to get advertising dollars from

banks that are consolidating. We are competing to get advertising

revenue from airlines that are consolidating. Our advertisers have

consolidated. There are fewer and fewer of them, as have the advertising agencies consolidated.

And that consolidation is continuing. You mentioned earlier

AOL/Time Warner, and alluded to the possibility that AT&T might

do a transaction and possibly AT&T could do a transaction with

Comcast. And it is possible that DirecTV, which has access into 100

percent of the homes in America, might even combine with News

Corp., so we are not sitting here suggesting those things should not

be allowed to take place. They are wrong to take place. But in

order for us to compete against them, we need to have a stronger,

free over-the-air broadcasting system and I believe that we need to

see changes that have to be made in order to be able to have a fair

seat at the table with these companies that have consolidated.

20

A lot has been said about radio consolidation so let us talk about

that. There is a little over 10,000 radio stations in the United

States. One company, not ours, owns a little bit over 1,000. That

is 10 percent of the stations, so the largest company in this industry owns 10 percent. To some people, that might seem like a lot.

To me, it is not Microsoft, as far as a consolidated position in this

country.

But the effect of consolidation has not been less diversity, it has

been more. To take Washington, DC., the same number of radio

stations exist today that existed in the past. Fewer operators, more

programming choices. There are far more programming choices

available today to the people of Washington than existed prior to

the 1996 Telecommunications Act.

I think that consolidation, deregulation has been good for the

American public. I think we need to see the world where we can

own two networks. We are channel 350 on DirecTV. We are channel 20-something here in Washington on some cable systems. We

are on another channel with DishTV. There needs to be consolidation on the network side of things. We need to see that 35 percent

arbitrary cap removed so that we can make money on our TV stations, so we can bid for programming, so we can afford to keep good

programming on free over-the-air broadcasting, and we need to see

further deregulation in the radio industry to compete with the technology that is satellite.

If somebody is concerned about too much concentration, for 30

years, I have been dealing with the Justice Department. They are

pretty good at doing their job, and obviously there is a mechanism

for unfair consolidation or too much consolidation. I see my time

is up, so thank you.

[The prepared statement of Mr. Karmazin follows:]

PREPARED STATEMENT OF MEL KARMAZIN, PRESIDENT AND

CHIEF OPERATING OFFICER, VIACOM, INC.

Good morning, Chairman Hollings, Senator McCain, and Members of the Committee. I am Mel Karmazin, President and Chief Operating Officer of Viacom.

Thank you for this opportunity to testify before you today on the topic of media consolidation and broadcast ownership.

Instead of ‘‘media consolidation,’’ I prefer to call it ‘‘media competition,’’ because

that’s what consumers are enjoying today. Over the last decade, consumers have

reaped the benefits of a tremendous amount of change in the media industry: the

meteoric growth of cable, the explosion of the Internet, the expansion of broadcast

networks from four to at least nine, the birth of DBS, and the proliferation of new

media devices, such as cell phones and personal digital assistants, which are allowing consumers to access information when and how they want it.

It is no coincidence that this enormous growth in content and distribution platforms has taken place during a time of consolidation in our industry. Horizontal and

vertical combination is businesses’ response to consumers’ ever-multiplying demands

for more information and entertainment tailored to their lives. Given today’s marketplace, we have seen content providers expand to keep up with the change: This

personalization of information and entertainment is made economically possible

through mergers, such as that between Viacom and CBS last year. Scale allows

companies to accept risks associated with spiraling costs of programming, from the

cost of talent to sports rights, and other costs, such as those required to market,

brand and promote our products. And scale in the broadcast business brings consumers, for free, greater entertainment, sports and news programming choices than

ever before.

If we are to understand the media industry, we cannot examine it in a vacuum.

Because what happens in other industries unquestionably affects us in the media,

particularly at companies like Viacom, where half of our revenues depend on advertising. As airlines merge, as banks merge, as consumer product companies merge,

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the number of our advertising customers also declines. Where before, for example,

our company might have approached Airline X, Airline Y, and Airline Z as separate

advertisers, we now have one fewer client and, as a result, one fewer source of advertising revenue. And, today, the agencies that represent the Nation’s advertisers

have also declined, meaning that mergers in that industry have forced us in the

media to negotiate with only a handful of firms for a crucial part of our business.

In a world where AOL and Time Warner can combine, where Comcast may end

up owning AT&T’s cable systems, and where News Corporation could control

DirecTV, it is ironic that today’s hearing focuses largely on maintaining harmful restrictions on the only news and information medium that remains free to all Americans—broadcasting. Right or wrong, subscription-based cable MSOs and DBS providers are permitted to operate without the myriad ownership restrictions that

hinder broadcasters. Yet, in a cruel twist of fate, these pay television services rely

on broadcast television as a key component of their offerings: some 80 percent of

Americans now tune into their broadcast television stations through their cable or

satellite provider. Thus, while the services that require American consumers to pay

fees for access to them continue to consolidate largely unchecked, broadcasters, of

which we are a proud member, face the prospect of being more and more

marginalized. Television and radio broadcasting are the only media today that remain hamstrung by rules governing ownership—of television and radio stations locally and nationwide and of broadcast television networks—in ways that are far

more onerous than those affecting their competitors.

Despite the hyper-competitive state of the television industry, it is bewildering

and astounding that there is a debate raging anew here in Washington over the limits on national broadcast television station ownership, which currently prohibit a

group owner from reaching more than 35 percent of television households. Some, including the broadcast networks (ABC, CBS, Fox and NBC), want these limits pared

back or repealed. Others, including some of the largest media conglomerates in the

United States (such as Post-Newsweek, Cox, Belo and Hearst-Argyle), which count

among their holdings broadcast network-affiliated television stations, as well as

newspapers, cable systems and radio stations, are fighting hard to retain the status

quo.

The proponents of the status quo in this debate are clearly motivated by an overwhelming fear that their television business is changing and that freezing ownership at today’s levels is the panacea. But we all must recognize that the broadcast

business is dramatically changing all around us: Our audiences are dwindling, our

margins are contracting and our share of advertising revenues is declining. The impact on consumers, who should be central to this debate, do not benefit from the

status quo when it is irrational, anticompetitive, and an obstacle to expanded choice.

After all, it is change and deregulation that have brought about the almost dizzying

array of video and audio options Americans enjoy today.

History instructs us that the fear of change is best confronted with a generous

helping of flexibility and an invigorating dose of innovation. For instance, take the

radio industry in the early 1940s, when many feared that a gadget called television

would steal away its audience. Well, the coming of television did affect the radio

business, but not in the way those fearful of change imagined. Instead, innovative

managers prodded radio to recreate itself in the face of television’s competitive

threat, changing it over time from a center-of-the-living room, sit-down form of entertainment to one that went with consumers as they pursued their daily activities.

And, as such, radio prospered as never before.

Or look at the broadcast television industry in the 1950s, when it, in turn, feared

a new technology that took TV station signals and delivered them by cable to homes

too far away to receive them over the air. Broadcasters fought the new technology

because they saw it as a threat to free, over-the-air television and localism. Yet,

today, more consumers are able to watch over-the-air television stations with a

clear, sharp picture than would ever have been possible using rooftop antennas and

rabbit ears. And over-the-air television stations have profited as a result.

History teaches us that change is uncomfortable and unnerving to both government and business as we all undergo the turbulence of moving from the older to

the newer technologies. But in the end, when the change has occurred, we see that

consumers have benefited from the upheaval because they have been empowered as

never before. With hundreds and hundreds of programming choices available at

their fingertips, consumers are the final arbiters of which of these services will succeed and which will fail.

Change is something my company deals with day after day. At Viacom, our broadcast networks, our cable networks, our video rental business, our publishing arm,

our movie studio, and our radio stations are all by necessity constantly practicing

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nologies, trends, and regulatory schemes, and strategizing as to how we will adapt

our business models to keep them relevant in any given new environment. Obviously, Viacom is not alone. Any business that is to survive must be three steps

ahead of the curve or risk obsolescence. This includes big media companies with

newspaper and television interests like Belo, Cox, Hearst-Argyle and others, which

have been pushing for relaxation of the current restrictions on common ownership

of a daily newspaper and a television station in the same community as one way

to realize necessary economies in the face of the continuing decline in newspaper

circulation. These companies advocating for a liberalization of local restrictions are,

of course, the very same ones fighting deregulation of television ownership on a nationwide basis.

I empathize with the frustration of these newspaper conglomerates—deregulation

is important for each of our businesses. But the common ownership of two television

stations and of multiple radio stations in a local market consolidates advertising

revenues far less so than the combination of a daily newspaper and a television station in one market. Thus, lifting the newspaper limit should occur only after the

national television cap is lifted, the dual network rule is modified and the local ownership limits on television and radio are relaxed. It is these latter changes that

promise greater benefits to ensure the future viability of the free delivery of entertainment, news and information to the American public.

Over the last decade alone, a worldwide technological tsunami has crashed upon

the world, flooding the broadcast industry with competition in unprecedented proportions. Broadcast radio now competes head-to-head with Internet radio websites

that offer customized music, sports and news. Where offices once turned on a radio

for background music, individual employees are now ‘‘tuning in’’ to favorite websites

on their PCs for their all-day listening pleasure. And one day soon, when wireless

Internet access is ubiquitous, people driving in their cars may opt to listen to radio

websites instead of their local broadcast radio stations. Satellite radio, which has

been in the planning stages for years and is just now launching, is a new form of

‘‘radio’’ which will provide a subscriber with not just one program format as do traditional radio stations, but a whole range of them. Unlike traditional radio, which

can reach only as far as a terrestrial broadcast signal, the new technology will let

drivers travel far and wide without ever losing the clear reception of these satellite

‘‘stations.’’ As for broadcast television, it competes directly with cable, which was

originally created only to serve as a conduit for broadcast signals. That service, subscribed to by nearly 70 percent of the country’s households, has developed into a

multi-channel video programming distribution platform that not only carries hundreds of cable networks but serves as a high-speed gateway to the Internet and the

literally millions of websites that offer personalized entertainment, news, weather

and sports. The World Wide Web itself, born around 1994, spawned nearly three

million sites from 1999 to 2000 alone. Direct broadcast satellite, another competitor

to broadcast television, delivers hundreds of crisp digital programming channels to

more than 10 percent of the country and also offers high-speed Internet access.

In 1996, Congress fully recognized this formidable competition to broadcasters

when it passed the Telecommunications Act. Among other deregulatory actions, that

law eliminated all limits on the national ownership of radio stations, raised from

25 percent to 35 percent the national ownership limit on television stations while

deleting the numerical cap of 12 stations, and mandated that the FCC review broadcast ownership rules every 2 years.

Those who fear the further deregulation of television often point to the state of

broadcast radio ownership in an attempt to paint a bleak picture of media concentration. In so doing, they note that the largest radio station group owns some

1,200 stations, that this group and a handful of others control a large portion of the

radio advertising market, and that stations in these groups play the same programming formats from central feeds in their distant, big-city headquarters.

While their raw numbers are accurate, they give a completely misleading picture

of a radio industry that is in reality vibrantly competitive and is certainly more diverse than the industry serving consumers in the pre-Telecommunications Act era.

There are more than 10,500 commercial AM and FM radio stations in this country,

so the top group owns only about 11.4 percent. The fourth largest radio group in

terms of numbers, Viacom’s Infinity radio division, owns 184 stations, representing

a mere 1.7 percent of all commercial radio stations. The audience for the average

radio station in this country is miniscule. And, the radio advertising market is so

small—totaling only about 8.5 percent of all ad expenditures nationwide across all

media (newspapers, magazines, billboard, Internet, cable, television, etc.)—that even

if a single entity owned every radio station in the country, it still would control only

a small portion of the advertising pie. In fact, under an antitrust review, one owner

could not buy every radio station nationwide, because there would be limits on the

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number of outlets that that party could own on a local basis. Newspapers, by the

way, still garner about 21 percent of total ad spending.

And what of the argument that ownership consolidation limits the diversity of formats? No basis in fact whatsoever. That is because the multiple owner seeks to diversify formats in order to garner the widest cross-section of listeners.

All we need do is look at the radio scene here in Washington’s own backyard to

see this theory spun into practice. In 1993, the 53 commercial and noncommercial

radio stations in the Washington, D.C. market were owned by 39 licensees, who offered 19 different formats. Today, 5 years after the Telecommunications Act’s liberalization of the radio ownership rules, these 53 stations are owned by fewer licensees—27 to be exact. But these 27 offer more formats: 22 instead of 19, a nearly 16

percent increase. Radio listeners in Washington can now tune in to a Korean language station, a Mexican station, two ethnic stations, a full-time smooth jazz station

and a business news station, none of which was available 8 years ago or so.

Consumers in Columbia and Greenville, South Carolina enjoy even more diversity

of formats—about 45-58 percent more than they could choose from before passage

of the Telecommunications Act. Since 1993, the number of owners of radio stations

in Columbia has decreased from 20 to 13, but the number of formats has increased

from 11 to 16, including seven new formats and one new Spanish-language station.

In Greenville in the same time period, the number of owners has gone from 27 to

23, but the number of formats has gone from 12 to 19, including ten new formats

and two new Spanish-language stations. Radio programming, in short, has become

more—not less—diverse, and consumers enjoy the fruits of Congress’ deregulatory

efforts. Moreover, broadcast radio is now better poised to compete with the new substitutes of the Internet and satellite radio.

As in the case of radio, we must parse the naysayers’ arguments against deregulation of the national television ownership cap. Their primary contention, intended to

incite fear among policymakers, is that localism will fall if the cap is lifted. Major

media companies such as Cox, Belo and Hearst-Argyle—headquartered in Atlanta,

Dallas and New York, respectively—each operates tens of stations in markets very

far flung from their home bases. Yet, somehow these huge media companies shamelessly argue that they are ‘‘local’’ in every market where they own a television station while we are not. This pretzel logic does not end there. These same companies

further contend that because CBS, for example, has its headquarters in New York,

the stations it owns in other markets cannot be ‘‘local,’’ and decisions about local

news and information must be orchestrated from corporate offices in New York. This

despite the fact that CBS’s local station in Boston is just as ‘‘local’’ as the station

owned in that market by New York-based Hearst-Argyle.

In fact, all we need do is look at a sampling of states to see that television stations in only a minority of cases are even owned by companies headquartered in the

same state. In Massachusetts, of the 13 commercial television stations licensed

there, none is owned by a Massachusetts broadcaster. Of the 14 television stations

in West Virginia, two are owned by in-state broadcasters. And in Kansas, only one

of the 11 television stations is owned by a Kansas broadcaster.

The real story is that CBS, like every other broadcaster, knows that localism is

what makes broadcasting unique and a worthy competitor in the burgeoning video

programming marketplace. While offering local news and public affairs programming may make us good citizens, it is also no secret to networks, group owners and

individual station owners that local programming is a key competitive advantage

that attracts viewers and differentiates broadcast television from cable channels,

which are distributed nationally. CBS’ owned-and-operated stations individually determine how much news they will air, what stories they will run and when they

air them. As with our Infinity radio stations, there is no corporate dictator in New

York who orchestrates the stations’ local news programs. In fact, it’s quite the opposite. Our stations’ news directors have complete freedom locally. This is a fundamental CBS policy. And it is good business.

On average, each of our CBS stations airs 25 hours of local news and public affairs programming each week, with actual amounts in some markets surpassing

every other station. And our stations do not flinch from covering stories of local interest, even if it means preempting network programming. Just this past May in

Minneapolis, for example, our WCCO–TV preempted 3 hours of primetime network

programming to run an emergency weather newscast. For the past 20 years, WBZ,

our Boston station, has preempted primetime network shows to air the Boston Children’s Hospital Telethon. WBZ also aired complete coverage of Congressman Joe

Moakley’s funeral, preempting programming from 10 a.m. through 4:30 p.m.

Many of CBS’s general managers, news directors and other staff were raised in

the communities where they work and, as a result, know these communities intimately. For example, Peter Brown, the news director of WBZ in Boston was born

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in Newton, Massachusetts and has worked at our station for 19 years as of this

Labor Day, having worked his way up the ranks. And Brian Jones, the general manager of KTVT in Dallas, graduated from Plano High School, attended the University

of Texas and has spent all of his working life in the state. He has been with KTVT

for 14 years and started there as the station’s national sales manager.

In addition to covering local events, our stations heavily participate in public service activities. For example, for the past 10 years, KPIX in San Francisco and, for

the past 20 years, WBZ in Boston, have separately aired an adoption series that features local children in need of adoption. The KPIX series has led to the adoption

of 86 percent of the children featured.

As with radio, consolidation in the television industry can result in significant

benefits to the consumer. Viacom’s merger with CBS brought under one roof a group

of television stations affiliated with UPN and a group affiliated with CBS, with

overlap in six markets. In five of these duopoly markets, we are airing or are about

to launch half-hour newscasts or hourly updates on stations where none existed. As

a result, diversity has expanded in Boston, Dallas, Detroit, Miami and Pittsburgh,

where viewers now have access to more unique local news, weather and sports.

The ‘‘localism-is-dead’’ issue, therefore, is a transparent distraction from the affiliates’ true fear: the inevitable change to the broadcast business model which has in

the past delivered to affiliates a steady, now unrealistic level of revenue. Under the

traditional business model over the past few decades, networks have not only provided affiliates with a multi-billion dollar schedule of entertainment, sports, news

and public affairs—all free of charge—but also cash compensation for carrying that

programming. This in addition to the commercial positions within network programming which are made available to affiliated stations to sell for their own account,

producing advertising revenues over and above those which they receive from the

sale of time during non-network programming—revenues which go straight to the

bottom line.

Look behind the dust being kicked up in Washington by affiliates and what you

see is a bold request for government creation of a world where the network bears

the entire risk and expense of developing programming with no countervailing obligations on affiliates—such as simply fulfilling their contractual commitments to air

this programming. If the affiliates get their way, the public will not, because networks will be discouraged from engaging in the even more expensive and riskier enterprise of creating new shows the public wants.

The broadcast network makes money through only one source, the sale of national

advertising. Compare this single-revenue business model to the dual revenue stream

of cable networks, with whom broadcast networks compete: A cable network relies

on ad sales, too, but is also paid by cable operators for carriage of its programming—the exact opposite of the relationship which prevails between broadcast networks and their affiliates. Moreover, while the ‘‘Big 4’’ broadcast networks are prohibited from combining, cable networks are subject to absolutely no ownership restrictions.

Broadcast networks, which provide programming free to consumers and are limited by regulation in what other television stations or networks they can own, cannot continue to compete based on these old and outdated paradigms. When the profits made by the top 15 cable networks dwarf the earnings of their over-the-air competitors, it is unrealistic to continue to restrict combinations between broadcast networks when no such restriction exists for cable networks. And when the profit margins of network-affiliated stations are several multiples of those of the networks

that supply most of their programming, it is unrealistic and unfair to artificially restrict the number of local stations that the networks themselves can own to amortize their enormous programming costs.

With fewer viewers watching more expensive broadcast television programming

and advertisers unwilling to spend more to pay for it, broadcasters must be permitted to participate in the economies of scale enjoyed by their competitors. For example, in addition to its operations in New York, CBS News staffs bureaus around

the world to produce network news. If our company were able to own and operate

another major broadcast network, we could use the combined resources to operate

more efficiently and to provide more news more often on both networks—to all

Americans and still free of charge. Even with two such networks under one roof,

the combined ratings and advertising revenues would not come close to dominating

the literally hundreds of remaining television programming competitors.

Maybe it’s the golden years of television that opponents of relaxing the national

broadcast television station ownership cap really yearn for. And why not? Life was

easier then for the few of us in the media business. Even in 1976, in the afterglow

of those golden years, CBS, along with the only other broadcast networks at the

time, ABC and NBC, claimed nine out of 10 viewers each night. The average home

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at that time had seven channels to choose from. And the VCR was not commercially

available. That is a status quo any business would want to preserve.

Nostalgia may make us feel better for a time, but neither time nor technology

stand still. Almost 5 years later, in 1980, there were 734 television stations, 21 percent of all homes subscribed to cable, 16 national cable networks existed, and the

average home received nine channels of programming. In 1991, Americans could select from 33 channels of programming, the broadcast networks had lost one-third

of their audience, and VCRs were in 70 percent of all homes.

Today, there are 1,663 TV stations, 9 broadcast networks, 70 percent of all homes

subscribe to cable and another 10 percent pay for DBS. There are 281 national cable

networks and the average home receives 54 channels of programming. A viewer can

tune into several all-news cable channels, both national (such as CNN, MSNBC and

the Fox News Channel) and regional (such as NY1 News in New York and News

Channel 8 in Washington). Or a viewer can choose to watch an all-golf channel, an

all-cooking channel, or an all-history channel. Or, perhaps, check in on the deliberations of this Committee on C-SPAN. And then there is the Internet, a medium none

of us can ignore. According to the Pew Research Center, as many Americans—33

percent—receive their news from online sources as from broadcast networks. For

younger people, the trend toward new media sources for news and information is

even more pronounced: more college graduates under the age of 50 receive news

from the Internet than from television news.

As a result of this robust competition, six of the broadcast networks today, the

‘‘Big Three’’ plus Fox, the WB and UPN, jointly garner only about 35 percent of TV

households in prime time. Although the population of the United States has grown

significantly, fewer people watched the final episode of Seinfeld in 1998 than

watched the final episode of M*A*S*H in 1983. Whereas broadcast network television was once the common experience that bound the nation, it is now just one

of a myriad of television programming choices.

In the aftershock of such seismic growth in competition, all broadcasters, networks and affiliates alike, should embrace change and join in advocating rules

changes that will put us at regulatory parity with our competitors and help to preserve free, over-the-air television as a vibrant part of our remarkable media marketplace. Let’s start with the fact that the 35 percent cap imposed on broadcast television is an unrealistic and arbitrary limit. Limiting broadcast television ownership

doesn’t affect competition or diversity in any market at all. Viewers watch stations

only in their local markets, and consolidation in different markets has no impact

on competition.

Congress in its wisdom has always understood that regulatory regimes must move

in synch with the dynamism of competition. In the Telecommunications Act of 1996,

Congress directed the FCC to review its rules on a biennial basis to ‘‘determine

whether any of such rules are necessary to the public interest as a result of competition.’’ Given the undeniably robust State of competition in the video marketplace

today, it is unjustifiable that television broadcasters continue to be unfairly impaired by an onerous regulatory regime attached to no other telecommunications

segment. Instead, television broadcasters must be positioned to withstand economic

challenges, as businesses are now experiencing in this downturn, in order to compete against the ever-multiplying array of competitive video program distributors,

and to commit the huge investments needed to make the transition to digital.

We therefore urge that the FCC make important changes in its upcoming biennial

review. First, the national broadcast television ownership cap must be lifted. Second, one major broadcast network should be permitted to combine with another.

And, third, local television and local radio ownership should be based on a percentage of the market, not on the number of stations and arbitrary numbers of ‘‘voices.’’

We hope that this Committee will support the FCC as it undertakes these significant actions.

Eliminating ownership restrictions, which attempt to regulate by a prophylactic

method that often ensnares the wrong targets, will not mean the end of any review

of mergers, of course. Our nation’s antitrust laws require intensive review by the

Department of Justice or the Federal Trade Commission on a case-by-case basis to

determine whether consumers will be harmed by a particular combination. These

arms of the government, which have the authority and expertise to assess concentration, should be permitted to do their jobs rather than having arbitrary rules

applied that may actually work against consumer’s best interests. Such tailored assessments of the impact of media transactions promote, rather than stifle, competition.

There is only one status quo we should all fight to maintain, and that is the

world-class quantity and quality of media choices available to Americans. A healthy

broadcast industry that delivers entertainment, sports and news for free to all

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Americans is a critical element of our society and is only made possible by the incredibly competitive media landscape that is uniquely American. It should not be

left to struggle under the weight of rules that favor a select group of broadcasters

at the expense of the American viewing public.

The broadcast industry is at a critical juncture. This Committee has the opportunity to make an historic contribution by embracing the future and unlocking the

shackles that threaten to extinguish broadcasting and its essential role in creating

and maintaining an informed and diverse citizenry. We are prepared to take the

economic risks to make this new world of choice a continuing reality and to follow

your lead into a more competitive future that will result in empowering Americans

more than at any time in the history of this great nation. Now is the time to reject

interests of the few for the benefit of the many.

Thank you.

The CHAIRMAN. Mr. Frank.

STATEMENT OF ALAN FRANK, PRESIDENT,

POST–NEWSWEEK STATIONS, INC.

Mr. FRANK. Good morning, Mr. Chairman and Members of the

Committee. My name is Alan Frank. I am the President of PostNewsweek Stations, chair of the Network Affiliated Stations Alliance, representing more than 600 local television stations affiliated

with ABC, CBS and NBC. I also serve on the NAB board.

Both NAB and NASA strongly believe that the national television ownership cap should not be increased. We appreciate the

recent letter from Chairman Hollings, Senator Stevens, and other

Members of the Committee emphasizing that the 35 percent ownership cap should be retained.

The question facing the Committee as it reviews media concentration is not whether I am a better broadcaster than Mel

Karmazin. I run a high-quality television station in Detroit that

competes with one of the CBS O&Os, and even though Mel’s station does no local news, it is a pretty good question. The question

instead is sometime will there continue to be a variety of companies, Mel Karmazin’s, my company, Cosmos, Benedict, Fisher, Hubbard and dozens and dozens of others making critical news and

programming decisions in America, or at the next ownership hearing 5 years from now, will Mr. Karmazin be here alone, one person

able to testify for the entire broadcast industry because the networks run out of New York and Hollywood will own most of the

country.

Localism and diversity are at the core of the American broadcast

system. Local affiliates are the embodiment of these principles.

When NBC told its affiliates last fall to air Game One of the American League Playoffs instead of the first Presidential debate, it was

the affiliates that complained and ultimately the network relented

and allowed affiliates to preempt the baseball game for the debate.

Allowing the networks to own more stations means that next

time there will be no local pressure to correct the network’s bad

judgment.

Limits on national television ownership sustain our unique form

of American broadcasting. Other countries like Japan or Britain or

France have no such thing as local news. What happens in Tokyo

or London or Paris sets the agenda. There is no community or regional coverage. Increase the ownership cap, and you place in peril

our balanced national local system of strong networks and strong

local affiliates.

27

Since the ownership cap was increased to 35 percent, the networks have gained substantial power, power that is been used to

diminish the role of affiliate stations. We believe the cap should be

at 25 percent and the legitimate question for the Committee is why

not move the cap back to 25 percent, a number which many of you

supported in 1995. Certainly any increase beyond 35 percent would

jeopardize localism and diversity. As you review the current state

of media ownership, please consider these three points.

First, the more stations the networks own, the more they will nationalize and homogenize news and programming. The networks

have one goal. To make certain that 100 percent of their programming is carried by affiliate stations. There is tension between the

network’s business model and business objective, which is maximum exposure, and my business and legal objective, which is to

meet the needs of the community I serve. My written testimony

has several examples of how we preempt network programming to

meet community needs.

Let me give you one here. At our television stations in Jacksonville, Miami and Orlando, we preempt hours of network programming each year to carry the Children’s Miracle Network Telethon.

This program and others like it reflect local interests, local concerns and local needs. We make these decisions not because we

want to harm the network’s bottom line, but because we seek to

meet the special needs of our communities.

If the ownership cap is relaxed further, the networks will buy

more local stations. How will that change their operations? Think

about the general manager of an O&O in South Carolina or Montana, or Oregon, or Mississippi, who has to decide whether to preempt network programming to go carry a local ballgame or candidate debate. Trust me. No GM of an O&O wants to call Mel saying that the station won’t be showing a network program in order

to carry a debate or high school ballgame.

Second, I want to dispel the myth propagated by the networks

that the future of free over-the-air broadcasting is at stake unless

the cap is raised. Quite to the contrary. Localism and diversity are

at stake if the cap is raised. In 1996, when the ownership cap was

being debated, the networks complained that they were going broke

in the network business and needed to own more stations. They

were granted their wish, but are now back repeating this plea. This

claim suffers from the fallacy of Hollywood accounting. It fails to

take into the account the profits network companies earn from program syndication, cable, and their own television stations.

The networks are doing just fine, thank you. Wall Street reports

show that the four networks collectively in the year 2000 had profits of over $4 billion. Free over-the-air television does not need

more network ownership to survive.

And finally, the dramatic changes in the broadcast industry since

1996 show that the cap must be retained. Since then, Fox has

agreed to buy Chris Kraft; Disney bought ABC Cap Cities; Westinghouse bought CBS; CBS bought Infinity Broadcasting and

Viacom bought CBS and this doesn’t even touch on the networks’

aggressive move into the programming and syndication markets

following the repeal of Fin-Syn, where most of the competition has

been eliminated. These developments led the FCC to report reVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00031 Fmt 6601 Sfmt 6601 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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1The Telecommunications Act of 1996 set the national television broadcast ownership cap at

35 percent, and this cap is reflected in the rules of the Federal Communications Commission

(FCC). Telecommunications Act of 1996 § 202 (c)(1)(B); 47 C.F.R. § 73.3555(e)(1). Since the early

1980s, the national ownership rule has moved from 7/7/7 (7 AM, FM and TV stations), to 12/

12/12 (12 AM, FM, and TV stations, with a limit on the aggregate reach of the 12 television

stations to 25 percent of the national audience), to 35 percent of the national audience.

cently that since 1996 competition in the broadcast industry was

reduced rather than increased.

In conclusion, while the world of television has changed substantially, the need for safeguards has not. In fact, it has increased.

Whether it is local weather or news or candidate forums or sports

or charity events, local broadcasters remain a trusted source of information and other important service to their communities. And

for those millions of Americans who do not subscribe to pay TV,

local broadcasters are their sole source of news and programming.

So although it is easy for the networks to say these network

rules do not make sense in Internet time, the truth is that values

of localism and diversity endure and are as much in need of protection today as they have ever been. Thank you, Mr. Chairman.

[The prepared statement of Mr. Frank follows:]

PREPARED STATEMENT OF ALAN FRANK, PRESIDENT, POST-NEWSWEEK STATIONS, INC.

Mr. Chairman and Members of the Committee: My name is Alan Frank. I am

President of Post-Newsweek Stations and chair of the Network Affiliated Stations

Alliance (NASA), a group that represents the more than 600 local TV stations across

America that are affiliated with the ABC, CBS, and NBC networks and that strongly opposes any increase in the national television ownership cap. I also serve on the

Board of the NAB, which shares our view that the ownership cap should not be increased. I am pleased to appear at this hearing on behalf of the local affiliates in

this country who work every day to operate quality local stations that present a

blend of local programming, news, syndicated programming and national network

programming. I’m also pleased to be here with Mel Karmizan. We want the networks to grow and prosper, because their doing so will make them stronger and

more valued partners to the affiliates. CBS and the other networks have to be vital

partners in providing our communities with successful programming.

Before I launch into the views of local broadcasters on the important matter of

ownership rules, it may be helpful to put some basic industry facts on the table,

since I appreciate that you have lots of industries to keep track of within the broad

jurisdiction of this Committee. The broadcast television networks are in the business of acquiring or producing prime time entertainment, news and sports programming, selling advertising time to national advertisers for insertion inside the programming, distributing that programming and advertising to local stations, and

owning some television stations, mostly in major markets, to carry that programming and advertising. The television networks are anxious to reach 100 percent of

the audience, because that helps them charge higher rates to advertisers. To accomplish this goal, in each of the two hundred or so television markets in the country,

the networks either own a station, known as an owned-and-operated station (O&O),

or they enter into a contract to have a local broadcaster act as an affiliate. Under

current law, no network is permitted to own stations that reach more than 35 percent of the national audience; thus, 35 percent is the national television ownership

cap.1 As a consequence, local stations that affiliate with a network are an important

part of the networks’ business model. My company has a typical arrangement—we

run six stations and have affiliate agreements with each of the three major networks. In addition to arranging to carry network programming, we also produce our

own local news, public affairs and entertainment programming; we carry some local

sports; we carry charity telethons and other specials such as ‘‘Billy Graham Specials;’’ and we buy syndicated programming, which includes everything from ‘‘Jeopardy’’ to ‘‘Frasier’’ reruns. We are also responsible for selecting the mix of these ingredients based on informed views of what best serves the public in our community.

The system that I just described provides strength and flexibility to our broadcast

service. Indeed, Chairman Hollings, Senator Stevens, Senator Inouye, Senator

Burns, Senator Lott, Senator Dorgan, Senator Cleland, Senator Boxer, and Senator

Edwards, joined by an equally bipartisan number of House colleagues, recently

29

2Letter to Chairman Michael Powell from Senators Hollings, Stevens, Inouye, Burns, Lott,

Dorgan, Cleland, Boxer, Edwards, Helms, and Represenatives Dingell, Markey, Burr, and Pickering (Attachment 1). 3 Id. at 2.

made this same point to Chairman Powell: Two of the hallmark principles of the

Communications Act are localism and diversity, and our uniquely American form of

broadcasting, with its combination of national networks and local, independently

owned and operated broadcast outlets, reflects these core principles. We are committed to making sure that as the media industry evolves and consolidates, the

voice of local broadcasters is not stifled or silenced. The national ownership cap at

its current level serves a critical role in preserving localism.2

We commend Chairman Hollings and the many Members of the Committee for

this strong letter in support of localism and against any increase in the national

television ownership cap. That view, which also is backed by NASA and the National Association of Broadcasters (NAB), sends a powerful message to Chairman

Powell and the FCC as they review the broadcast ownership rules.

The question facing the Committee as it considers the matter of national television ownership rules is simple: Will there continue to be a variety of companies—

Mel Karmizan’s; my company; Jim Keelor’s company, Cosmos; Jim Yager’s company,

Benedek; Ben Tucker’s company; Stan Hubbard’s company; and dozens and dozens

of others—making critical news and programming decisions in America? Or at the

next ownership hearing held 5 years from now, will Mr. Karmizan be here alone,

one person able to testify for the entire broadcast industry because the networks,

run out of New York and Hollywood, collectively will own most of the country (and

will be able to take the rest for granted)?

This scenario cannot be dismissed. Consider how quickly the industry has

changed in just a few years. Today, Mr. Karmizan has stations reaching 41 percent

of America. His colleagues at ABC, Fox, and NBC control stations reaching 24 percent, 41 percent, and 27 percent respectively. By contrast, my company has stations

reaching 7 percent, and no affiliate group has stations that reach more than 30 percent. This growth in network power is remarkable and is felt in significant ways

across the broadcast community. Before the 1996 Act was passed, the three major

networks reached no more than 1 in 5 households through their O&O stations.

The networks were able to expand their audience reach because in 1996, the national broadcast ownership cap was increased from 25 percent to 35 percent. NASA,

along with Senators Dorgan and Helms and many others, wanted to keep the cap

at 25 percent. Many of the members of this Committee expressed concern about the

repercussion of increasing the cap to 35 percent. While we appreciate the compromise worked out by Chairman Hollings, Senator Dorgan, Senator Lott and others

during debate of the 1996 Act, I can tell you that your fears were well founded.

Make no mistake: as a result of that change the networks have increased their holdings and their power just as the leadership of this Committee predicted. The result

is that today local broadcasters have less independence, less ability to make sound

programming decisions for their local communities. An increase to 45 percent or 50

percent would be a disaster and I believe that even at 35 percent we are at risk

of becoming passive conduits for the networks’ daily feed of news and programming.

As the recent letter from many members of this Committee clearly stated to

Chairman Powell: The national ownership cap is vital to ensuring that television

programming decisions remain in the hands of local broadcasters, and that media

power does not become concentrated in New York or Los Angeles. The national

broadcast ownership cap is not, as some wrongly suggest, just about competition.

Local input helps keep our broadcast system responsive to the views of local communities across the country. That diversity of viewpoint benefits our democracy.3

The local affiliates share this view that localism is the core of our broadcast system and that any increase in the national ownership cap puts those values at risk.

We greatly appreciate the strong leadership that Chairman Hollings and so many

distinguished members of this Committee have demonstrated on this issue. We also

welcome the opportunity to set out the case in detail why the networks’ bid to increase the ownership cap should be rejected. In the past, the networks have asserted four reasons why the ownership cap should be lifted or repealed: (i) the financial health of the networks and the future of free, over-the-air television are at

stake; (ii) the world of television has changed in recent years and the rules are unnecessary and antiquated; (iii) national ownership rules do not promote localism or

diversity; and (iv) the ownership cap is unconstitutional. Let me consider each of

these issues in turn.

30

4 CBS figures for years 1996–99 represent the revenue and profit data reported for CBS’ ‘‘television segment’’ in the Forms 10-K and 10-K/A for CBS Corp. filed on March 29, 2000 and August 5, 1999, respectively. According to these reports, the television segment of CBS Corp. for

years 1996–99 consisted of three integrated operations: the CBS television network, the CBS

owned and operated television stations, and CBS’ television syndication operations.

On May 4, 2000 CBS Corp. merged with Viacom Inc. CBS figures for year 2000 represent the

revenue and operating income data reported for Viacom’s television segment in the Form 10-

K for Viacom Inc. filed on March 28, 2000. The television segment for Viacom Inc. consists of

the CBS and UPN television networks, 39 owned and operated television stations, Viacom’s television production and syndication business.

I. The Networks Do Not Need To Own More Stations To ‘‘Save Free, OverThe-Air Television’’

In 1996, when the ownership cap was being debated, the networks complained

that they were going broke in the network business and needed to own more stations. They were granted their wish and now are back here a few years later, repeating their plea: somehow the future of free, over-the-air television is again at

stake unless Congress increases the ownership cap. This claim suffers from what

I call ‘‘the fallacy of Hollywood accounting.’’ In making this claim, the networks are

asking you to myopically focus on the artificial accounting system they’ve set up,

a system that separates the part of the business that buys and distributes programming from the part of the business that makes, owns, or syndicates programming,

from the part of the business that owns TV stations, from the part of the business

that makes money from cable and Internet programming. But this argument proves

too much. If a single network owned 100 percent of the stations in America, it still

would show only moderate network profits because the profits from syndication,

cable and Internet services do not flow to the network portion of the balance sheet.

For a more accurate picture of network profits, one needs only review their financial

reports to Wall Street analysts. Even a cursory review of those financial reports,

shows that their vertically integrated programming and distribution businesses are

highly profitable. CBS Network enjoyed a 19 percent increase in profits from 1999

to 2000 after a 59 percent increase in profits from 1998 to 1999 and a 19 percent

profit increase from 1997 to 1998.4 The four networks, collectively, have 2000 profits

(even with ‘‘Hollywood accounting’’) of over four billion dollars!

Over the past decade the networks have benefited from a number of rule changes

that have allowed them to strengthen their competitive position. Remember, in the

late 1980s and early 1990s, the networks argued for repeal of the financial interest

and syndication (‘‘fin/syn’’) rule, which prohibited the networks from producing and

syndicating their own shows. After much discussion and with some trepidation, the

local affiliates supported the networks on that issue and the FCC repealed the rule.

How has this rule change benefited the networks? Today, the networks own a substantial part of the programming they distribute and many independent programmers have exited the market. Some critics have complained that the fact that the

networks own the programming may affect their judgment, leading them to keep a

show on the air so that they get to the magic number of 100 episodes needed to

take the show into syndication. At the moment, there’s an active debate on whether

network ownership of shows impacts the primetime schedule and causes independent producers to be squeezed out. These debates will cease if the networks

owned more local TV stations, because the O&O stations will just be passive and

quiet conduits for the network programmers.

The networks also benefit from their affiliates when a program is made popular

by affiliate carriage then goes into syndication. For instance, I and other affiliates

carry a CBS program such as ‘‘Everybody Loves Raymond,’’ which helps make it a

popular program and enables CBS to take it to the syndication market. Once a show

goes into syndication, I could well face a situation in which I have to compete

against a station across town that is carrying a syndicated CBS program that I

helped make popular. How did that program become so valuable in the market? Because I carried it for CBS. Now, it is true that the owners of programming taken

into syndication always reaped the financial benefits, today the networks gain substantial revenue because they now own a significant portion of the programming.

This same reasoning applies to network programming that is ‘‘repurposed’’ and distributed on a cable network. The networks reap the value of national distribution

and branding that the affiliates make possible.

In short, the networks and their related businesses are growing and prospering

financially. Because of lifting the fin/syn rule and the ownership cap to 35 percent,

along with other rule changes over the past 5 years such as relaxing the dual network and duopoly rules, the networks are doing quite well, thank you, and as a byproduct of these changes are expanding their dominance over affiliates. The netVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00034 Fmt 6601 Sfmt 6621 D:\DOCS\89019.TXT SSC1 PsN: SSC1
31

5 Biennial Review Report, at §§ 27–28 (Excerpts in Attachment 2). Former Commission Chairman William E. Kennard said that the consolidation that has occurred since 1996 in the television industry, both horizontal and vertical, has been ‘‘unprecedented.’’ Sallie Hofmeister, ‘‘FCC

to Propose Easing Broadcast Ownership Rules,’’ Los Angeles Times, May 31, 2000, at A-1

(quoting Kennard).

works’ position is that free, over-the-air television is at stake if the cap is not lifted,

whereas the fact is that localism and diversity are at stake if the cap is not retained.

II. The World Of Television Has Changed, But The Networks Continue To

Hold Substantial Power

On one point, the networks are right. The world of television has changed substantially in recent years. Since the last time a representative of the network affiliates appeared before this Committee to testify on broadcast ownership rules, 6 years

ago, the following has taken place: Disney bought ABC/Cap Cities, a move that was

a direct result of repeal of the fin/syn rule; Westinghouse bought CBS, and then

dropped the Westinghouse name; CBS of course bought Mr. Karmizan’s company,

Infinity Broadcasting; Viacom bought CBS; Fox has agreed to buy Chris-Craft. This

flurry of deals led the FCC to report recently that thanks to mergers and acquisitions, competition in the industry lessened rather than increased since the Telecommunications Act of 1996 was passed.5

In response to this argument, the networks say that this is just an intramural

squabble about relative bargaining power inside an industry that is challenged to

keep pace with the dynamic of competing media, and therefore they argue that neither Congress nor the FCC should get involved. Thus, the networks focus almost

exclusively on the general market for video news and entertainment and conclude

that any increase in television network ownership will not alter the broader competitive; landscape. This argument is off the mark because it ignores three markets

in which competitive conditions have a direct bearing on the continued justification

for the national ownership rule: (1) what the Commission has termed the ‘‘market

where networks meet stations,’’ (2) the market for syndicated programming, and (3)

the market for advertising.

(1) Network/Affiliate relations. Under our system of broadcasting, networks and

local stations are both collaborators and competitors. If I have a CBS affiliate (and

I have two in Jacksonville and Orlando), in many ways I’m in business with Mel

Karmizan. When he gets a hit show, I benefit. When he needed to spend money for

the NFL football package, I helped pay for it. In fact, when the bill for the NFL

package came due, Mel Karmizan emphasized that we were collaborators. But this

is supposed to be collaboration, not capitulation. Under the strict terms of the law,

written by Congress into the Communications Act of 1934 and reflected in the FCC’s

rules, I am not supposed to turn over the keys to my stations to CBS. I’m there

to run local stations. Sometimes I produce programming myself, sometimes I buy

it from others, and some parts of the day I depend on network programming. In that

way, we are collaborators. Just as I want the network to be successful, my network

wants me to run good stations.

But at the same time, we’re also business competitors. I periodically sit across the

table from network executives and negotiate affiliation agreements. These are

tough, long, important negotiations. The competition is not just at contract negotiation time, however. The competitive tension between the networks and affiliates is

present every day. That competitive tension is understandable because the business

goal of the network is different from the goal of a local station operator. CBS has

one goal: to make certain that 100 percent of their programming is carried by CBS

affiliated stations and to achieve high ratings for that programming. One hundred

percent clearance of a program helps generate higher ratings. It also helps CBS if

it owns a stake in the program. And it helps when it sells time to national advertisers. The tension lies between the network’s business objective, maximum exposure, and my business—and legal—objective, to meet the needs of the community

I serve. In Detroit, we preempt network programming to carry the local Thanksgiving Day parade. In Houston, we preempt network programming for rodeo coverage and for the Muscular Dystrophy telethon. In Jacksonville, Orlando and Miami

we preempt hours of network programming to carry the Children’s Miracle Network.

In the Carolinas, carrying ACC basketball is popular, and some of those games

occur during prime time. For some Mississippi stations, the Billy Graham Special

a couple times a year gets a big audience. In Montana, the state high school sports

finals generate lots of viewers. These programs reflect local interests, local concerns,

and local needs.

32

6 Biennial Review Report, at § 26 n. 78 (Excerpts in Attachment 2). 7See David Hatch, ‘‘Independents Fight the Good Fight,’’ Electronic Media (Jan. 29, 2001) at

1. 8 Biennial Review Report, at § 126 n.78 (Excerpts in Attachment 2). 9See generally Review of the Commission’s Regulations Governing Broadcast Television Advertising, Notice of Proposed Rulemaking, 10 FCC Rcd 11,853 (June 14, 1995).

Whatever the reason—and yes, the reason can be that another program is more

popular and thus more remunerative—a local broadcaster makes a decision not to

carry the network feed. Local broadcasters make these decisions not because they

want to harm the network but because they seek to meet the unique needs of their

community. (A local broadcaster should not have to prove they lost money to justify

a preemption; indeed, getting a big audience is in many ways the best vindication

that it was a ‘‘good’’ preemption.) The competitive tension that I describe here has

always been part of our business, but in recent years the pressure not to preempt

network programming has grown intense and has been reflected in affiliation agreement provisions that are too restrictive. Clearances of network programs are up; affiliate preemptions are down. Affiliates are being ‘‘muscled’’ to carry network shows

that they otherwise would not choose to air and their role as a disciplining force

to the networks is being diminished. Their voices against unsuitable network material have become muted. Their suggestions for improving network news and other

shows grow fewer and fainter.

These trends have increased dramatically since the cap was raised to 35 percent

and have adverse consequences for the quality of the public’s broadcast service

(whether the viewer is served over-the-air, or by cable or satellite). If the ownership

cap is relaxed further, one of two consequences will result. First, if the networks

buy lots of stations then the general manager of an O&O in Raleigh or Columbia

or Jackson or Decatur who has to make the decision of whether to run a local basketball game or Children’s Miracle Network telethon or a special will be answering

to Mel Karmizan. Trust me: no G.M. working for Mel will want to call him saying

that they won’t be showing his network program to carry a high school basketball

game. Alternatively, as the networks buy up more and more stations and network

power increases, the number of independent voices will dwindle and if my station

remains independently owned, it will become more difficult to speak out without the

fear of repercussions from the network.

As this analysis makes clear, increasing the ownership cap would harm the vitally

important relationship between broadcast networks and their affiliates. We’re not

alone in this view. The FCC reported last year that raising the ownership cap would

‘‘increase the bargaining power of networks over their affiliates, reduce the number

of viewpoints expressed nationally, increase concentration in the national advertising market, and enlarge the potential for monopsony power in the program production market.’’ 6 Because of further consolidation, that statement is truer today

than it was 12 months ago.

(2) Syndicated programming. With regard to syndicated programming, both Congress and the FCC have recognized that the state of competition in that market has

a direct impact on whether to repeal or modify the broadcast cap. On the supply

side, repeal of the Fin-Syn rule has allowed networks to purchase major syndicatios

or develop their own syndication divisions, thereby taking control over a greater proportion of non-network program hours. As a result, the number of syndicators that

control significant amounts of content has declined—from dozens in 1996 to a handful today—and most of those that remain are tied to the networks.7 In addition, on

the demand side, further nationwide consolidation of station ownership will mean

that there are fewer viable purchasers for syndicated programming aside from the

dominant national networks. Repeal or relaxation of the national broadcast cap

would thus exacerbate both supply side and demand-side concentration in the syndication market.

(3) Advertising. With regard to the advertising market, the FCC concluded recently that an expansion of the 35 percent cap would harm competition by

‘‘increas[ing] concentration in the national advertising market.’’ 8 In the current

marketplace, independent advertising sales representatives serve as intermediaries

between local stations and national advertisers. These ‘‘reps’’ are capable of assembling enough independently owned affiliates and other local stations to compete

with the networks as sellers on the regional or national spot advertising market.9

Because O&Os; do not sell advertising in competition with the networks that own

them, the national broadcast reach cap is essential to protecting the ability of affiliated stations to maintain healthy competition in these markets.

In sum, though the world of television has changed substantially, the need for

safeguards has not. In fact, it has increased. Though over-the-air television does not

33

10 H.R. Rep. No. 100–887, pt. 2;, at 20 (1988). See also Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 663 (1994) (‘‘Congress designed this system of allocation to afford each community of appreciable size an over-the-air source of information and an outlet for exchange on

matters of local concern.’’). 11See In re Review of the Commission’s Regulations Governing Television Broadcast, Further

Notice of Proposed Rulemaking, 10 FCC Red § 524 at 66 (1995). Notwithstanding competition

from cable, DBS, and the Internet, broadcast television remains the dominant medium for video

programming. In 2000, network affiliates and other broadcast stations accounted for some 60

percent of television viewership nationwide. See Seventh Annual Report, In re Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, CS

Docket No. 00–132, at § 22 (Jan. 8, 2001). In a recent ratings period, only two of the 100 toprated prime-time shows were cable programs, rather than broadcast. See TVB Press Release,

Broadcast Television Continues Lead Over Cable Through March (April 18, 2001). 12 Affiliate agreements must be filed with the Commission pursuant to 47 C.F.R. § 73.3613(a).

hold the position it once held in American society, its impact still looms large.

Whether it’s local weather or news or candidate forums or sports or charity events,

local broadcasters remain a trusted source of information. And for those Americans

who don’t subscribe to pay-TV service, local broadcasters are the sole source of news

and programming. So though it is easy for the networks to say that these ownership

rules don’t make sense in Internet time, the truth is that the values of localism and

diversity endure and are as much in need of protection today as they were years

ago. And the power and proclivity of the networks to override them are greater.

III. The National Television Ownership Cap Promotes Diversity

and Localism

The foundation of the Communications Act of 1934, and every amendment since

then, is that a person who holds a spectrum license is obligated to use the nation’s

airwaves to serve the public and to maintain control of the station’s operations.

Since its inception, the FCC has applied special rules to the nation’s broadcast system with one overriding goal in view: service to the public. Central to that goal is

the principle that the local licensee must be free to choose the appropriate mix of

programming for the community it serves. As Congress has recognized, the balanced

system of national networks and local affiliates has ‘‘served the country well’’ by

combining the ‘‘efficiencies of national production, distribution and selling with a

significant decentralization of control over the ultimate service to the public.’’ 10 To

further the public interest, broadcasters of free, over-the-air television have long

been charged with serving the diverse needs of local communities, for example by

providing programming that is responsive to the issues facing those communities

and affording equal opportunities and reasonable access to candidates for public office.11

One of the most effective ways to protect viewpoint diversity is to safeguard the

important partnership between broadcast networks and their affiliates. The ownership cap is a vital way to ensure the delicate balance in the network-affiliate relationship is maintained. For example, a network-affiliated broadcaster must have the

freedom to respond effectively and comprehensively to its community by interspersing programming responsive to its local community with the national programming provided by the network. Even with the cap at 35 percent, the affiliates’ freedom is in jeopardy. The FCC, which has studied the industry closely, agrees.

The Commission stated in its Biennial Review Report: The national networks have

a strong economic interest in clearing all network programming, and we believe that

independently owned affiliates play a valuable counterbalancing role because they

have the right to decide whether to clear network programming or to air instead

programming from other sources that they believe better serves the needs and interests of the local communities to which they are licensed.

Biennial Review Report, at § 30 (Excerpts in Attachment 2).

The bargaining power of the networks has increased dramatically since 1996. For

example, the current network affiliation agreements typically provide that a network affiliate risks loss of affiliation and other serious penalties if it ‘‘preempts’’

more than a few hours of network programming over an entire; year without the

network’s approval.12 This shift in the balance of power threatens the ability of consumers to view local programming that meets community needs. Concern about this

overreaching led the affiliates to ask the FCC to rule that the networks’ new practices are inconsistent with existing Commission rules and the Communications Act,

and should stop immediately. We have submitted substantial evidence to the FCC

on this issue, but let me share with the Committee one well-publicized example.

Last fall NBC told its affiliates to air Game One of the American League Division

34

13See Michael Camey, ‘‘NBC’s Swing Vote: Network To Skip Debate For Baseball,’’ Washington Post, Sep. 23, 2000, at C1. Fox insisted that its affiliates air the sci-fi series ‘‘Dark Angel’’

instead of the debate. 14See ‘‘Sly Fox buys big, gets back on top,’’ Broadcasting & Cable, Apr. 23, 2001, at 60. Under

the Commission’s rules, the audience reach of an UHF station in calculating the national ownership cap is reduced by half, due to the traditional weaker coverage of an UHF signal. 15 H.R. Rep. No. 104–204 at 221 (1995).

Series rather than the first of the 2000 Presidential debates.13 Ultimately, after

hearing repeatedly from the NBC Television Affiliates Association, the network relented and allowed affiliates to preempt the baseball game for the debate. Fox,

meanwhile, insisted that its affiliates air the sci-fi series ‘‘Dark Angel’’ instead of

the debate, and Fox did not back off. Allowing the networks to own more stations

means that this tendency to hew strictly to the network programming line-up will

be spread among more stations and will affect more communities and viewers.

Two networks—Fox and CBS—already exceed the 35 percent reach cap; indeed,

if the ‘‘UHF discount’’ is disregarded, each of these networks already has an audience reach of close to 50 percent.14 By owning more stations, especially in major

markets, the networks directly control the distribution of information to an increasing percentage of the American public, who as a result forego the benefits local licensee judgment traditionally exercised by the independently owned network affiliates. Network O&Os, for sound business reasons, rarely preempt network programming for local programming; of greater interest to their local communities. Even

when airing a program of local interest would be more economically beneficial to the

local licensee than clearing network-owned programming, the networks have a

strong incentive to broadcast their own programs via all of their O&Os and affiliates, for two reasons. Their ability to sell nationwide advertising time depend on

their ability to garner high ratings; and also, as the networks continue to purchase

or develop their own syndication operations, nationwide clearance increases the national ‘‘aftermarket’’ value of their programs. Non-network-owned stations, by contrast, are not similarly constrained because their sole interest is in how well the

programs perform in the local community.

The result of all of these changes in the market is two-fold. First, the more stations that the networks own, the more you’ll see the nationalization or homogenization of programming. The networks have a strong business incentive to deliver a

national feed all the time. Nationalization of our broadcasting system sets back the

cause of localism and diversity. Second, as I explained above, the affiliates are at

risk of losing power to stand up to the networks, to informally ride herd on issues

of suitability and taste in programming. We may not always succeed, and you may

not agree with our judgment, but I’ll tell you that a critical part of the job of the

affiliate boards is to carry complaints about programming and how it is promoted

to the networks. The result is a healthy debate on what is good television. That beneficial influence would be lost if the affiliates become, as Congress feared, mere

‘‘passive conduits for network transmissions from New York.’’ 15

Let me emphasize that I think Mel and the other networks generally run good

local stations. The question is not whether I’m a better broadcaster than he is. The

question is whether we as a society are better off having three or four people making those decisions from New York or Hollywood, or dozens and dozens.

IV. The Television Ownership Cap Set By Congress Is Constitutional

Contrary to the contention of the networks, the recent decision in Time Warner

Entertainment Co., L.P. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001) (‘‘Time Warner II’’)

does not affect the validity of the 35 percent national broadcast ownership cap. In

the first place, the same court had already held that a cable ownership cap was constitutional and that the FCC was empowered to establish a cap. Instead, the problem was the lack of justification for the 30 percent cap that it selected.

In contrast to the horizontal cable rule addressed by the court in Time Warner

II, the 35 percent ownership cap was set by Congress. The statutory backdrop to

the horizontal cable rule could scarcely have been more different from the one at

issue here. In the Cable Television Consumer Protection and Competition Act of

1992, Pub. L. No. 102–385, 106 Stat. 1460 (‘‘Cable Act’’), which authorized the rulemaking at issue in Time Warner II, Congress delegated to the Commission the authority to set ‘‘limits on the number of cable subscribers a person is authorized to

reach through cable systems owned by such person, or in which such person has

an attributable interest.’’ 47 U.S.C. § 533(f)(1)(A). Moreover, Congress declared that

in setting such limits the Commission must ‘‘ensure that no cable operator or group

of cable operators can unfairly impede, either because of the size of any individual

operator or because of joint actions by a group of operators of sufficient: size, the

35

16 In addition, Congress in the 1992 Cable Act expressly required the Commission to ‘‘account

for any efficiencies and other benefits that might be gained through increased ownership or control.’’ Id. § 533(f)(2)(d). The 1996 Act contains no equivalent requirement. 17Letter to Chairman Michael Powell, at 2 (Attachment 1).

flow of video programming from the video programmer to the consumer.’’ Id.

§ 533(f)(2)(A).16

Acting pursuant to this delegated authority, the Commission set a 30 percent

limit on the number of subscribers that may be served by a single cable operator,

justifying this limit in part by pointing to the risk that several cable operators

might independently deny carriage to a given programmer. A 30 percent cap would

ensure the presence of at least four cable operators in the marketplace, the Commission reasoned, reducing this risk and increasing the diversity of media voices available to the public. Time Warner 11, 240 F.3d at 1134. In Time Warner II, the court

concluded that the Commission was not authorized to protect diversity by taking

into account the potential for non-collusive action by multiple cable operators, because Congress in the Cable Act had given the Commission a more limited mandate.

Id. at 1135–36.

By contrast, Congress established the 35 percent national television ownership

cap by statute. The Commission’s authority to regulate broadcast station ownership

in the interests of diversity and localism is clear. Moreover, the 35 percent rule does

not abridge any speaker’s First Amendment rights. Unlike the cable must-carry

rules legislated in the 1992 Cable Act, it is a restriction on ownership, not a restriction on (or a compulsion of) speech. The networks have tried to claim that as a result of the ownership cap, they are barred from speaking to 65 percent of the potential television audience nationwide. That is not the case. Apart from the fact that

broadcast networks are free to own cable programming networks (as all the networks do) and radio stations, each of the networks operates a national broadcast television network. Through their O&Os and their affiliates, NBC, CBS, and ABC now

reach over 98 percent of all television households (a figure that approaches 100 percent when their owned cable and satellite networks are added to the equation) and

Fox reaches well over 90 percent. A rule change allowing them to own additional

stations would not enable them to speak to a single viewer they cannot reach now.

We agree with the conclusion that many members of this Committee communicated to Chairman Powell on this question: In writing the Telecommunications

Act of 1996, Congress itself set the national television ownership cap and incorporated it in the statute for the same reasons the court [in the Time Warner case]

found to be important governmental interests in the recent litigation addressing the

cable ownership cap: to promote diversity in ideas and speech and preserve competition.17

NASA, joined by the NAB, has vigorously defended the constitutionality of the

ownership cap before the D.C. Circuit in a suit filed by the networks. Given the

statements by the court in both Time Warner decisions, we’re confident that we’ll

prevail. However, I suspect that regardless of how the court decides this issue may

be back before the Committee.

My company and all the members of NASA are in the broadcast business because

we want to be local broadcasters. We want to be partners with the networks; I want

them to succeed and I hope they want me to succeed. We want them to offer quality

programming but ultimately we want the ability to carry out our legal mandate to

make decisions about what works best for each of our communities. Increasing or

repealing the national ownership cap puts at risk our system of diversity and localism. As demonstrated above, all of the networks’ arguments for altering the ownership cap lack merit. For the sake of the public interest and the health of the American system of broadcasting, we strongly urge this Committee to preserve and affirm

the national television ownership cap.

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The CHAIRMAN. Thank you, Mr. Frank.

Mr. Fuller.

STATEMENT OF JACK FULLER, PRESIDENT,

TRIBUNE PUBLISHING COMPANY

Mr. FULLER. Mr. Chairman, as a newspaper man ordinarily I

wouldn’t be here on Capitol Hill asking for anything but information, but because of the ongoing revolution in the way Americans

get their information, I am here to ask you that you permit newspapers to compete freely with other media for a share of the fragmenting news audience unhampered by legal restrictions on ownership of the means of communication.

Since the cross-ownership rule was established nearly three decades ago the news business has been transformed. In addition to

newspapers, magazines, broadcast television and radio, now Americans can get news from a proliferation of national all-news cable

operations such as CNN, Fox News and so on, as well as from local

cable operations such as New York One News and News Channel

8 here in Washington.

On the Internet, they can get news from a wide variety of sites

all over the country and all over the world. With a few keystrokes,

they can search the World Wide Web for news that interests

them—from what you have said in the Senate and the way you

cast your votes to information about local schools and parks.

This profusion of news sources is good for the country, but it is

a challenge for newspapers whose readership has been under pressure because of media fragmentation and whose advertising revenue is targeted by every new competitor as well as by the old

ones. This has put newspapers under some financial stress. You

have probably seen reports of significant cutbacks most have had

to make in this period of economic softness.

The cost of covering the news, however, is not declining. It is increasing. Covering the meetings and activities of hundreds of municipal government bodies, local school boards, and other public

policy events is a huge and expensive undertaking. Building teams

of journalists who are capable of understanding the complexity of

public policy issues today and translating them for lay people is not

easy or cheap. Not to mention the cost of serious, sophisticated

original coverage of the Nation and the world as Tribune newspapers are committed to providing.

In Chicago alone, The Chicago Tribune employs nearly 700 editorial staffers and hundreds of freelancers, most of them devoted

to news of local interest. In Los Angeles, the numbers are higher—

1,130 editorial staff of the Los Angeles Times. Even in small markets such as Newport News, The Daily Press employs 155 full time

editorial staff, which is nearly 3 times the size of a broadcast news

operation even in the metropolitan areas.

The question is whether in a fragmented media environment we

will be able to find the economic model to continue to support local

coverage at this level. I believe we can, but it will mean spreading

the cost of high quality journalism over more than one distribution

channel. We will have to reach new audiences in the many new

ways that people like to receive their news. And to do so we have

to have the burden of the cross-ownership rule lifted.

58

In an environment where people’s choices for obtaining information have radically multiplied, there is no risk of one voice dominating in the marketplace of ideas. In fact in the clamor of cities

like Los Angeles, Chicago, New York and others it is frankly a

challenge for any voice, no matter how booming it may seem, to get

itself heard. So long as distribution channels continue to proliferate, and the explosion of bandwidth guarantees that they will,

the public’s demand for a diversity of voices will always be satisfied.

The public interest is served by freeing newspapers to compete

in the new highly competitive news environment. Let firms own

newspapers and broadcast television stations and people who get

all their news from broadcasting today will hear new voices. Let

the cross-ownership rule fall and you’ll see enriched newscasts.

Here is an example of what’s possible. It comes from Chicago,

where the Tribune’s ownership of the Chicago Tribune and WGN

have been grandfathered under the cross-ownership rule. Last

year, more than 40 reporters, editors and visual journalists from

the Chicago Tribune, WGN, and CLTV which is our local all-news

cable channel, worked together on a series of stories entitled ‘‘Gateway to Gridlock,’’ about the effect of air traffic snarls at O’Hare

Airport on people’s lives all over the country. Stories appeared in

every medium, each medium telling the story as it was best for

that audience. The public was the beneficiary and the Chicago

Tribune was honored with a Pulitzer Prize for the effort. No broadcast, cable, or Internet news operation alone could have devoted

the resources it took to research, write, edit, and package ‘‘Gateway

to Gridlock.’’

So with cross-ownership, public access to high-quality local news

increases. It does not decrease. And that is why neither your files

nor those of the Federal Communications Commission are filled

with complaints from the communities where cross-ownership now

exists. In contrast, in South Florida, the ban on cross-ownership

has actually impeded the introduction of new voices in broadcast

news.

Just to put the situation in historical context when the crossownership ban went into effect, there were seven over-the-air television stations in Miami; cable was in its infancy and had little impact there. The Internet information superhighway wasn’t even a

dirt road.

Today, residents of Miami can watch 15 over-the-air television

stations. They can choose from 8 daily newspapers, or listen to one

of 67 radio stations. Cable delivers in excess of 75 channels, including all the news channels. Tribune owns the Sun-Sentinel in Ft.

Lauderdale, and a while back, it acquired a group of stations that

included small UHF stations ranked seventh in the Miami market.

That station programmed no local news when we bought it. At the

close of the transaction we got a waiver of the cross-ownership ban

from the FCC, but the waiver forbade us from putting any local

news from the Sun-Sentinel on the channel.

So instead of partnering with the Sun-Sentinel and providing

broadcast viewers access to the work of 370 members of the newspaper editorial staff, our television stations had to partner with the

local NBC affiliate airing that station’s newscast.

59

The combination of two television stations is permitted by law,

as is ownership of television by the Internet companies, by cable

providers, by telephone companies, by wireless service providers.

Anybody, it seems, can own a television station except aliens, drug

dealers and newspaper publishers.

I believe the cross-ownership ban is anachronistic in today’s

world. I believe it is making it much more difficult for newspapers,

which are vital to serve communities with news and public service

journalism, to compete, and I believe it is time for it to be lifted.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Fuller follows:]

PREPARED STATEMENT OF JACK FULLER, PRESIDENT, TRIBUNE PUBLISHING COMPANY

Good morning. My name is Jack Fuller and I am President of Tribune Publishing

Company, the newspaper subsidiary of Tribune Company.

As a newspaperman, ordinarily I wouldn’t be here on Capitol Hill asking for anything but information. But because of the ongoing revolution in the way Americans

get their information, I am here to ask that you permit newspapers to compete freely with other media for a share of the fragmenting news audience, unhampered by

legal restrictions on ownership of the means of communication.

The time has come for the elimination of the newspaper-broadcast cross-ownership rule. There are many reasons why—from the constitutional to the historical to

the practical. Let me concentrate on the practical.

Since the cross-ownership rule was established nearly three decades ago, the news

business has been transformed. In addition to newspapers, magazines, broadcast television and radio, now Americans can get news from a proliferation of national allnews cable operations such as CNN, Fox News, and MSNBC, as well as from local

cable operations such as New York 1 News and Newschannel 8 here in Washington.

On the Internet they can get news from a wide variety of sites from all over the

country and all over the world. With a few keystrokes, they can search the Worldwide Web for news that interests them, from what you have said in the Senate and

the way you have cast your votes to information about their local schools and parks.

This profusion of sources of information is good for the country, but it is a challenge for newspapers, whose readership has been under pressure because of media

fragmentation, and whose advertising revenue is being targeted by every new competitor—as well as by the old ones. This has put newspapers under financial stress.

You have probably seen reports of the significant cutbacks most have had to make

in this period of economic softness.

The cost of covering the news, however, is not declining. It is increasing. Covering

the meetings and activities of hundreds of municipal government bodies, local school

boards, and other public policy events is a huge and expensive undertaking. Building teams of journalists who are capable of understanding the complexity of public

policy issues today and translating them for lay people is not easy or cheap. Not

to mention the cost of serious, sophisticated, original coverage of the Nation and the

world, as Tribune newspapers are committed to providing.

In Chicago alone, the Chicago Tribune employs nearly 700 editorial staffers and

hundreds of freelancers, most of them devoted to news of local interest. This compares to the 50 or 60 reporters and editorial staff typically employed by local television news stations in Chicago. In Los Angeles, the numbers are even higher—

1,130 editorial staff at the Los Angeles Times. Even in the smaller markets, the size

of our newsgathering operations is significant. In Newport News, Va., for example,

the Daily Press employees 155 full-time editorial staff, three times the size of a

broadcast news operation in one of the major metropolitan markets.

The question is whether in a fragmenting media environment we will be able to

find the economic model to continue to support coverage at this level.

I believe we can, but it will mean spreading the cost of high quality journalism

over more than one distribution channel. We will have to reach audiences in the

many new ways that people now like to receive their news. And to do that, we will

need to have the burden of the newspaper-broadcast cross-ownership rule lifted.

In an environment where people’s choices for obtaining information have radically

multiplied, there is no risk of one voice dominating the marketplace of ideas. Today

in clamorous cities like Los Angeles, Chicago, and New York, it is frankly a challenge for any voice—no matter how booming—to get itself heard. So long as distribution channels continue to proliferate—and the explosion of bandwidth guaranVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00063 Fmt 6601 Sfmt 6621 D:\DOCS\89019.TXT SSC1 PsN: SSC1
60

tees that they will—the public’s demand for diversity of voices will always be satisfied.

The public interest will be served by freeing newspapers to compete in the new

highly competitive news environment. Let firms own newspapers and broadcast television stations and people who get all their news from broadcasting today will hear

new voices. Let the cross-ownership rule fall and you will see enriched newscasts.

Here’s an example of what is possible. It comes from Chicago, where Tribune’s ownership of the Chicago Tribune and WGN television and radio is grandfathered under

the cross-ownership rule.

Last year, more than 40 reporters, editors, and visual journalists from the Chicago Tribune, WGN-TV and CLTV, our 24-hour cable news channel, worked together on a series of stories entitled, ‘‘Gateway to Gridlock,’’ about the effect that

air traffic snarls at O’Hare Airport were having on people’s lives all over the country. Stories appeared in the newspaper, on television, on cable, and on the Internet.

Each medium told the story in the way best suited to its audience. The result was

wide dissemination of a thorough analysis of an important local and national issue.

The public was the beneficiary, and the Chicago Tribune was honored with a Pulitzer Prize for the effort.

No broadcast, cable, or Internet news operation alone could have devoted the resources it took to research, write, edit, and package ‘‘Gateway to Gridlock.’’ So with

cross-ownership, public access to high-quality local news increases. It does not decrease. And that is why neither your files nor the Federal Communications Commission’s are filled with complaints from the communities where cross-ownership now

exists.

In contrast, in South Florida, the ban on cross-ownership has actually impeded

the introduction of new voices in broadcast news.

Just to put the situation in historical context, when the cross-ownership ban went

into effect, there were seven over-the-air television stations in Miami. Cable was in

its infancy and had made little impact there. The Internet information superhighway wasn’t even a dirt road.

Today residents of Miami can watch 15 over-the-air television stations. They can

choose from eight daily newspapers or listen to one of 67 radio stations. Cable delivers in excess of 75 channels, including CNN, Fox News Channel, C-SPAN, CNBC,

and MSNBC.

Tribune owns the Sun-Sentinel in Ft. Lauderdale. In 1997, it acquired a group

of stations that included a UHF channel ranked seventh in the Miami market. The

station programmed no local news when we bought it. To close the transaction, Tribune got a temporary waiver of the cross-ownership ban. But the waiver forbade

Tribune from any newspaper-broadcast joint operations. So instead of partnering

with the Sun-Sentinel and providing broadcast viewers access to the work of 370

members of the newspaper editorial staff devoted to covering the local community,

our television station has had to partner with the local NBC affiliate, airing that

station’s newscast.

And if that were not enough, CBS/Viacom owns two stations in the same market,

and will program news on both in competition against the Tribune-owned station.

The combination of these two television stations is permitted by law, as is ownership of television by Internet companies, cable providers, telephone companies, wireless service providers. Anybody, it seems, can own a television station except aliens,

drug dealers—and newspaper publishers.

A lot of serious people are asking today what is going to become of newspapers

in the communications revolution. They worry about this because they realize that

good newspapers are vital to the health of communities and to the health of the national public debate as well.

I am actually very confident of our ability to get through the revolution and still

be able to provide the kind of high quality, comprehensive news reports that Americans need in order to make their sovereign decisions. But we have to be able to

adapt to a new, highly competitive environment of the sort I described in South

Florida, and we have to be able to deal with powerful organizations such as AT&T,

which is the sole provider of cable services to virtually the entire Chicago Tribune

market area and which sells zoned advertising on 35 channels. In this kind of environment we have to be unencumbered by anachronistic government restrictions that

are based only on the fact that we own printing presses.

Great newspapers can survive the information revolution, but not with a weight

shackled to their ankles. The public interest and the Constitutional ideal of free expression demand that the shackle be removed.

61

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The CHAIRMAN. Thank you, sir.

Mr. Baker.

STATEMENT OF WILLIAM F. BAKER, PRESIDENT AND CEO,

THIRTEEN/WNET

Mr. BAKER. Chairman Hollings and distinguished Senators,

thank you for inviting me to speak today here about an important

issue that cuts to the very heart of our national spirit and our public vitality. I am President and CEO of public television station

Thirteen WNET in New York. Before coming to Thirteen, I served

a dual role as President of Westinghouse television from 1979, and

then Chairman of Group W Satellite Communications, the cable

programming businesses, from 1981.

During my years at Westinghouse, five cable networks were

launched, including Discovery Channel and Disney Channel. We

also established the successful national ‘‘PM Magazine’’ program

and introduced Oprah Winfrey, along with Alan Frank’s help, as a

talk show host. I’m author of ‘‘Down the Tube: The Failure of

American Television.’’

This background in public and commercial television broadcasting has given me some perspective on the issues the Committee

is facing today. Arguably, the most important entitlements America

possesses are the rights to free speech and an independent press.

These rights are pillars of our Constitution and make our way of

life a model that is admired in every corner of the planet. Today,

however, trends in the media industry and regulatory policy are severely threatening free independent and diverse expression in

America. The two rules being examined by this Committee, national television station ownership caps and cross-ownership of television and newspaper outlets in the same market, were put in

place for a simple and essential reason, to ensure that control over

news, information and the expression of ideas did not fall into the

hands of a few powerful players. But this is exactly what’s happened in a few short years.

In 1983, 50 companies controlled more than half of the media in

the United States. On paper at least, a mere 50 companies controlling most of American media would seem to be a cause for concern

in itself, but today, just 20 years later, the number has dropped to

six. Six gigantic corporations control the vast majority of television,

cable, radio, newspapers, magazines and the most popular Internet

sites, and consequently, the majority of information, public discourse, and even artistic expression in the United States.

We have on our hands what one might call a merger epidemic

in the media industry, and like any other epidemic, this is an

unhealthy one. If ownership caps are repealed, television will surely follow the example of radio. Since the passage of the 1996 Telecommunications Act, 10,000 radio station transactions worth approximately $100 billion have taken place. As a result, there are

1,100 fewer station owners today, down nearly 30 percent since

1996.

Before 1996, the largest owner of radio stations in America controlled 60 stations. Now one company owns 1,200 and two others

own about 200 each. Consequently, in nearly half of the largest

65

markets, the three largest companies control 80 percent of the

radio audience.

The numbers show that competition is not increasing. While the

numbers of channels may be slightly on the rise, the number of

owners is dropping, and where free and independent media is concerned is the number of owners, not the number of stations or

channels or formats that matter. The media hold a special place in

our society. By helping us learn about the world, exchange ideas

and understand who we are, they help us enable our conscience as

individuals, and as a free people. When they are treated as mere

economic products, they simply cannot play the vital role, social

and cultural role that make them so central to our way of life.

When the local newscast focuses on the real life story behind the

evening’s movie of the week sent down from the network, shouldn’t

we raise our eyebrows? If a television news editor is under pressure

from top brass to increase ratings, which of the following stories

will she give priority: Julia Roberts’ new boyfriend or a school

board debate over teaching standards? As one independent journalist has written, ‘‘when commercial interests are set against

democratic or professional values, it is predictable that the interests of the market take priority. This is self-evident.’’

Cost-cutting to improve margins diminishes diversity. Throughout America, media giants are closing newsrooms, merging staff,

producing multiple newscasts on different stations from the same

source. A healthy trend for the corporate bottom line. But where

does it put local viewers looking for varying perspectives? Logically

we must also be wary of cross-ownership between broadcast media

and newspapers. There are more and more one-newspaper towns.

Although some have argued that the two industries are distinct

and should be treated separately, I believe that the final measure

should be the overall quality, diversity, and objectivity of information being delivered in a given market. We need various print and

broadcast outlets to serve as local critics of one another. Can we

truly expect the management of a company that owns both a broadcasting station and a newspaper in the same market to operate

those media outlets with distinct, discrete and independent editorial voices?

If the answer is no, and I think it could be, then when that situation exists in a given market, we have lost a pair of diverse and

antagonistic voices in that market and therefore, we have lost what

the Supreme Court views as essential conditions for a vigorous

marketplace of ideas.

The underlying motivation for commercial producers is to increase shareholder returns. Good business? Yes. But broadcasting

is not only a business, and it must not be allowed to become only

that. It is a public trust. Like our national parks, the airwaves belong to the people. The people have granted commercial broadcasters free license to this precious national resource, with the understanding that they will be used in the public interest. This was

established by the Communications Act of 1936.

Deregulation has made fundamental changes in the industry,

and ramifications extend throughout the national and global economies. With you, it is not too late to stop, or slow or, to even reverse

66

1 ‘‘The Media Monopoly,’’ Ben Bagdikian.

2 AOL-Time Warner, Disney-ABC, General Electric-NBC, Viacom-CBS-Westinghouse,

NewsCorp-Fox, and Bertelsmann. (Cited in ‘‘Legal Project to challenge Media Monopoly’’ by

Dorothy Kidd, in Media Alliance’s MediaFile , May/June 2001.) 3 ‘‘Each of the dominant six firms now owns the major companies that create the content of

the mass media, like newspapers, magazines, book publishing houses, and movie and TV production studios. Each of them has also acquired the next step, the national delivery systems

for the programming they control or lease, like broadcast networks and cable. And finally, each

has acquired or shared ventures with the ultimate delivery mechanism into each American

home and office, the telephone company lines, cable systems and satellite dishes. (Ben H.

Bagdikian, The Media Monopoly. Beacon Press, Boston, 2000. p. xvii.) 4 According to BIA Financial Network, as cited in ‘‘One Big Happy Channel?’’ by Eric Boehlert

(Salon.com, June 28, 2001) 5 ‘‘Making Media Democratic’’ by Robert W. McChesney (Boston Review, November, 1998)

the trend that has been threatening the very foundation of free

uninhindered independent media in our Nation. Thank you.

[The prepared statement of Mr. Baker follows:]

PREPARED STATEMENT OF WILLIAM F. BAKER, PRESIDENT AND CEO, THIRTEEN/WNET

Chairman Hollings, Distinguished Senators, thank you for inviting me here to

speak about an issue that cuts to the very heart of our national spirit and public

vitality.

I am president and CEO of public television station Thirteen/WNET New York.

Before coming to Thirteen, I served a dual role as President of Westinghouse Television, Inc. (from 1979) and Chairman of Group W Satellite Communications (from

1981). This background in public and commercial broadcasting has given me a broad

perspective on the issues before this Committee today.

Arguably the most important entitlements Americans possess are the rights to

free speech and an independent press. These rights are pillars of our Constitution

and make our way of life a model that is admired in every corner of this planet.

Today, however, trends in the media industry and regulatory policy are severely

threatening free, independent and diverse expression in America. The two rules

being examined by this Committee—national television station ownership caps and

cross-ownership of television and newspaper outlets in the same market—were put

in place for a simple and essential reason: to ensure that control over news, information and the expression of ideas did not fall into the hands of a few powerful

players.

But this is exactly what has happened in a few short years. In 1983, 50 companies

controlled more than half of the media in the United States.1 On paper at least, a

mere 50 companies controlling most of American media would seem to be cause for

concern. But today, just 20 years later, the number has dropped to six. Six gigantic

corporations 2 control the vast majority of television, cable, radio, newspapers, magazines and the most popular Internet sites—and consequently, the majority of information, public discourse, and even artistic expression—in the United States.3

We have on our hands what one might very well call a ‘‘merger epidemic’’ in the

media industry. And like any other epidemic, this is an unhealthy one.

If ownership caps are repealed, television will surely follow the example of radio.

Since the passage of the 1996 Telecommunications Act, 10,000 radio station transactions worth approximately $100 billion have taken place. As a result, there are

1,100 fewer station owners today, down nearly 30 percent since 1996.4

Before 1996, the largest owner of radio stations in America controlled some 60

stations. Now, one company owns about 1,200 and two others own more than 200

each. Consequently, in nearly half of the largest markets, the three largest companies control 80 percent of the radio audience.5

The numbers show that competition is not increasing. While the number of channels may be slightly on the rise, the number of owners is dropping. And, where free

and independent media is concerned, it is the number of owners, not the number

of stations or channels, that matters.

The media hold a special place in our society. By helping us learn about the

world, exchange ideas and understand who we are, they help enable our conscience

as individuals and as a free people. When they are treated as mere economic products, they simply cannot play the vital social and cultural roles that make them so

central to our way of life.

I ask you this: Can a journalist objectively cover the news when his parent company is one of the world’s largest conglomerates, with financial interests in nearly

every corner of the national and global economies? When a local newscast focuses

67

6 Bettina Peters, ‘‘Corporate Media Tends in Europe, ‘’ (The Campaign for Press and Broadcasting Freedom, November 2000.) 7Peter Franck, of the National Lawyers Guild Committee on Democratic Communications,

quoted in ‘‘FCC Says to Hell with the Public Interest’’ by Camille Taiara (Media Alliance’s

MediaFile, December 1999.) ‘‘The 1934 Public Broadcasting Act very clearly declared airwaves

to be public property,’’ says Franck. ‘‘It’s a natural resource that exists by the laws of physics.

Yet these corporations got, for nothing, spectrum worth millions and millions of dollars. That’s

just welfare for the already very rich.’’

on the ‘‘real-life’’ story behind that evening’s ‘‘Movie of the Week’’ sent down from

the network, shouldn’t we raise our eyebrows? If a television news editor is under

pressure from top brass to increase ratings, which of the following stories will she

give priority: Julia Roberts’ new boyfriend or a school board debate over teaching

standards? As one independent journalist has written: ‘‘When commercial interests

are set against democratic or professional values it is inevitable that the interests

of the market take priority.’’ 6

This is self-evident. Cost-cutting to improve margins diminishes diversity.

Throughout America, media giants are closing news rooms, merging staff, and producing multiple newscasts on different stations from the same source. A healthy

trend for the corporate bottom line, but where does it leave local viewers looking

for varying perspectives?

Quality is another casualty. When the main objective behind every minute of

airtime is to maximize profits, standards take a back seat to better margins. Trawling for eyeballs becomes commonplace. No wonder the airwaves are seething with

sensationalism and empty technical glitz. Barely concealed behind every new blockbuster series is the fevered battle of media titans over ratings and ad dollars.

Logically, we must also be wary of cross-ownership between broadcast media and

newspapers. Although some have argued that the two industries are distinct and

so should be treated separately, I believe that the final measures should be the overall quality, diversity and objectivity of the information being delivered in a given

market. We need various print and broadcast outlets to serve as local critics of one

another. Can we truly expect the management of a company that owns both a

broadcaster and a newspaper in the same market to operate those two media outlets

with distinct, discreet and independent editorial voices? If the answer is no, and I

think it clearly is, then when that situation exists in a given market, we have lost

a pair of diverse and antagonistic voices in that market. And therefore, we have lost

what the Supreme Court views as essential conditions for a vigorous marketplace

of ideas.

The underlying motivation for commercial producers is to increase shareholder returns. Good business? Yes. But broadcasting is not only a business. And it must not

be allowed to become only that. It is a public trust. Like our national parks, the

airwaves belong to the people. The people have granted commercial broadcasters

free license to this precious national resource with the understanding that they will

be used in the public interest. This was established by the Communications Act of

1934.7

Deregulation has made fundamental changes in the industry and ramifications

extend throughout the national and global economies. But it is not too late to slow,

stop and even reverse the trend that has been threatening the very foundations of

free, unhindered, independent media in our nation.

The CHAIRMAN. Thank you very much, Mr. Baker. I am learning

new words today. Everything is ‘‘exacerbating, egregious.’’ You

have a ‘‘dichotomy.’’ The best word I learned—and at the time I

learned it, they eliminated it—that was ‘‘honorarium.’’ But now it

is ‘‘anachronistic,’’ old hat, I guess, outdated, never considered, nonsense. We debated it and we had the most vigorous debate and

hangup on the 25, 35 percent. Mr. Frank has testified, he would

like to go back to the 25.

The reason we went to the 35 was to get the bill passed. When

we got that bill out, there were a lot of compromises. We had 95

votes, bipartisan, in 1996, but it wasn’t an anachronistic situation

with respect to ownership and the numbers. It is not an arithmetic

problem. We used to have in my hometown three radio stations. All

three had news, one had popular music and the other two had rock.

68

Now I have got 11 stations. But I can tell you right now, there is

no choice at all, other than the public radio.

In fact, I never before used that little tape deck for music. Now

I am buying tapes and everything else because aside from public

broadcasting, there are no worthwhile programs. It is interesting.

I listen to the music because the other 10 stations have got out of

California, and they are hollering at each other and debate, they

have got an epileptic fit, they are swallowing their tongues and everything else, about to die. I can’t get music out of it and so I buy

a music tape. So the fact that I have got 11 radio stations—do not

give me the numbers problem.

Back now to Mr. Fuller. Well, for example, when they put these

limitations on the cross-ownership of a newspaper and a TV station, the FCC said, and I quote: ‘‘It is unrealistic to expect true diversity from a commonly-owned station/newspaper combination.’’

Now, go fast-forward here to just a couple years ago and the

American Journalism Review article entitled ‘‘Synergy City.’’ It describes the Tribune Company’s attempts to repurpose its news content across all its properties, and the article states, and I quote:

‘‘entering the news room of the Chicago Tribune, your eye is drawn

to a massive multimedia desk, around which are arrayed editors

from WGN TV, WGN radio and so forth, the 24-hour local cable

news channel, the Tribune’s Internet edition. In most companies, a

Berlin Wall separates the different media. At the Tribune, all

media units report to David Underhill, Vice President for Video

and Audio Publishing. ‘The goal of our unit,’ says Underhill, ‘is to

be a synergy group. I love the word.’ ’’

So you can see, the genius—namely, diversity—is not anachronistic at all, it is disappearing. Why you have that with the Tribune because of lethargic FCC. They are not calling the rule about

cross-ownership because they are waiting for the time for relicensing every 8 years, otherwise, they should have called the rule.

If somebody is speeding, you do not wait for next year’s new Chairman of the Highway Commission. You arrest him. You stop it. That

is a violation right now. Not the case with the FCC. They have

given everybody—and I do not blame you at all, Mr. Karmazin, but

like I say, I would hire you. Where is that thing, I mean, here, look

at the success here.

The Quarterly Report for CBS network and I quote: ‘‘achieved

double-digit revenue growth in prime time with increased ratings

and pricing in the first quarter of 2001.’’ On May 28th, in the edition of Broadcasting and Cable reported ‘‘fiscal 2000 was a profitable year for ABC, CBS, Fox, and NBC with decent profit margins.’’ The article indicated that in 2000, the CBS network enjoyed

$200 million in profits. Your own TV stations enjoyed $775 million

in profits, and your TV production and syndication businesses enjoyed $450 million in profits.

Well, it doesn’t sound to me like CBS and Viacom need any more

relief. In fact, I hope Sumner gives you a raise. Please comment if

you will.

Mr. KARMAZIN. Senator, I didn’t think making a profit is something that I should be embarrassed about.

The CHAIRMAN. I am proud of it. You are not embarrassed, are

you?

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Mr. KARMAZIN. Not at all. And by the way, I think that what you

need in order to make investments is profits. So, I think that the

profit margin, since you are bringing it up, on a television network,

is in the single digits. Marginally profitable. Not a lot of money for

the invested capital. We spend about $3 billion a year for programming on our network, and news, and of that $3 billion—let us assume that $200 million number were accurate—that isn’t the best

return on capital that a company could get.

I think the first point that I would like to make is that there are

some facts that were wrong, though. We do news in Detroit on our

television stations. We did it as a function of consolidation and we

managed to do it as one of the benefits that we have, but the sense

for me is that in 1996, it was probably OK, what the deregulation

was.

Since 1996, a lot has changed in America. The pipe has gotten

broader. There have become many, many more competitors in that

market, so there needs to be—as was the intent at the time—a biennial review of the rules, because even at that time, it was believed that the FCC should take a look every 2 years to see whether or not there should be any further relaxation. Regarding the programming in South Carolina, sir, I don’t own any radio stations,

but if you would give us some further deregulation, I will put more

stations to your choosing on in South Carolina.

The CHAIRMAN. Very good.

Senator McCain.

Senator MCCAIN. Thank you, Mr. Chairman. I think we can

agree or disagree on this specific issue we are discussing today. I

don’t think we disagree that the information technology has profoundly affected the way we live, work, are entertained and receive

information, and a lot of it is in the eye of the beholder.

Mr. Frank, you pointed out that in your statement today, Mr.

Karmazin’s station is reaching 41 percent of America’s population,

and its’ colleagues—ABC, Fox, NBC-controlled stations—reached

24, 40, and 27 percent respectfully. To balance that statement out,

I think it is important to recognize prime time viewership among

the top six broadcast networks has declined from 71 percent in

1996 when this law was passed to 58 percent in the year 2000.

Cable has made tremendous inroads. Now 70 percent of American

TV households, compared to just 13 percent in 1975. Satellite.

Internet. The list goes on and on.

I appreciate, Mr. Frank, your powerful argument in support of localism, and against any increase in the National Television Broadcast Act, and obviously, for local news, sports, weather coverage.

Yet in your organization, NASA, five companies alone that belong

to your organization have a combined $14.4 billion dollars in revenue, reach 63 percent of the Nation. These companies own or have

financial stakes in cable companies, newspapers, radio stations,

magazines, websites, and publishing houses.

Companies that belong to NASA include: Belo, Hearst, Argyle,

Cox, Gannett, Washington Post. You own stations in cities such as

Palm Springs, Jacksonville, Seattle, Louisville while their corporate

headquarters are located in New York, Atlanta and Dallas. Is it

your belief that these stations, including the ones you own, in five

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different cities across America, are able to maintain localism while

their headquarters are located elsewhere?

Mr. FRANK. Senator, the question about localism is not necessarily local ownership. Localism is not the same as local ownership, and it is more than local programs. The question is where are

the incentives for the local community, and it has to do with a

mindset. If the O&Os have different business interests as opposed

to local groups that own stations, you know, our objective is to

serve the local community, period.

Post-Newsweek as a for instance, sir, has six stations around the

country and we have two things that unite us. One is strong journalism, because we are, after all, a Washington Post company, and

the other is a belief in serving local communities. Therefore, our

station in San Antonio looks very different from our station in

Jacksonville, looks very different from our station in Detroit or

Houston or Orlando. We do not have a Post-Newsweek set. We do

not have Post-Newsweek pins, we don’t have Post-Newsweek blazers. Because each station reflects the community it serves and is

run by the local general manager.

Senator MCCAIN. So you have that commitment, but the other

people who own stations across the country do not have that commitment. Or are headquartered away from Jacksonville, San Antonio, Orlando, Miami, Ft. Lauderdale, Houston and Detroit. Stations

that you own. You are committed to localism, but CBS affiliates,

they aren’t.

Mr. FRANK. Senator, the question is not us versus them. I said

before, Mel Karmazin is a good broadcaster. We have no problems

with the way he runs stations. What I said in my testimony, by the

way, was that that CBS-owned station in Detroit does not have its

own news department. They now do carry a newscast, as Mel said,

from the Paramount station. They still don’t have their own news

department.

It is not a question of whether they are good broadcasters. The

question has to do with diversity and the number of ownership and

the number of owners throughout the country. We just do not believe if the cap is raised obviously you are going to have fewer owners. We don’t believe that’s good policy, we don’t believe that’s good

for the country, we say diversity. We say the more the merrier at

the table. Others say ‘‘mine, mine, mine.’’ We think the more the

merrier is the answer. Not fewer.

Senator MCCAIN. I won’t belabor the subject, but it is pretty obvious to me that your commitment to localism because you own stations all around the country should not be any different from that

of others who own perhaps more stations around the country.

Let me move to Mr. Fuller very quickly.

Mr. Fuller, you are a Pulitzer Prize-winning journalist and you

have been in journalism over 30 years, as you stated. First of all,

what was the state of competition when you entered the business

compared to the state of competition now? What specific trends are

you seeing given the emergence of new technologies, particularly

the Internet? If I want to know what’s in your newspaper tomorrow, I can go the early evening news—I do not have to buy your

paper at the local news-stand. I can also go online, the same way

with The Washington Post and the same way with every other

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newspaper in America. I would be interested in your comments on

the state of competition and how it is going to affect your business.

Mr. FULLER. When I began working in the newspaper business,

in order to start a newspaper, you had to have tons and tons of

newspaper presses, a huge facility, a fleet of trucks, and a distribution system that got to everybody’s doorstep in the morning before

6 o’clock. Today all it takes to get into my business is a server, a

staff to write and report the news, and an Internet connection. It

is vastly different. That is not even to speak of the national distribution of newspapers that did not used to be available in other

cities. It is also not to speak of the proliferation of cable news. CNN

did not exist when I started in the newspaper business. There were

three networks.

The fact is, from where I sit, we are not in a period of concentration. We are in a period of radical fragmentation, and what you are

seeing is serious journalistic organizations trying to find ways to

deal with that so they can continue to support serious journalism

for their communities.

Senator MCCAIN. I thank you, Mr. Chairman.

The CHAIRMAN. I thank you.

Senator Wyden.

Senator WYDEN. Mr. Karmazin, Mr. Fuller, is it your position

that there should be no ownership restrictions at all?

Mr. KARMAZIN. I think that my viewpoint is that the Department

of Justice should measure what is unfair competition, and that

there is the opportunity within that Department to assess whether

or not one company is buying too many. Right now, we go through

that process whenever we make an acquisition and in a number of

acquisitions that we have made, they have determined we had too

much control in a given position and we had to make divestitures.

What we are saying is, today the concept of the 35 percent cap,

and the concept of owning one network of the full broadcast networks, that rule should go away. I have no horse in the race on

newspaper-television cross-ownership. I would support that relaxation.

Senator WYDEN. You would be troubled, then, by the scenario I

painted, because the scenario I painted in my opening statement

is if you have all of these ownership rules lifted, you could have

a single massive media company in this country.

Mr. KARMAZIN. No, you couldn’t, sir, with all due respect.

Senator WYDEN. We have done some checking and if you take

this proposal where you throw all of the rules out the window, you

start with Time Warner/AOL buying AT&T Cable.

They could do that—we have reviewed this. They could buy NBC

and then they start in with newspapers, radio and TV, and your

theory is that somehow somebody at Justice is going to block some

of this. But our analysis is if you get rid of all the ownership rules

whatsoever, you could have this single huge media entity. I am curious whether you think there would be any down-sides in that for

the American people?

Mr. KARMAZIN. With all due respect, I don’t think that you could

say without the Justice Department. I mean, there is a Justice Department. There is a whole lot of control that would potentially

stop that from occurring, so I do not think you have to worry that

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is going to happen. I also do not believe that the marketplace is

going to let that happen.

What we are saying is that there is probably, between no regulation and where it is today, room for significant improvement. There

is a difference between the scenario you outlined and the scenario

that exists today. There is a huge gap.

Senator WYDEN. There may be grounds, then, for coming up with

a bipartisan proposal, because what concerns me is that I have

asked about what’s going to happen if you lift the rules completely.

I am convinced we will have scenarios like I described, not very

many, maybe two of them, but we will have them, and there may

be something in between that and leaving everything exactly the

way it is. That was why I wanted to explore it with you.

Mr. Fuller.

Mr. FULLER. Well, I am most concerned about the restrictions on

newspapers which are hobbling our capacity to compete in the current environment. My inclination is that antitrust law is an effective instrument against undue market power. It has worked for

more than 100 years in this country, and it will work in this industry as well. Frankly, it seems to me that the least justifiable place

for special restrictions is in the area of expression. It is not the

most justifiable area, it is the least justifiable area. We are willing

to live with antitrust constraints as we are happy to live with

them.

Senator WYDEN. You have to have tools that have the opportunity to be effective and if the U.S. Congress or the FCC steps in

and says the sky is the limit, which is what I have been concerned

about in terms of those who say there should be no rules at all,

I think we are headed for trouble. Just a couple of other questions,

if I might, Mr. Chairman.

When the cap is lifted, Mr. Karmazin, is there any question that

what will happen is the major networks will require the affiliates

around this country rather than having to deal with independent

stations?

Mr. KARMAZIN. Yes. I think there is a big question about that because if you take a look at where NBC and ABC are today, they

are not anywhere near the 35 percent cap. So if, in fact, there was

such an appetite for that to happen, I would suspect that you

would be finding all of these companies at the 35 percent cap level,

and in fact, NBC and ABC are not.

I think the concept of an affiliate that is willing to preempt the

network and the fact that our own stations aren’t looking to improve their local relationship is silly, because we, too, preempt the

network at our local stations. They are encouraged to do whatever

is serving their local community. The other thing that really has

come up that is inaccurate, I wish we were sworn in for this testimony, you know. The other thing that was inaccurate is what happens when there is a merger.

As Mr. Baker is aware, we own two radio stations in New York

City. They are all-news radio stations, WCBS and WINS. Those

two news stations have not consolidated. Those two news stations

are operated independently. They have a totally separate viewpoint

and I have not been in the newsroom of those two stations or CBS

ever, other than to congratulate them.

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Senator WYDEN. One last question, if I could. Mr. Karmazin, I

want to make sure it is your view that when networks own distribution channels, if these changes go through, network owns the

local station. In your view, this would not end up in any significant

changes with respect to priorities for local programming in this

country?

Mr. KARMAZIN. That is correct. Because I think the only way that

a television station can be successful, the only way we can justify

what will be these extraordinary prices that the people who choose

to sell their stations are going to get, the only way you are going

to justify those prices is if, in fact, you are able to grow that business. The way you grow the business is by getting higher audience,

and by having better programming, so I think the effect is better

programming.

Just one example, if I may. We got back into the business of carrying the NFL a few years ago. You know, I guess there may be

an argument that says it doesn’t matter whether the NFL is available on free over-the-air broadcasting or is available on cable. We

happen to think that it should be on free over-the-air broadcasting

and did our part. The way we justified the price was not the

amount of money we would make at the network, because we lost

money at the network. At the network level from an accounting

point of view—legitimate point of view, not Hollywood accounting,

we lost money. But what we did do was the stations that we owned

contributed toward that profit, as well as our affiliates.

I think you need to look at the importance of the CBS-owned television stations and the profits that they make in supporting the

news operation. We have 1,500, 1,600 at CBS News. It is not being

supported based on the half-hour newscast that we run at night.

In part, it has contributed to these other assets that the company

has.

So no, I don’t think there is a weakness. I think it is better programming. I think if were you to look at the effect of deregulation

on the radio industry, which consolidated more than the television

business, today, there are a little over 1,000 television stations. We

own 3.5 percent. We have 35 television stations. You know, there

is room for that and, between that and the egregious scenario that

you are discussing.

The CHAIRMAN. Very good.

Senator Burns.

Senator BURNS. I think what we have seen here is a classic discussion between Mr. Karmazin and Mr. Fuller. As one looks at it

from a news standpoint and service to the public and the other one

looks at the bottom line, and in a way that is the way it should

be. We have always had that clash. And also when you had trouble,

it is hard, it seems a fruitless exercise to lock the barn after the

horse is gone. Well, the horse is gone and we have been left with

what we are left with sometimes.

Mr. Fuller, the FCC has an obligation—although we all deal with

it every day. I hate to pass that up. It is a great line. Anyway, the

FCC has an obligation under the 1996 Telecommunications Act to

review all of its broadcast ownership rules on a biennial basis. In

closing out that 1998 review in May of 2000, the FCC put in an

order that they would begin rulemaking on broadcast newspaper

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cross-ownership. Can you tell us what they have done to date and

when you expect them to act and to what do you attribute the

delay?

Mr. FULLER. Well, they have not done it. There has been a

change in administration. That slowed things down. I think that all

we have been asking for is that that process go through so that we

will all have a chance in the Commission to have our say. They will

be able to evaluate the current state of the information market and

make a decision as to whether these rules are out of date or not.

Senator BURNS. I want to bring up something else. I heard everybody is saying that have you an obligation because radio and television broadcast companies who operate free over-the-air, are using

the spectrum at no cost, and the American people gave it to you.

I think we tend to look back in history, back when radio was started, the government asked radio stations to go on the air. They said

you take the spectrum and you put it on the air. In the 1950s, they

did the same thing to television. Take this spectrum, put it on the

air, and especially your company like WGN. I wish I had Mr.

Baker’s pipes. I would still be back in the farm broadcast business.

There are only two guys that have got pipes like that that I know

of and Orrin Samuelson is one of them, you know, a Wisconsin kid

there. But the government urged you to do that, to put these radio

stations on the air. Now, both WGN and even your publication

companies in Chicago, they have positions of great prestige. You

are looked at as a pace-setter in the industry.

Then they came up with a cross-ownership rule in 1975. What

has changed in the business that would prompt them to look at

that differently now?

Mr. FULLER. Well, at the time of the cross-ownership rule and I

think we have given you statistics on this, most metropolitan

areas, including Chicago, had three or four VHF stations, a UHF

station or two, and that was it. The newspaper had no competition

for its want ads. The newspaper had no competition for retail business, with the exception of the over-the-air television which does a

different kind of advertising. It was a very stable situation. Today

it is a very unstable situation.

We have huge organizations going after our classified advertising

business. Microsoft is in the automotive classified business. Monster.com is the biggest provider of online recruitment classified in

the country. By the way, it provides no public service journalism

for anybody.

These changes have been enormous. I, for one, have spent much

of the last 10, 15 years trying to figure out, to the Chairman’s

point, how to make our organization a synergistic one, because I

did not want to leave behind an organization that was the journalistic equivalent of the railroads. They did not change and adapt to

a new environment, a new competitive situation, and ended up

coming to you to rescue them financially. That would not be a good

outcome from my standpoint, and so we are doing what we can to

continue to build the economic model for doing great journalism.

Senator BURNS. Well, I appreciate that answer very much because I think journalism with a great deal of credibility is very,

very important right now. What I see happening in the journalistic

end of the world, Mr. Baker would probably agree with some of this

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and Mr. Karmazin would, too, that we seem like we have people

who are in the reporting business that want to be the story instead

of report the story, and we have to put up with that every day. Everybody wants to get their name on a byline above the fold on the

front page, and that is very, very competitive as anybody knows.

So sometimes we embellish. We want to be the story instead of report the story, and I have fought that.

I wanted to say before this Committee, on any poll that you take

in the broadcast industry—and I am very proud of that organization that I used to be in and I am still a member of. But they always carried a great deal of credibility, and that is the National

Association of Farm Broadcasters, and because we are a specific little market, niche market out there. But those people who we serve

depend on that news and information almost on an hourly basis

anymore. We carry a great deal of credibility in our business and

we take it very, very seriously and we also take the business side

very seriously because that is what enables us to get the news out.

I wanted to ask you one question while we are in the yellow zone.

Given the choice, would you rather have the ownership caps lifted or cross-ownership allowed? And I will let any of you just take

a shot at that.

Mr. KARMAZIN. This will be obviously self-serving, because I am

not in the newspaper business, so clearly I would like to have the

ownership rules lifted. But you know I think the competition, as

they found out in 1996, was on the local level. In other words, The

Washington Post may be very important here in Washington, but

it is less important in Milwaukee, so the cap issue is on a national

level. There isn’t the same degree of concentration as there is at

the local level, so I think there is a greater argument for the national cap to be lifted. But I would also support cross-ownership

being gone, too.

Mr. FULLER. You won’t be surprised, Senator, that I am focused

on the newspaper broadcast cross-ownership, and if I could get one

done, it would be that, in the interest of future health of the newspaper business.

Mr. FRANK. Senator, NASA, which I represent, deals with network affiliate relations and has no purview at all in newspaper

cross-ownership and so we are here to talk about holding the cap

on station ownership and retaining the cap at 35 percent.

Mr. BAKER. Senator, I do not have a dog in either of these fights

except I would be delighted to take a job in the farm broadcasting

business. I am sure it pays better than public television. But it is

my feeling that neither should be lifted.

Senator BURNS. Thank you, Mr. Chairman.

The CHAIRMAN. I have got to correct the record. We did not

swear the witnesses because we know the witnesses and that they

will tell the truth. But the government did not ask the radio to go

on the air. Wasn’t it David Sarnoff on the top of that Wannamaker

building that picked up the signal from the sinking Titanic? I think

it was. But in any event, from 1912 to about 1924, when Herbert

Hoover was the Secretary of Commerce, all radio stations, wireless

came on, jammed each other and the radio industry came to the

government and said ‘‘Please, for Lord’s sakes, regulate us, otherwise nobody is going to be heard.’’

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The government did not ask the radio to go on the air. The radio

asked the government to please get us on the air because we were

jamming each other.

Senator BURNS. I don’t remember it.

The CHAIRMAN. Senator Dorgan.

Senator DORGAN. Mr. Chairman, thank you. I might add also the

government instituted something called a public interest of convenience and necessity test along with that.

The CHAIRMAN. That is a big difference. I was going to get to

that with Mr. Karmazin. You all go running around now with the

Department of Justice. This Committee has already confronted the

Department of Justice on the test for the Sherman Antitrust,

whereas in the airline industry, business predatory pricing ordinarily is not predatory, because the last seat of it is a de minimis

cost.

The Antitrust Division has nothing to do with diversity. The

Antitrust Division of the Justice Department has nothing to do

with the public interest. We have the public interest charge and we

have the diversity charge and have had it unless we do away with

it. Excuse me.

Senator DORGAN. Mr. Karmazin, I was thinking if someone had

walked in the door when you said you had 3.5 percent of the television stations they would have thought you a bit player in this debate, an interesting way to describe your position, I might say.

I want to ask you about where you think all of this would move

in about 5 years if we had unrestrained ability to buy and sell in

these industries. Let me preface it by saying that I think the antitrust law enforcement in this country has been a new nearly constant and pathetic failure. A decade or so ago, I threatened to put

pictures of antitrust lawyers on the sides of milk cartons because

I knew we were paying them, but there was no evidence they were

showing up for work. I have not changed my mind much about

that. I think antitrust law enforcement has been a pathetic failure.

But let me ask you this, assuming that there are no limits,

where do you think we end up 5 years from now?

Mr. KARMAZIN. Well, I think we have a better chance of preserving free over-the-air broadcasting than if there are no changes

and that we are now forced to deal with the fact that the consolidation has totally taken place all around us in this non-regulated

area, so there is nobody that’s regulating whether or not, to your

point of the Justice Department about these airlines consolidating

and we are losing advertisers and the banks are consolidating and

the advertising agencies are consolidating. How does a small—relatively to these other companies that are consolidating—how do

you sit at the table? So now let us assume for the moment that

somebody acquires AT&T, and let us assume hypothetically it is

one of the existing MSOs.

We now have to sit with them and get our channel carried because we have 80 percent of our viewers who choose to get their

programming that way. The chance of the American public being

better served exists for us to be able to sit at the table with having

it be a level playing field. I believe that there is so much competition out there, there are so many choices for the American public.

77

I think sports rights, I think good programming, I don’t want to

take our most desirable programming and put it on cable, because

I will have two streams of revenue. Because we could do that.

There is nothing really that would stop us. Or radio, putting it on

satellite radio or taking it and putting it on Yahoo or taking it and

putting it on AOL. But the reason you put it on free over-the-air

broadcasting is you can make some money that way.

And the way you make money in this world—there are still 24

hours of the day—so if we now accept that there are 24 hours of

the day, there are more choices that people have. They are spending less time with everything. Advertisers are spending less money.

Well, how do you grow your business? Well, one of the ways you

do it is through efficiency and one of the things that consolidation

allows is it allows you to be more efficient.

Senator DORGAN. I must say I watch the television in the morning while I shave and brush my teeth and it is hard for me to really relate to the notion there are more choices. It doesn’t matter

which knob on the dial you turn, you are hearing exactly the same

thing. Mr. Baker, Mr. Karmazin in some ways makes my point

about lack of antitrust enforcement, I think. He says there has

been this robust merger activity in banks, enormous merger activity in airlines and therefore, we must do it.

My point is that antitrust enforcement has been pretty pathetic

in all these areas, but Mr. Karmazin says just take all these limits

off and if you did not have limits, the market system would work

just fine and have Justice be the referee over here. What do you

think happens in 5 years if all ownership limits are removed at

this point?

Mr. BAKER. Well, I think we already have seen incredible massive consolidation, and earlier we were talking about the differences between a local broadcaster of the kind that Post-Newsweek stations, Alan Frank’s stations are, and more powerful

vertically integrated companies like television networks and larger

broadcasting entities.

I think that being scrupulous and looking at these regulations

and in watching how companies can utilize their massive power

across multiple distribution systems is one that we have to have

great concern about in the American public.

When I was a producer back in my hometown in Cleveland, Ohio,

30 years ago, there were 16 radio stations. There still are today.

This is kind of like Senator Hollings’ story. When it rained in

Cleveland, almost all the owners of the stations got wet. There

were 10 owners and 9 newsrooms. Now these 16 stations have 5

owners and 3 newsrooms. So this consolidation is a serious business right now.

Mr. FRANK. Senator, if I may. Currently, as to what folks can

own, what individual companies can own, the networks can own,

is an interesting list. Here’s what can be owned today: Enough TV

stations to cover 35 percent of the Nation’s households, all the

radio stations they can afford limited only by the local radio television cross-ownership rules. All the cable systems they can afford,

limited only by the local cable television cross-ownership rules. All

the satellite systems they can afford, all the wireless cable systems

they can afford, all the cable network channels they can afford, all

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the satellite program channels they can afford, all the movie and

television production studios and facilities they can afford, all the

television syndicated program companies they can afford, all the

Internet program production and distribution facilities they can afford, all the newspapers they can afford limited by local television

newspaper cross-ownership rules, all the magazines they can afford.

It seems to us what is available now under the current rules, to

try and lift the cap on local television stations and putting localism

and diversity at risk, it may be more efficient to have bigger companies, but it is not the democratic way. It is not the American system of broadcasting where the local licensees, the heart and soul

of what the American system is built on, it just doesn’t fit.

A network president said to me at one point—not for Mr.

Karmazin’s network—that his vision of a network affiliate was to

be a McDonald’s franchisee. And I would say, that’s not our vision.

Our vision is that we are broadcasters. We are there to serve the

local communities. We think that the cap is the minimum protection we need in this environment.

Senator DORGAN. Mr. Chairman, if I may just ask one additional

question. I thank you for your responses.

Mr. Fuller, you raised the issue of ‘‘serious journalism.’’ Thomas

Jefferson described the role of the free press in the sustaining of

a democracy and how important it is. In your judgment has ‘‘serious journalism’’ suffered in the last 5 years?

Mr. FULLER. It is a very mixed picture. We were just talking

about this when we were coming over to the hearing. Many of the

great newspapers of the country at the time when I started in the

business did things that would make us blush today.

Senator DORGAN. I am talking about the last 5 years, however.

I am talking about since the 1996 Act, all this merger activity.

Mr. FULLER. I don’t think in the newspaper business there has

been any significant change in the quality of journalism over the

last 5 years. There has been cost pressure in some places, but I

think the standards have been upheld pretty well.

Senator DORGAN. Just to make an observation. In Grand Forks,

North Dakota, I think it was last week or the week before, there

was a picket line including reporters, outside of a newspaper that

is owned 1,500 miles or 2,000 miles from Grand Forks—which is

the case of most newspapers in my State, they are owned by outof-state interests. They were constantly cutting and cutting and

cutting, and finally we had this spectacle which you rarely see in

North Dakota of people holding pickets outside of a Grand Forks

newspaper.

Mr. Baker, would you just answer the same question with respect to serious journalism?

Mr. BAKER. That is a fair question, but a tough one to answer,

so I don’t really have an answer to that. All I can say is that certainly pressure on the bottom line at every level in journalism, in

electronic journalism, in newspaper journalism, I think it has been

widely reported that this is a serious matter. People just do not

have the time. There are fewer people doing more work. My brother, who has been a TV news cameraman like these fellas here for

the last 35 years in Ohio, said that he is now doing the news for

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two television stations. He says he just doesn’t have enough time

to get the job done the way he would like to get it done.

Senator DORGAN. I thank the panel very much.

The CHAIRMAN. Senator Fitzgerald.

Senator FITZGERALD. Thank you, Mr. Chairman. I wonder if any

of the panel that is speaking with respect to the cross-ownership

rule would know whether there was some industry or group of individuals that was lobbying the FCC to impose that cross-ownership

rule back in 1975? Would anybody know the answer to that?

Mr. FULLER. I really do not.

Senator FITZGERALD. Nobody knows. Because just from my experiences around here, most of these ideas for these regulations or restrictions do not just pop into some regulator’s head. There is normally somebody advocating them. I am struck, I guess, by the fact

that at one time back in the 1940s or late 1940s, the FCC was actually encouraging publishers to buy broadcast stations or invest in

broadcast stations. That is how Colonel McCormick at the Chicago

Tribune, started WGN. Is that correct?

Mr. FULLER. That is exactly right. He was a pioneer and bought

an experimental radio station at WGN radio, which wasn’t requested by the government. But later, at the beginning of the television era, the government did encourage publishers to start experimental stations, and the Colonel did start WGN television.

I suspect that those early enterprises were like Internet enterprises are today. They weren’t very profitable. They were probably

big losers for a long time. And what the government was attempting to do was get people with some financial resources to give it

a jump-start.

Senator FITZGERALD. So there were no restrictions, then, until

1975 when the cross-ownership rule was established. Are you

aware, Mr. Fuller, of any finding of abuse or domination or monopolization in a market by any of the existing companies that have

cross-ownership that were grandfathered from the original rule?

Mr. FULLER. To my knowledge, there has not been any significant complaint from the few markets that have had cross-ownership. Typically, those television stations have been pretty good ones

and served the communities well, and there has just not been a lot

of complaints.

Senator FITZGERALD. None of them have had their licenses

yanked?

Mr. FULLER. Not that I know of.

Senator FITZGERALD. Does the Tribune favor lifting the cap entirely or relaxing the cap to some extent?

Mr. FULLER. You know, the fact is I only really know for sure the

kinds of markets that we are in. We typically are in pretty big

major metro markets. That is pretty much where our focus is, and

I know for sure in those markets, there is really no justification

that I can see for the cross-ownership rule. My inclination is that

everywhere there has been a proliferation of means of people getting information. Even in my grandparents’ old home in central Illinois, where we practically had to listen to WGN for anything in

those days, now everybody has computers operating. They are getting farm information and so forth from hundreds of different

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places. I suspect that it is probably the same in most places. Certainly, in the big metro markets it is a foolish rule.

Senator FITZGERALD. Mr. Baker.

Mr. BAKER. Yes, Senator, I do not know what the answer is to,

this, but I would just like to add this thought, and that is tied to

this concept of the Supreme Court of diverse and antagonistic

voices in a market. It just strikes me—and I just ask this Committee to think about this—it just strikes me that if reporters are

from the same company, a television station and a newspaper, and

they both get compensated with bonus stock options or bonuses at

the end of the year, and they attend the corporate Christmas party,

you know, is it possible, it certainly is possible, I suppose, to be antagonistic to one another and to show totally separate points of

view. But it might be a bit harder, and I just ask you to think

about that issue.

Mr. FULLER. If I can give a couple of examples. In Chicago, WGN

television, our great partner, took considerable glee, at least by the

lights of the editorial department of the Chicago Tribune, when one

of the editors of the Tribune was arrested in a humiliating way.

The story led the newscast of WGN television at 9 o’clock at night.

I don’t think you would find WGN believing that our television critics are overly kind to WB programs. I know that if you ask most

Cubs fans whether the Tribune is slanting it toward the Cubs, you

would hear very few people saying they thought it was doing that.

In fact, most people think we are more antagonistic toward the

Cubs because we own them.

Senator FITZGERALD. Mr. Karmazin, with respect to the ownership caps nationwide. The cap is now at 35 percent, and that 35

percent means that you cannot be available to more than 35 percent of the Nation’s market. But at any one time, what percent of

the market, of the whole country is actually watching one of the

stations that you own?

Mr. KARMAZIN. Unlike the rule as it applied to cable which the

court just set down, you can own 30 percent. In that particular

case, the cable system is reaching fully the 30 percent of the households, because in every market, there is 80 percent of the people

in that market that are subscribers to the cable system or 70 percent. We would typically have an audience that might be 10 or 12

percent, so within the market, if in fact, New York City accounts

for 6 percent of the population, we may be reaching 15 percent of

that 6 percent. So realistically, we are not reaching 35 percent of

the country with our local programming.

Senator FITZGERALD. That would be less than 30 years ago, too,

wouldn’t it, where you are actually reaching?

Mr. KARMAZIN. It is far less today than it was when I first started in the business.

Senator FITZGERALD. If I think about an analogous situation in

banking, I have a background in the banking profession, there is

a Justice Department rule that no bank may have 10 percent of the

deposits in a given area. But that is how they phrase it. You cannot have the actual deposits, but as far as being available to people

in the area, I would think there are companies like Citibank that

would be available to almost everybody in Chicago, available probVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00084 Fmt 6601 Sfmt 6601 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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ably almost to everybody in a major metropolitan area anywhere

in this country.

Would it make more sense to structure the rule, instead of who

your stations are available to, to look at who is actually watching

it, because you are going to be available to lots of people who aren’t

actually watching it.

Mr. KARMAZIN. Senator, we truly believe that the arguments are

there for the cap to be just eliminated, and that there should be

no national restriction.

Senator FITZGERALD. Have you done a First Amendment challenge like the cable owners did successfully?

Mr. KARMAZIN. Well, I can’t tell you successfully, but the court

has stayed the enforcement of the 35 percent cap, and that is why

we have 41 percent currently. We believe that we have oral arguments, I believe in September on it, so we are optimistic. But we

would like to see there be no cap. But, if what you are talking

about the proposal as it related similar to Citibank, is certainly

more workable than the 35 percent cap is, because it is just a misnomer. We are not reaching 35 percent of the people. There is no

television station that reaches 100 percent of its market.

Senator FITZGERALD. Right. That would seem to make more

sense if the cap were not lifted entirely.

Mr. KARMAZIN. I see that viewpoint, sir.

The CHAIRMAN. Go ahead.

Mr. FRANK. The way the measurements work, a show like ‘‘Survivor’’ comes along and the ratings of CBS, thankfully for the CBS

affiliates that we have, go significantly up. The system we operate

on has been in place for many years and, in fact, if you do reach—

the networks reach almost 100 percent of all the available audience

every week—and that is good for the country.

The problem with raising the cap, or eliminating the cap, is that

you are talking about a different subject here. You are not talking

about reach, because CBS is into 100 percent; NBC, ABC, they are

into basically 100 percent of the homes now with their affiliates.

What you are talking about is changing the balance of the local

American system of broadcasting, which is based on strong networks and healthy, strong affiliates as well. If you do not have the

balance of power between them, if you raise that cap at all then

the local affiliates have no way to participate in that.

In fact, if the cap went to 45 percent—just as a for instance—

that would mean that a network could own stations in the top 20

markets, every one of those markets and that would mean then

that, in fact, the affiliates would have no say at all at the table,

no moderating influence, no discussion at all about things like a

baseball game.

Senator FITZGERALD. Could I follow up. I know my time is expired.

The CHAIRMAN. Go right ahead.

Senator FITZGERALD. The networks have always had a dominant

share of say national news, the NBC, ABC, and CBS Nightly News.

They basically had a monopoly on that 30 years ago as far as television, broadcast, national news. The local news is Balkanized, because there are local media markets. In my State, there are 9 television markets. You seem to be concerned not with any kind of a

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domination at the national level, because as you pointed out, the

networks reach into virtually 100 percent of the homes. You are

not concerned about them controlling national news, but you are

concerned about them controlling local news?

Mr. FRANK. Well, the fewer owners that you have of local stations, you lose the ability of making independent decisions. You

have fewer people at the table.

Senator FITZGERALD. Why are you concerned about the local

news and not the national news?

Mr. FRANK. We are not. Nationally it is what it is at the moment,

and the cap has no effect on how that operates at this moment.

What you are talking about—the ownership cap—is the percentage

of stations that one company can own throughout the country.

Senator FITZGERALD. But shouldn’t you, to take your logic to be

perfectly consistent, you should not only want to continue the ownership restrictions so that there is not a domination around the

country in the small market, but you should want to do something

to address the monopoly on national news that I think the networks really have. And certainly had to a far greater extent many

years ago.

Mr. FRANK. Again, sir, we believe that the ownership cap issue

has to do with diversity and localism and the ability of having

many owners participate in the choices made by people around the

country and not a few.

Senator FITZGERALD. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Breaux.

STATEMENT OF HON. JOHN B. BREAUX,

U.S. SENATOR FROM LOUISIANA

Senator BREAUX. Thank you very much. I have two points I want

to get into. First, I think the argument of localism is a smokescreen. Because in my State of Louisiana, I got about 30 stations.

The vast majority of them owned by people in New York and California and Texas, whether it is a CBS affiliate in New York or

whether it is a Hearst Argyle conglomeration of affiliates around

the country.

I think the real issue here is the bargaining power between the

affiliates and networks. I think you can always talk about localism.

We have more local views now on stations in my State and everywhere else. It is good because the station, whether it is affiliateowned or network-owned, is good broadcasting. It is good business.

People buy ads when you see local news being covered and community affairs being covered. That is true whether it is a CBS-owned

station, NBC-owned station, Hearst Argyle station, Post-Newsweek

station, they are going to put local stuff on because it is good business.

I cannot fathom an argument that somehow some large affiliate

group in New York owns stations in Louisiana that somehow Louisiana is being better covered from a local standpoint because

someone in New York owns them, versus CBS in New York. They

are both in New York. And they both carry local stuff because it

is good business. It is good policy. You sell ads, people want to see

what’s on the local news. They love the local newscasters, they love

seeing local community affairs covered.

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So I think this whole argument of localism is a smokescreen as

far as the real issue being the marketing power between the networks and their affiliates. I understand that. But I don’t think localism is any better served by a group in New York that owns my

stations in Louisiana.

Mr. Frank, can you comment on that?

Mr. FRANK. Thank you, Senator. I have said all along during the

hearing that this is not anti-network. We appreciate people like

Mr. Karmazin, they are true broadcasters. The question is how

many people, how many owners are you going to have? Who is

going to make the programming decisions in America? It just

seems to us that it is clear that the fewer owners you have, the

fewer people make the decisions, it is simply not good policy.

Affiliates are good moderating influences with the network. They

are disciplining influences and this happens every day between the

affiliate boards and the network. Every week, we talk about different things. Networks make decisions. For instance, NBC fed the

XFL games this year, and in spite of affiliate protests, there was

one feed, an 8 o’clock game every night for 15 or 13 weeks, whatever the season was. That meant on the West Coast those games

started at 5 o’clock. In spite of heavy affiliate protest, that meant

that every week throughout the season there was no local news on

any NBC station because they were carrying XFL.

Senator BREAUX. Mr. Karmazin, can you comment on that?

Mr. KARMAZIN. Sure. I guess this proves this has nothing to do

with the ownership cap, because right now, NBC is 25 percent of

the country and obviously, if the existing relationships between the

network and the affiliates are so strong this way, then why did

they not have the influence against NBC? I think it has to do with

some group owners who do not want us to compete to buy TV stations, because if we are not at the table competing, maybe they can

get it smaller. Because I guess it is possible for one group owner,

under 25 percent, to own maybe 100 television stations in the

smallest markets in the country. So there you would have one person have 100 stations and that, I guess, would be OK, because it

is not the ones that are the ones that the major group operators

are interested in.

I think the localism, you know, is absolutely not accurate. I

would argue that when we look at a Post-Newsweek station, a

great TV station in Jacksonville, and we have a great TV station

in Baltimore, you could not tell which one is a Post-Newsweek station, which is a local station. Both preempt when appropriate, and

both are serving their respective communities.

Senator BREAUX. Let me ask the second point. Is the question of

the cap, and I think Senator Fitzgerald talked about this. It used

to be you could only own three stations, then we moved it up, I

think, to seven stations, then we moved away from this concept of

how many stations you could own to what percent of the audience

in the market versus the country that you could potentially influence, and we are now at 35 percent. But it seems to me that the

35 percent is a number that has no meaning.

Mr. Karmazin, you had talked about CBS having 10 percent of

the actual viewership. The Nielsen ratings that we have seen say

we are going to tell you it advertises that, but it is less than that.

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All the networks, 3 percent of the actual audience watches that station and that feed from that network, as opposed to—you may be

in a market that you are covering 35 percent potential audience.

But if you have got cable in that area, which you would with 125

different channels at any one time, you probably average out

maybe 3 percent of the actual viewing market. I think the 35 percent, if you are going to have a standard, I think it ought to be

based on something that is realistic, i.e. what percent of the market actually looks at the broadcasters or affiliates in that area.

Is there any way we are going to have a cap that would be more

accurate a reflection of the market influence and potential other

than just a number that only relates to potential owners?

Mr. KARMAZIN. Well, taking a look at the radio industry as an

example and taking a look at what was thought about in 1996, the

belief was that the area of concern was not the absolute number,

you know. So what if somebody owns a station in every single market in the United States.

Senator BREAUX. If nobody listens to it.

Mr. KARMAZIN. There is so much other competition, there are so

many other choices. That did not seem to be a problem. So again,

our viewpoint is if, in fact, we owned a television station in every

market in the United States—something that we would not have

a business interest ever doing, we would like to be in big cities and

big markets. If we own 212 television stations that would not

present, in any given market, any concern to anybody locally in

that market, because there would be so many other competitive

choices. Our position would be that there should be no cap. If there

were a cap, it should be more related to what we reach, not the

hypothetical number of how many people live within that market

who conceivably could get that station.

Senator BREAUX. Thank you, Mr. Chairman. Thank you.

The CHAIRMAN. Thank you very much.

Senator Allen.

STATEMENT OF HON. GEORGE ALLEN,

U.S. SENATOR FROM VIRGINIA

Senator ALLEN. Thank you, Mr. Chairman. Let me commend you

on holding this hearing on these important issues. Let me say at

the outset, I very much value local broadcasters. As Governor—and

I know Senator Hollings when he was Governor—I understood the

value of local broadcasting for the local events, the news, natural

disasters, local causes, and so forth. I think that is very important

and I have come from that point of view.

I also think it is just great for consumers these days, all the competition there is with satellites and cable and it is not just the

three networks. There is now Fox, CNN has done a great job. I

think people love contentiousness. That is why ‘‘Crossfire’’ does so

very well and ‘‘Capital Gang’’ and so forth, and then people like diversity.

In fact, it all started on PBS with the ‘‘McNeil/Lehrer Report.’’

They liked people arguing and giving a point of view. There is plenty, like the Family Channel, and Nick, which my children thrive

on, as well as the Nature channels, and sports. I do watch the networks mainly for local news and sports, so it is smart of you to get

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the NCAAs and the NFL, as far as I am concerned. And I do watch

WGN, because I like to watch the Sox and the Cubs. There is the

variety of others.

At any rate, the issue here is the broadcast cap, the newspaper

cross-ownership issue and the third issue, where listening to all of

you all talk about wanting to get into the big markets is an issue

that has arisen in broadcasters from our Commonwealth of Virginia and smaller markets that have to do with a small market

ownership restriction rule, so they call them duopolies, and I’d like

to hear your views on that.

Senator McCain and Senator Breaux and Senator Fitzgerald

went through the litany of how things have changed. Things have

changed and we need to be realistic on it as far as the smaller market share for national broadcasters. There is more competition.

There is more choice for viewers.

On the issue of the newspaper cross-ownership, newspapers have

faced some challenges with all this competition. There are fewer

newspapers, and yes, they are more consolidated, but nevertheless,

I see no logic in restricting a broadcaster from ownership of a

broadcasting station to be owned by a newspaper. I see absolutely

no logic whatsoever. Just as a matter of philosophy and principle,

what does it matter with all this choice and competition? I do not

know what the legislation will come up with, but certainly on crossownership of newspapers and broadcasting, I see no reason why

that outmoded approach would stand and I think it actually would

benefit consumers, where broadcasters and newspaper owners face

financially challenging conditions in the newspaper business and

also in the local broadcasting area.

That brings me to the issue that I am personally interested in.

If legislation is going forward in this area, I think it is closely related, and that is, folks that were talking to new broadcasters from

generally the Southwest Virginia/Tennessee area, the Bristol/

Kingsport area, or the Tidewater area, or the Roanoke/Lynchburg

area where there are specific restrictions on these small market

owners that if you have fewer than 8 stations, you cannot have

cross-ownership. Their concern is that these restrictions that are

put on small markets restricts them from producing quality programming for that community, whereas the big city areas, the larger markets do not have these same restrictions. I think that these

local television managers confirmed, and in some cases would limit

facilities and getting revenue sharing that would help keep struggling stations alive with better programming and more diversity, as

well as the quality available to the viewers in some of these small

markets.

I would like to see if we can seek some redress to that to treat

smaller areas, smaller-market ownership the same as all the big

areas or larger markets. So in sum, I very much agree with some

of the comments of Senator McCain and Breaux and Fitzgerald.

Some of these matters are addressed by the must-carry rules on

cable. There is pending litigation of the issue of the 35 percent cap.

I am going to continue listening to that. I have not made a decision

one way or the other on that particular issue, but I have been listening to all the arguments on the issue of newspaper cross-ownership. Boy, that is an archaic rule, and I think that ought to be reVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00089 Fmt 6601 Sfmt 6601 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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moved if it takes legislation. I do think we need to relax the restrictions on smaller market ownership. I look forward to working with

Members of the Committee on a variety of issues here, and I commend the Chairman for having this hearing.

I would just like to ask, since you all have given your views on

the caps and the cross-ownership issue—and in listening to you,

Mr. Fuller, carrying on very persuasively, expressing your views on

restrictions—I would ask Mr. Frank and Mr. Karmazin as well,

what would your views be on relaxing these restrictions on small

market so-called duopolies? Would you all support addressing that?

Mr. FULLER. Tribune has supported relaxation of the duopoly

rules.

Mr. KARMAZIN. Again, we do not have any stations in the small

markets, but we fully support it. I think there may be a situation

where if there are 5 stations in a market and they cannot take advantage of duopoly and consolidation and they had 5 newsrooms in

those stations, there is a risk there will be zero newsrooms as compared to there being one or two. I think that small market television, small market radio—my son owns five radio stations outside

of Madison, Wisconsin, and his total revenue for his five stations

is like about $2 million, and believe me, he needs consolidation in

order to be successful, so I would definitely support it.

Senator ALLEN. Mr. Frank.

Mr. FRANK. Senator, NASA has not taken a position on duopoly.

It is a matter of wide debate. Personally, I testified against duopoly

some years ago in front of the FCC, but once the rule is passed,

obviously it is the rule that we have and many broadcasters participate in it. And people are looking into ways to make it work.

Senator ALLEN. If I may, Mr. Chairman, so your position personally is that you personally do not like that restriction, but your association has not taken any position in favor or in opposition of any

changes to it?

Mr. FRANK. Yes, sir. That is correct. Our association deals with

network affiliate relations and concerns and duopoly is not on that

list.

Senator ALLEN. Thank you, Mr. Chairman.

The CHAIRMAN. Let me, on behalf of the Committee, thank each

of you for your valuable contribution. We appreciate your appearance, and we will keep the record open for any further questions

by the other Members who could not attend, and very, very much

thank you.

We have a very important second panel: Gene Kimmelman of the

Consumers Union and Dr. Eli M. Noam, a Professor of Finance and

Economics and the Director of the Columbia Institute of Tele-information.

Dr. Noam, Mr. Kimmelman, it is unfair. With these large Committees, we used to have 6 and then 13, now we have 23 Members.

With the questions and the answers from the complete panel, we

never can really get past one panel. But we are grateful for your

patience. I will be glad to hear, Mr. Kimmelman, if you can start

us off, and Dr. Noam. The reason I am hastening along, too, is because I understand they may have a roll call at 12 o’clock.

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STATEMENT OF GENE KIMMELMAN,

CO–DIRECTOR, CONSUMERS UNION

Mr. KIMMELMAN. Thank you, Mr. Chairman on behalf of Consumers Union, publisher of Consumer Reports, I appreciate the

offer to testify and we want to, on behalf of Consumers Union, support your efforts to ensure that before these very important media

ownership rules are adjusted, modified or eliminated, that the expert agency, the Federal Communications Commission, has actually done its homework and evaluated the market realities in

media markets.

All the witnesses, and I believe, all the Members of the Committee, have endorsed the very principles that consumers believe

are at stake here: promoting competition, diversity of ownership,

and meeting local community needs. And these media ownership

rules have been absolutely critical and have met those goals in the

past.

But the market has changed, as many of you have pointed out

today, but not quite in the way that some would have you believe.

To understand how these markets work, you cannot just throw everything involving media together and say everything is equal.

Mr. Karmazin spoke quite a bit about outlets, but it is interesting when his boss, Mr. Redstone, comes before Congress or files

an antitrust lawsuit, he highlights market share and influence.

That is what Viacom looks at when it evaluates markets, and it is

what the Committee and the FCC should look at instead of media

outlets

Nightly broadcast network news has 25 million viewers every

night. All of the other cable news channels, all put together, three

million. Add the Internet, hardly anything more. Newspapers are

monopolies. Monopoly outlets in 98 percent of communities in this

country. Statistics show that the two most important means by

which consumers receive news and information are television and

newspapers. So this isn’t an issue of whether a lot of broadcasters

should own a whole lot of newspapers in the community. There is

only one newspaper. If that newspaper owns a broadcast outlet,

that is the issue. Whether you support giving away the airwaves

or auctioning them off, it is not the broadcasters who talk about

that. It has been in the newspapers where that debate has occurred

and the danger of lifting that restriction right now involves the loss

of newspapers challenging broadcasters’ business practices.

We have heard a lot of talk about variety. There is enormous variety out there. But that is not the important issue when you are

promoting a diversity policy at the FCC. The issue is who owns it?

You can have all the variety you want from a monopoly and unless

you have a benevolent dictatorship, you do not necessarily meet

community needs. We have a lot of variety on the Internet, but

AOL/Time Warner now controls a third of the hits on the Internet.

If you look at prime time television, that is what people watch the

most. That is predominantly owned now by the national broadcast

television networks. And you add together the top cable companies

and top broadcast networks and almost all of the most popular 10,

20, 30, 50 channels are controlled by those national networks and

the largest cable companies.

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When we hear talk about the First Amendment, it is important

to consider not just the corporate free speech rights, but the

public’s rights as you have pointed out, Mr. Chairman, to an open

marketplace of ideas. The corporate rights are given through privilege by this Congress, the rights to use the public airwaves and

rights-of-way. You can and have restricted their use and the courts

have supported Congress in doing so. You could have made cable

and wireless common carriers, just like telephone companies are.

Telephone companies cannot control what goes over their networks, and the courts have said that is within the purview of the

Commerce Clause rights of Congress to regulate for the public’s interest. You could do that here, too, since what is at stake is the

public’s right to free speech.

Let me explain why the variety of outlets do not solve consumer

problems. Everyone recalls the dispute between Time Warner and

ABC about carriage of Disney programming. Mr. Karmazin is talking about competing against cable. If Time Warner had won that

battle, consumers would have lost programming. But Time Warner

could have still raised their cable rates. If ABC won, which it finally did, and had its programming on Time Warner cable, Time

Warner could just keep on raising rates.

What we have in these markets is not direct competition. We

have separate market segments adjacent to each other and what

we are seeing more and more without competition in transmission

or distribution is that the giants in the media business are not

competing for consumers’ interests. They are not competing to

drive down prices and to offer consumers more of what they want.

It is a competition of sorts. It is a fight. It is a fight over who divides monopoly profits, and that is the problem here. We need to

go back and look at market structure to understand how broadcast

and cable fail to compete.

Now, it is our view that it is absolutely critical for the Federal

Communications Commission to go back and do a careful analysis

of these markets. It has not done so in the recent past. It is now

time to do that. But before the FCC considers changing these

media ownership rules, we want to make sure that any alteration,

any modification or elimination still meets those public interest

goals of competition, diversity of ownership and meeting local community needs. Chairman Powell has indicated that the marketplace is good enough.

As you point out, Mr. Chairman, I am not sure that is consistent

with the law. But I know one thing, the empirical research does not

support the view that the marketplace itself, and it certainly never

has in the past, provided diversity of ownership automatically, or

meets local needs automatically. And in this case we do not have

anywhere near a competitive market. We have massive consolidation within each communications and media sector which tends to

extend monopoly control of each sector rather than compete headon.

So Consumers Union very much supports your effort to make

sure that before the FCC modifies these rules, it gets the facts, gets

the facts right and makes sure that we are still represerving these

important public interest principles.

Thank you.

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1 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws

of the State of New York to provide consumers with information, education and counsel about

goods, services, health, and personal finance. Consumers Union’s income is solely derived from

the sale of Consumer Reports, its other publications and from noncommercial contributions,

grants and fees. In addition to reports on Consumers Union’s own product testing, Consumer

Reports with approximately 4.5 million paid circulation, regularly carries articles on health,

product safety, marketplace economics and legislative, judicial and regulatory actions that affect

consumer welfare. Consumers Union’s publications carry no advertising and receive no commercial support. 2 ‘‘Online Media Consolidation Offers No Argument for Media Deregulation,’’ Jupiter Media

Metrix, Inc. June 4, 2001.

[The prepared statement of Mr. Kimmelman follows:]

PREPARED STATEMENT OF GENE KIMMELMAN, CO-DIRECTOR, CONSUMERS UNION

Consumers Union 1 is concerned that meaningful public policy debate about the

need for media and communications ownership restrictions has been distorted by

ideology and the business interests of the commercial players who stand to gain or

lose by manipulating this debate. We urge policymakers to reaffirm the goals of promoting competition, diversity and meeting community needs, and to refocus the

ownership debate on the fundamental attributes of the various communications and

media markets. While the antitrust laws can effectively prevent substantial reductions in competition, they are not effective tools for dismantling monopolies, promoting competition or preserving other public interest values. We believe that consumers’ interests will best be served if the Federal Communications Commission

(FCC) is instructed to maintain previous media ownership rules, until it can demonstrate how the public interest in more competition, diverse ownership and the

needs of local and minority viewpoints can be met by altering or eliminating these

rules.

The recent explosion of media and communications technology was expected to deliver consumers a brave new world of competition across all telecommunications and

media markets. There is no doubt that today, consumers have the option of receiving news, information, entertainment from a far greater variety of media—newspapers, radio, television, the Internet—than ever before. Unfortunately, this growth

in variety has not been accompanied by a comparable growth of independent, diversely owned competitive communications services and media voices.

Rather than the cross-market competition envisioned with the enactment of the

1996 Telecommunications Act, virtually every communications and media sector has

witnessed an explosion of consolidation. The study attached as an appendix to this

testimony, ‘‘Mapping Media Market Structure at the Millennium,’’ provides the detailed empirical and analytical analysis upon which our testimony relies. The two

major communications wires into the home, telephone and cable are now controlled

by a few super-regional companies that focus their business on dominating their respective markets rather than challenging each other’s core business. Long distance

companies have not been able to crack the local phone companies’ stranglehold on

consumers, and the satellite companies still cannot compete on price with cable monopolies. Radio and newspaper chains grow larger, and national broadcast networks

continue to buy more local broadcast stations. And on the Internet, where ‘‘the number of potential online channels is infinite,’’ about one-third of user minutes were

controlled by cable giant AOL Time Warner last year.2

Has this consolidation opened the door to new competition? Hardly. Contrary to

the claims of the major players in each communications sector, Internet service providers, national broadcast networks, newspaper and radio chains, and cable companies do not compete in a meaningful way against each other for consumers’ news,

information, entertainment and other communications needs.

A careful market analysis reveals that there are several kinds of media markets

(e.g., national v. local, primetime television v. daytime TV, national network news

v. all other news programming), which support different business models (e.g., subscription-based v. advertiser-based). These markets are adjacent to each other rather than in competition with each other. This is not to say that there is no form of

competition or rivalry across media, but newspapers’ classified advertising cash cow

in no way resembles the high-priced pharmaceutical and auto advertising splashed

across national television network primetime programming. These are separate

markets that are not yet substitutes for one another. For example, the enormous

growth of the Internet provides no basis for relaxing the national television broadcast ownership cap, given that only about half the country is on the Internet, and

the Internet does not provide a service comparable to broadcast television.

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3 Jim Rutenberg, ‘‘Mix, Patch, Promote and Lift.’’ New York Times (July 15, 2001). 4Time Warner Entertainment v. Federal Communications Commission, No. 94–1035 (D.C. Cir.,

Mar. 2, 2001). 5Labaton, Steven, ‘‘F.C.C.’s Chairman Would Curb Agency, Reach,’’ New York Times, Feb. 7,

2001. 6Srinivasan, Kalpana, ‘‘FCC Chief Wary of Broadcast Rules,’’ Associated Press, April 25, 2001. 7 Id.

8 Red Lion Broadcasting Co., Inc., et al v. Federal Communications Commission et al, 395 U.S.

367 (1969).

And in moderately or highly concentrated media and communications markets,

vertical integration—the combined ownership of content and distribution channels—

can skew incentives to undermine journalistic independence. For a news program

at a station that is independently owned and operated, the overriding concern

should be credible and professional reporting that will bring viewers back. However,

when a large media conglomerate gobbles up that same station, it becomes unlikely

that the station will cover its parent aggressively when inevitable conflicts of interest arise. In markets with few direct competitors, this bias is more likely to go unnoticed and unchallenged.

Even when it appears that the giants in one media sector are squaring off against

the giants in another, each invoking the consumer’s interest as its sole motivation

in battle, often the consumer is more a hostage than the beneficiary of the warfare.

For example, when ABC, backed by its parent, the Walt Disney Company (Disney),

squared off against cable monopoly Time Warner over carriage terms for Disney’s

programming, consumers faced the following prospects: either Time Warner would

win and consumers would still pay inflated cable rates without receiving Disney programming, or Disney would win, and Time Warner could increase consumers’ rates

in return for carrying Disney programming. And when cable and Internet giant

AOL Time Warner sounds like it wants to challenge the national broadcast networks’ dominance in TV news coverage through its popular CNN and Headline

News cable channels, analysts believe this really means that AOL Time Warner

wants to merge or partner with either ABC News or NBC News.3

The fundamental failure of media and communications policies to develop competitive transmission/distribution systems has left consumers at the mercy of powerful content and transmission companies whose most antagonistic, ‘‘competitive’’ behavior consists of fighting with each other over who gets the larger share of monopoly profits from consumers, and who often control content delivered to consumers.

As the FCC reviews its national television broadcast ownership cap, and newspaper/broadcast cross-ownership rules, it is critical that the Commission take a

careful look at the fundamentally different characteristics of each media and communications market, in determining what regulations are appropriate to meet Congress’ goal of protecting the public interest. And Consumers Union believes that it

is important for the Commission to preserve critical elements of previous judicially

and Congressionally approved definitions of the ‘‘public interest’’—promote diversity

based on independent ownership designed to expand competition, meet local community needs, and protect the viewing/listening public’s First Amendment rights to

hear and be heard—rather than drifting toward a definition where variety (even if

owned and controlled by few) equals diversity.

Past Commission reviews of these ownership rules have involved only cursory

analysis of the most critical economic forces at play in media markets and we believe it is time to correct that flaw. Especially at a time when the D.C. Circuit Court

of Appeals can find a way to read an act of Congress (the 1992 Cable Act, Public

Law 102-385, which was designed to promote cable competition by limiting concentration of ownership) as potentially allowing a single cable company to own systems serving as many as 60 percent of all cable customers, 4 it is obvious that Congress’ expert communications agency must do a better job in gathering data, analyzing market forces, and then demonstrating how congressionally mandated rules

address market dysfunction.

However, we are troubled that the FCC’s current Chairman has characterized the

broadcast ownership cap as based on ‘‘a romantic notion, an emotional one,’’ 5 that

limits ‘‘are almost always poorly calibrated’’ 6 and that ‘‘there is something offensive

to First Amendment values about that limitation.’’ 7 We certainly hope that Chairman Powell will engage in a thorough analysis of the market forces that are affected

by this rule and all others, rather than reach conclusions based on past shortcomings in the FCC’s research. And we hope the Chairman has not forgotten than

the First Amendment protects the public’s free speech rights, not just the more limited right of commercial media enterprises.8 As we point out above, just because

many media ownership rules are old and markets have changed does not mean that

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9Waldfogel, Joel and George, Lisa, ‘‘Who benefits Whom in Daily Newspaper Markets?’’ National Bureau of Economic Research (2000). Waldfogel, Joel, ‘‘Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated Product Markets’’ National Bureau of Economic Research (1999). 10Waldfogel, ‘‘Preference Externalities’’ at 27-30. 11 Network Affiliated Stations Alliance, ‘‘Petition for Inquiry into Network Practices.’’ (Federal

Communications Commission, Mar. 8, 2001).

markets, without these rules, can adequately promote diversity of ownership and

competition.

Recent research on the economics of radio and newspaper markets raises fundamental concerns about whether deregulation of ownership in media markets can

produce the kinds of consumer benefits and a robust marketplace of ideas, that are

usually associated with competitive markets.9 For example, data show that people

whose tastes in radio programming differs from the largest group of listeners in a

community tend to receive less content than they desire in the marketplace, and

that this is likely the case for other media:

A consumer with atypical tastes will face less product variety than one with common tastes. The market delivers fewer products—and less associated satisfaction—

to these groups simply because they are small. This phenomenon can arise even if

radio firms are rational and entirely non-discriminatory.

The fundamental conditions needed to produce compartmentalized preference

externalities are large fixed costs and preferences that differ sharply across groups

of consumers. These conditions are likely to hold, to greater or lesser extents, in a

variety of media markets—newspapers, magazines, television, and movies.

Radio programming preferences differ sharply between blacks and whites, between Hispanics and non-Hispanics and (to a lesser extent) across age groups.10

These findings indicate that, given the large fixed costs involved in offering media

services, the wide variety of tastes in media markets, and the drive to maximize

profits through maximum advertising revenue/audience size, market forces are likely to leave more local tastes under-satisfied by national firms, and more minority

tastes under-satisfied even in local markets. It is therefore necessary for the government to continue regulating—either through structural constraints like ownership

caps, or behavioral requirements like ‘‘equal time,’’ ‘‘reasonable access,’’ or network/

affiliate rules—to pursue the public interest goals of meeting local community needs

and promoting diversity of views in media markets, even where competition exists.

Consumers Union therefore believes the FCC should leave the current national

television broadcast ownership cap in place, while it initiates a much more detailed

and extensive analysis of market structure than it has in the past. The current cap,

which allows a national broadcast company to own local television stations that

reach as many as 35 percent of the national television viewing audience, is already

set at a level that often triggers antitrust scrutiny over the ability to control programming decisions in the marketplace. With four national television networks already dominating primetime television viewing and the massive advertising dollars

that come with it, there is a substantial danger that further ownership of local stations would lead to increased pressure on local stations to carry nationally oriented

programming which maximizes national advertising revenue, at the expense of locally oriented programming. And the fact that the national television networks, no

longer constrained by limits on vertical integration (the financial interest and syndication rules), have a financial incentive to favor programming they produce and

syndicate is likely to increase pressure on local stations to carry network owned

rather than locally popular programming. Certainly the local network affiliates—

who may also be doing less than they should to meet community needs—are complaining about an excessive national profit orientation by the networks at the expense of local programming needs.11

Consumers Union urges the FCC, as part of its review of the broadcast ownership

cap, to initiate an investigation which answers the following critical questions:

1. Since the national television broadcast ownership cap was raised from 25 to 35

percent, how much has local programming designed to meet community needs suffered?

2. How much has elimination of the financial interest and syndication rules affected local station’s ability to preempt network programming to show programs

that reflect community tastes?

3. How much does l, as opposed to theoretical, enforcement of the Commission’s

network/affiliate rules protect local broadcasters from unfair leveraging by the national broadcast networks?

4. Are these rules adequate, without a national ownership cap, to prevent unfair

leveraging?

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12Stepp, Carl Sessions, ‘‘Whatever Happened to Competition,’’ American Journalism Review

(June 2001). 13 New York Times Co. v. Sullivan, 376 U.S. 254 (1964). 14Kunkel, Thomas and Roberts, Gene, ‘‘The Age of Corporate Newspapering; Leaving Readers

Behind,’’ American Journalism Review (2001) citing Walter Williams, The Journalist’s Creed

(1914). 15 Auletta, Ken, ‘‘The State of the American Newspaper.’’ American Journalism Review (June

1998).

5. When there is no interference from the national broadcast networks, are local

broadcast licensees meeting their obligations to serve local community needs, or is

greater public intervention necessary to ensure diversity of local programming?

The FCC’s newspaper/broadcast cross-ownership rule plays a very different role

from the national broadcast cap in promoting a marketplace that protects the public

interest. Consumers Union believes that this prohibition on a local newspaper owning a local broadcast outlet in the same community has much more to do with promoting checks and balances in media coverage of news and information (including

matters affecting the business interests of newspapers and broadcasters) than competition. The fact that virtually every community in this country has only one financially stable community-wide newspaper, and that broadcast does not compete effectively with newspapers, should give the FCC pause as it considers relaxing or eliminating the cross-ownership rule:

Wasn’t it television and radio that were going to kill newspapers? ‘‘I don’t really

consider them competition in that old-school way,’’ stresses Florida Sun-Sentinel

editor Earl Maucker. ‘‘They reach a different kind of audience with a different kind

of news—

Publisher Gremillion, a former TV executive himself, seconds the point, ‘‘I don’t

believe people are watching TV as a substitute for reading the newspaper—’’

—Many newspapers are increasingly writing off local TV news as a serious threat,

treating local stations instead as potential partners who can help spread the newspapers’ brand name to new and bigger audiences.12

It is difficult to imagine the Thomas Paine pamphleteer tradition of print journalism—considered so valuable to our core beliefs that the Supreme Court granted

it the most far reaching First Amendment protections 13 will be able to survive in

a world where newspapers become marketing devices for broadcasters. Print journalists often assert an allegiance to their almost century-old creed:

I believe in the profession of journalism. I believe that the public journal is a public trust; that all connected with it are, to the full measure of their responsibility,

trustees for the public; that acceptance of lesser service than the public service is

a betrayal of this trust.14

Compare these journalistic values with the image presented by Tribune Company

executives, describing how the Chicago Tribune and Chicago television station

WGN, among other media properties, view their business: ‘‘Tribune had a story to

tell—and it was just the story Wall Street wanted to hear. In charts and appendices,

they showed a company that owns four newspapers—and 16 TV stations (with

shared ownership of two others); four radio stations; three local cable news channels; a lucrative educational book division; a producer and syndicator of TV programming, including Geraldo Rivera’s daytime talk show; a partnership in the new

WB television network; the Chicago Cubs; and new-media investments worth more

than $600 million, including a $10 million investment in Baring Communications

Equity Fund, with dozens of Asian offices hunting out media investments.

‘‘There was an internal logic and consistent language to their talk: Tribune, said

the four men, was a ‘‘content company’’ with a powerful ‘‘brand.’’ Among and between its divisions, there was a ‘‘synergy.’’

‘‘It was a well-scripted, well-rehearsed performance, thorough and thoroughly upbeat. And the word ‘‘journalism’’ was never uttered, once.

‘‘Even apart from TV and new media—at the Tribune papers themselves—the editor in chief rarely presides at the daily page one meeting. The editor’s gaze is fixed

on the future, on new zoned sections, multimedia desks, meetings with the business

side, focus group research on extending the brand, or opening new beachheads in

affluent suburbs. ‘‘I am not the editor of a newspaper,’’ says Howard Tyner, 54,

whose official resume identifies him as vice president and editor of the Chicago

Tribune. ‘‘I am the manager of a content company. That’s what I do. I don’t do newspapers alone. We gather content.’’ 15

In highlighting the Tribune Co., we do not mean to suggest that there is anything

wrong with the company’s behavior. On the contrary, economic ‘‘synergies’’ may certainly help Tribune improve the quality of its media products. And we do not mean

to suggest that other factors, like newspaper consolidation and newspaper ties with

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16Media Studies Center Survey, University of Connecticut, Jan. 18, 1999. 17Kunkel, Thomas and Roberts, Gene, ‘‘The Age of Corporate Newspapering; Leaving Readers

Behind.’’ American Journalism Review (May 2001).

other corporate entities, do not also challenge print journalist’s ability to follow their

creed. However, when the two largest sources of news and information—television

and newspaper 16 come under the same ownership roof, there is special cause for

concern about business pressures that could undermine the free marketplace of

ideas.

Consumers Union believes that, particularly where there is only one local newspaper, the public interest is best served by prohibiting that newspaper from owning

a local television broadcast outlet. Dangers ranging from favorable newspaper reviews of a broadcaster’s programming, to positive editorials/opinion articles about

business interests of a broadcaster or politicians who favor such business interests

would be difficult to prevent if cross-ownership is broadly permitted:

Down in Tampa, Media General has gone so far as to put its newspaper, the

Tampa Tribune, in the same building with its local television station and online operation, the better to exchange stories and, ostensibly, resources. (It’s still unclear

what the newspapers get out of the bargain other than garish weather maps sponsored by the local TV meteorologist.) Tampa’s has become the most sophisticated

model of this kind of thing, and as such is drawing enormous interest from other

newspaper companies.

Under the Tampa model, and presumably in most major city rooms of the future,

news decisions for all these outlets are made in a coordinated way, sometimes in

the same meeting. In effect the same group of minds decides what ‘‘news’’ is, in

every conceivable way that people can get their local news. This isn’t sinister; it’s

just not competition.17

Except where there is meaningful competition between local newspapers, we believe that lifting the newspaper/broadcast cross-ownership ban would significantly

undercut the watchdog role that newspapers play over broadcasters and thereby undermine—particularly in the realm of political speech—Congress’ goal of ensuring

an open marketplace of ideas.

It is time for the FCC to engage in a careful analysis of media and communication

markets, before it considers altering current ownership rules. Consumers Union believes that such a analysis will demonstrate the need to preserve the national broadcast network ownership cap and newspaper/broadcast cross-ownership rule in order

to promote the publics interest in more media and communications competition, diversity of ownership, and protecting the First Amendment rights of citizens whose

tastes do not correspond to those of the majority nationwide or in a particular community.

The CHAIRMAN. Very good.

Dr. Noam.

STATEMENT OF DR. ELI M. NOAM, PROFESSOR OF FINANCE

AND ECONOMICS, COLUMBIA UNIVERSITY; DIRECTOR,

COLUMBIA INSTITUTE OF TELE–INFORMATION; FORMER

COMMISSIONER OF PUBLIC SERVICES, NEW YORK STATE

Dr. NOAM. Thank you very much, Senator. Thank you for dealing

with this important issue. Yes, there has been a lot of mergers.

Some are troubling and some are not, but going beyond the specific

deal, the more important question is whether, in the aggregate,

American media have become more concentrated. Because if we

deal with that question, maybe we can relax a little bit about the

issues before us.

Despite the conventional wisdom about media concentration, the

answer is not an obvious yes. Because while the fish in the pond

have grown in size, the pond grew even faster.

Second, there have been a lot of new fish. Some of the giant companies such as AOL or Microsoft or Viacom or Qwest hardly existed

20 years ago or did not exist at all. And at the same time, some

of the old media empire giants have imploded, companies such as

RCA, the original CBS, Hearst, or AT&T. I wouldn’t be surprised

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if in the future we will say the same thing about Fox, Disney, Time

Warner, or Viacom. Companies are growing more than they can

manage, around some kind of charismatic leader who puts it all together, but when he steps off the scene, companies often cannot

manage the way they did before.

When it comes to concentration, there are strong opinions, but

the numbers are scarce. Therefore, we have conducted a study at

Columbia, and collected market share numbers industry-by-industry, company-by-company, for 52 media and information subindustries—from book publishing to film production to Internet service

providers and consumer electronics—in order to trace the concentration trends since the early 1980s after the AT&T divestiture.

It is probably the most detailed study of media concentration in

America, and is generally confirmed by another empirical study at

Penn State.

Unfortunately, I was invited here only 3 days ago, so my data is

not quite up to date. But what we did find was that the overall concentration of the entire information sector, which includes mass

media, telecommunication, and the IT sector, did not increase, but

declined somewhat over the past two decades. At first, it went

down, and then it rose again, but by 1998 not quite to the level

that existed in 1984 right after the AT&T divestiture.

Now, if this surprises you, just remember that 20 years ago, in

that supposedly Golden Age of unconcentrated media we seem to

have lost, there were three major television companies, one computer company, and one telecom company. While today, nobody

would argue that the communications industry is greatly fragmented, there certainly are more participants than used to be, although a bit less than 2 or 3 years ago. For the classic mass media,

such as broadcasting, cable television and print media, concentration has increased, but not in every segment.

Radio is the classic example everybody gives for an explosion of

ownership. Its concentration more than doubled in the last 5 or 6

years. But at the same time, the largest of the companies owns

only 11 percent of all stations and it accounts for 15 percent of all

revenue according to a DeutscheBank-Alex Brown study. Furthermore, there are other audio delivery technologies.

I, for example, listen to radio more on the Internet than over-theair, and the reason is partly because I like country music and in

New York City, despite 35 stations, you usually cannot get country

music over public radio. A few stations have tried, but dropped out.

But if Mr. Karmazin doesn’t give this music to me, Yahoo does. Obviously, I can’t do this in the car yet, although this too, will come

and there are alternatives such as satellites. So the real issue of

radio ownership is actually not so much the national ownership

issue, but it is local concentration. It is whether one company

should have 8 stations in the same market.

Now, does that mean that there is concentration problems? No.

As I said it is probably more local concentration in newspapers, in

telecommunications, and in cable television. That is why a cap on

national cable ownership can be more justified than for broadcasting, where no local market power exists in the aggregate that

could exclude channels in the way that the largest of the cable

companies could.

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When it comes to the broadcast industry, a national ownership

cap will not do very much. Today, the four major networks have

barely 50 percent of the prime-time audience. Their share keeps

shrinking, and they are only a shadow of their former domineering

self. Most of the audience is watching their programs over cable,

not over-the-air, and if one additional Supreme Court Justice

changes his view and votes against broadcast TV’s must-carry

rights, the broadcast industry would be going into a tailspin.

Cable operators will then do separate deals with the major networks and syndicators for direct program feeds, bypassing local

broadcasters, and will create or contract with local providers such

as newspapers for the news programs. Broadcast station’s spectrum

rights will be their most important asset, not their broadcast operations.

If you truly want very badly to achieve local content, a direct approach is better than working through ownership. You could, hypothetically, require a certain amount of local program production as

a prerequisite for license renewal. You could set an open broadcast

time slot for local access to television. You could license low-power

television. Now, those might not be things that we want to do, but

the fact that most industry proponents of localism do not advocate

such direct policies toward localism tells me that this fight isn’t

really about localism. And if that is the case, then government officials should not be the arbiter between several media industries on

how to split the pie between them, tempting at it might be. Similarly, media industries that cherish their independence should not

call for the government to regulate them. It is really asking for

trouble.

Therefore, I would not perpetuate the old rules of national broadcasting ownership caps in an environment of new media.

I thank you, Senators, for your kind attention.

[The prepared statement of Dr. Noam follows:]

PREPARED STATEMENT OF DR. ELI M. NOAM, PROFESSOR OF FINANCE AND ECONOMICS, COLUMBIA UNIVERSITY; DIRECTOR, COLUMBIA INSTITUTE FOR TELE-INFORMATION; FORMER COMMISSIONER OF PUBLIC SERVICES, NEW YORK STATE

Chairman Hollings, Senator McCain, members of the Commerce Committee, I am

grateful to join you in discussing the important topic of media concentration and

ownership rules. Let’s start by agreeing that we all share an intense desire not to

let the diversity of media voices be strangled by a few big companies. But the question is how to go about it.

There are many elements of ownership rules. Caps, cross-ownerships, foreign-domestic, minority. Each raises different issues. I will focus here on the national cap

for TV broadcasters, though I’ll be happy to address other issues as well later.

It would probably help us all if we first looked at the extent of media concentration, because that would take the edge of alarm off.

Yes, there have been lots of mergers. Some are troubling, some are not. Going beyond the specific deal, the more important question is, in the aggregate, have American media become more concentrated?

Despite the conventional wisdom, or books based on anecdotes rather than data,

the answer is not an obvious ‘‘yes.’’ First, while the fish in the pond have grown

in size, the pond did grow, too, and faster. The growth of the information industry

has been 8 percent faster than inflation since 1987. Second, there have been a lot

of new fish. Giant Companies such as AOL, Microsoft, Viacom, Qwest, hardly existed a few years ago. Foreign companies such as Bertelsmann and Vivendi are contesting the American market. Third, there are new and rapidly growing ponds, like

the internet; and fourth, all these separate ponds are becoming more of a large lake,

as the technological and regulatory dikes between them fall.

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When it comes to concentration, views are strong, but numbers are scarce. Therefore, at one study at Columbia we collected market share numbers, industry by industry, company by company, for 60 media and information sub-industries from

book publishing to film production to internet service provision and consumer electronics, in order to trace the concentration trends since the early 1980s, after the

ATT divestiture. This is probably the most detailed study ever of media concentration in America. It is confirmed by another study, by Ben Compaine, formerly of

Harvard. Unfortunately, we did the study 3 years ago. I am updating it, but I had

only 3 days since your invitation, including the weekend. But I will provide you with

them when we have updated the work.

What did we find? Surprisingly, the overall concentration of the entire information sector, defined to including also telecommunications and the IT sector, did not

increase, but declined somewhat in the past two decades. Or rather, first it went

down, then it rose, but not to the level that existed before. If this surprises you,

just remember that 20 years ago, there were 3 major TV companies, 1 computer

company, and 1 telecom company. The combined share of the top 10 companies in

the U.S. information industry declined from 59 percent in 1987 to 39 percent in

1998, even as the total size of most companies increased.

If one looks at the classic mass media industries alone, they did indeed increase

in concentration but remained unconcentrated by Justice Department standards. (I

should add that I do believe that for media, antitrust standards should be interpreted more stringently than for other industries because of their special importance, and because of the undesirablility and unconstitutionality of direct regulatory

interventions). The weighted average of 4 firm market share for the mass media industries was 33 percent in 1986. It then fell to 27.5 and rose to 40 percent again.

For the 3 networks, it declined from 70 to 53 percent. For local TV stations, the

top 4 firms share rose nationally from 15 to 26 percent. For cable TV distribution,

it rose from 37 to 60 percent.

The main factors increasing the rise in the mass media concentration figures were

cable television systems (accounting for half) and home video (accounting for 20 percent). Concentration also increased in TV station ownership and retail bookstores,

and more than doubled in radio station ownership and book publishing. There is one

very large owner of radio stations. But even it owns only 11 percent of all stations

and accounts for 15 percent of revenues. And the number of radio stations grew by

800 in the past 3 years. The number of TV stations increased since 1984 by 37 percent, or about 400 stations. The top four firms still have only about quarter of these

markets, as measured by revenue. In other industries, concentration held relatively

steady. Film production remained fairly concentrated but steady, with the top four

firms controlling 60 percent. The national movie theater, newspaper and magazine

markets remained relatively unconcentrated, with the top four firms accounting for

a quarter of sales.

Therefore, it cannot be said that U.S. media have become, in general, more concentrated. Some segments have, others have become less concentrated. Still, the

next question then must be raised: even if a firm does not dominate any specific

market, could it not be overpowering by being a medium sized firm in every market?

The fear is that vertically integrated firms will dominate by having their tentacles

in each pie. But in economic terms, this can only happen if a firm has real market

power in at least one market, which it then extends and leverages into other.

But where markets are competitive, vertical integration makes little sense. Disney

should not earmark its best programs for ABC if other networks offer more money.

Conversely, for Disney to force its lemons on the ABC television network would only

hurt the company.

Does this mean there is no concentration problem? No. But the real problems in

media concentration are not national, but local, 98.5 percent of American cities—

though less of a share of people—have only one newspaper. (But you rarely will find

editorials castigating this concentration). Most American homes have no choice in

their cable provider, though DBS is changing that. This is why a cap on cable ownership can be more easily justified than for broadcasting, where no local power exists that in the aggregate could exclude channels the way that the largest of cable

companies could. Alternative local residential phone service may be coming, but is

not here yet. That’s why local interconnection is regulated. And the absence of competition in local telecommunications might justify a higher cap on cable where it becomes an active rival to telecom, as in ATT’s original strategy. Local radio concentration has increased considerably since the Telecommunications Act of 1996 relaxed local ownership ceilings, and may become more of a problem than national

radio concentration. On the other hand, the ownership of multiple radio outlets in

a community has also increased program diversity, because a firm that buys an adVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00100 Fmt 6601 Sfmt 6621 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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ditional station in a market will target new audiences rather than cannibalize its

existing ones.

In broadcasting, we’ve had a set of rules established when two-and-a-half TV networks, all headquartered in Manhattan within a few blocks, supplied the TV programming for most Americans. But the ownership rules didn’t really change that.

What did create the change was the entry of cable television that now provides almost 70 percent of households with a menu of about 55 channels, on average. Satellite TV reaches another 15 percent or so of households. Both of these media can

program scores of channels, and can also charge subscription and per view fees,

which gives them a much stronger base than advertising revenues. Today, the top

4 networks have barely 50 percent of the audience and keep shrinking inexorably.

There are over 200 cable channels being offered. Thus, broadcasting is a pale shadow of its former self. Only a small audience slice watches the classic over-the-air

VHF TV. If one additional Supreme Court justice changes his view and votes

against broadcast TV’s must-carry rights, the industry will be going into a tailspin.

Cable operators will do separate deals with the major network and syndicators for

direct program feeds, bypassing local broadcasters, and will gradually create or contract with local providers such as newspapers for the news programs. And as that

happens, broadcast stations’ spectrum rights will be its most important asset, not

its broadcast operations.

And that’s just today’s challenge. In the near future, with high speed internet rising in penetration; it will become an additional medium for the distribution of mostly national and even global programs, often of new and interactive kinds, which are

not possible for broadcasters.

Broadcasting has now been given a second chance, through digital TV with its

multicasting potential. So far, this has been a total failure. But the concept of broadcast TV as a multi-channel medium with each station broadcasting half a dozen of

programs may become the lifeline for that industry as it competes against cable. It

is also a high cost proposition that will challenge the smaller firms.

The increasing fragmentation of audiences through narrow casting also leads to

a decline of localism. Local programming, outside the news, was always more asserted than practiced, with some noteworthy exceptions. The economics here are

basic. Any professional TV program is expensive to produce but cheap to reproduce.

Therefore, national networking is the economically logical way to go. It’s been that

way since early radio. And if audiences get fragmented locally, they have to be aggregated nationally. So there are fundamental and increasing incentives toward national electronic media. Conversely, whatever local production or preemption or syndication that draws audiences will be practiced by stations based on local conditions,

whatever the ownership is, since they have to contest nightly for audiences.

So this is an industry in intense transition, much more in trouble than it often

recognizes itself, and this then leads to fundamental restructuring as a response.

You can constrain it, but then you might end up with the electronic equivalent of

the railroads and other rustbelt industries.

I am more concerned with the question of impact on minority ownership. But

here, even under the old system, minority ownership has been miniscule, and if one

wants to achieve it one should find other ways.

There are also costs to this cap restriction. It prevents larger companies from

seeking new licenses, or acquiring weak UHF stations, because they count as part

of aggregate ownership. Just as cross-ownership restrictions can reduce the number

of stations, as well as sometimes of second-tier newspapers. And this deprives communities of additional stations and voices.

Much of what this fight over ownership caps is about the relative bargaining

strength between station groups and networks. That’s vital to the participants, but

does not obviously an issue of issue of protection of local content. It’s ultimately an

empirical matter for study, whether local programming in a competitive local market is affected by ownership or cross-ownership at all. Since we have various exceptions for every rule around the country, this can be determined.

To conclude, it seems to me that if you want to achieve local content, there are

approaches that are more direct than working through ownership, such as a certain

amount of local program production as a requirement of licensing, or an open a time

slot for local access to TV, or the licensing of additional broadcasters such as LPTV,

or the right to reply. The fact that most proponents of localism do not advocate such

direct policies toward localism tells me that this fight isn’t really about localism.

And if that’s the case, you should not become the arbiter between several industries, TV networks, station groups, and Hollywood syndicators. Media industries

cherishing their independence should not call for the government to regulate them.

It’s asking for trouble. But if one can show clear and convincing public harm, that’s

one thing. If one can show local media power that permits its vertical extension,

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then some protective rules may be in order. But in the absence of such showing,

I would not perpetuate old rules of national broadcasting ownership caps in an environment of new media.

Thank you very much for your kind attention

The CHAIRMAN. Thank you very much.

Senator Breaux.

Senator BREAUX. Thank you very much. Mr. Chairman. I did

want to hear both of these gentlemen because neither one of them

have an economic stake in this. I mean, everybody else at the previous table represented millions of dollars and legitimate interests.

What we do here—and both of you can sort of stand back and give

us a perspective that is not influenced by the bottom line of what

happens with regard to the ownership issue.

Dr. Noam, if I pronounced it correctly, you have in your statement something that I had said and I did not notice it before. I

said that local ownership really is a fight, not so much of local content, but really on the bargaining power between the affiliates and

the networks. What do you mean by that? I mean, I agree with it.

It is what I said. It is in your testimony. Can you explain and

elaborate what do you mean by that statement?

Dr. NOAM. There are several industries involved. The providers

of syndicated programs would like to deal with a large number of

local stations rather than with a smaller number of buyers who

would have a greater bargaining power.

The medium-sized station groups do not want to compete for station acquisitions with the large. And the network affiliates more

generally want to have station groups, more bargaining power relative to the networks. From their perspective, it is a perfectly logical behavior.

But I do not think that there is a great deal of public interest

in terms of diverse content that is attached to that. I can agree

with the point that you made earlier, namely, that if a station, regardless of the ownership, should more or less follow some very

similar principles of what the audience wants to see because they

are competing nightly and daily for audiences. There shouldn’t be

any difference on content. If the networks do not serve local markets well, they aren’t doing a good business and eventually they

will lose audiences. There are self-correcting market forces here.

Senator BREAUX. I used a station, whether a station in Louisiana

is owned by CBS in New York or owned by Hearst Argyle in New

York. It seems to me that it is a New York-owned station and what

they are going to do is try and serve the needs and local market

in Louisiana in the most profitable manner that they can and obviously, that means having a lot of local content. Do you have any

problems with that as a principle? It seems to me it doesn’t matter

whether Hearst Argyle or CBS owns it. They have to do what’s best

to be successful in running that station.

Mr. KIMMELMAN. I think that is a good point. There is an economic factor missing from the equation. That is a national broadcast network that has lost 50 percent market share, but remain the

biggest player in prime time, the big bucks, the big advertising dollars. They need to get their programming on, period. Their programming is preeminent. Even a New York-owned set of stations

trying to meet local needs has slightly different economic incenVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00102 Fmt 6601 Sfmt 6601 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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tives. They want maximum eyeballs, maximum viewership in that

particular community or 5 or 6 or 8, but not nationwide and that

can have a very significant impact on the programming you select

during prime time when most people are watching.

The CHAIRMAN. Would the Senator yield on this important point?

Isn’t it a fact, Senator Breaux and panel, on whether or not you

own content. You have mentioned CBS. They have got content. The

Fin-Syn rules have been abolished. So they are pushing content.

Whereas Hearst, you said, they are both in New York, but these

group ownerships, they do not have content so they are not pushing it. I find from the local folks, and everything else of that kind,

if they can get and adhere to the localism, which we both agree is

of tremendous value, that has been put in. You used to have to

come up and justify your relicense and ensure how many public interest shows you had and everything else. But where they have got

just affiliates, and the affiliate is being harassed by the network

owner because they have got content, it is just like the morning

programs and the evening.

They are advertising movies all over the place. I couldn’t go on

‘‘Who Wants To Be a Millionaire.’’ I think I could do pretty good

on the answers, but not with the movies. They are getting rid of

me about the third or fourth question: ‘‘who played the leading part

in such-and-such a movie.’’ They are promoting them regularly.

More people are going to them, and it is a money-making promotional proposition of content which is taken away.

It is not that both of them come from New York, and it is an affiliate link. But John, isn’t it an affiliate fight because they do have

content where Hearst doesn’t, and they just want to see the station

succeed and as you and I both agree, localism counts.

Senator BREAUX. The Senator makes a good point. The fact is if

you do not like what the network has programmed, you have got

125 channels you can go to on your cable and look at something

else. In New Orleans, for instance, I think I am correct, but I think

WWL Channel 4 is a Hearst Argyle station.

Does anybody out there in the audience know? Anyway, it is a

CBS affiliate. They do not like the CBS ‘‘Morning Show,’’ so they

just do not carry it. And they carry their local news for the whole

entire 2-hour block in the morning because they think that that is

a local—and the network cannot make them do it. So they have to

appeal to a local audience and if the local audience doesn’t like the

national programming, it is not going to carry it. I mean, no one

wants to do that.

The final point is 35 percent limitation. It seems to me that it

was spelled out at a time when you just looked at the potential

market, but now with 125 stations on the cable, the actual numbers of people watching the networks probably average out from

the Nielsen ratings about 3 percent. You can have a station in Los

Angeles which has huge potential market, maybe 20 percent of the

whole country where nobody watches your station, your penetration may be almost zero or 3 percent, which is average. So the

question is, is there a better way of gauging the media dominance

in an area other than just selecting the total number of people that

live in the area. Shouldn’t it be based on the number of people that

watch a particular network affiliate?

100

Mr. KIMMELMAN. Senator Breaux, I think it is a very good point.

The difficulty is, it changes all the time. Every one of these stations

has different ratings for different days, different months. We do

measure differently in different areas. I think this is something

that is absolutely critical to look at. I think you should make the

Federal Communications Commission look at it. It is easy to challenge a number. Why not 36 or 40. The issue is how does some

other number provide for promotion of localism, competition and

ownership. That is what we have not seen from the FCC.

They can raise concerns about a number, it is easy to nitpick, but

no one has come up with a better alternative. It is a very hard

point. It is hard to measure. Mr. Karmazin has talked about his

low numbers. Some programming gets a 25 percent market share

and that is the big advertising dollars, but it won’t necessarily get

it every day or every week.

Senator BREAUX. Dr. Noam, do you have any comments on that

thought?

Dr. NOAM. I’d like to comment on the question of national content or local content. As we have 200-plus cable television channels

offered, localism is really in trouble. As one fragments audiences,

one must aggregate them nationally, and it is very expensive to

produce programs. It is expensive to produce programs, but cheap

to reproduce, and therefore a national distribution takes place.

That has been the way from the beginning of radio.

To use an analogy: In New York, zoning laws restrict large supermarkets. The background is the desire to protection smaller

stores on social policy reasons. But the result is to have many inefficient small stores that still sell virtually the same mass products

like Campbell’s soup, Coke, and Haagen-Daz. People pay more but

do not have more choice. The economic forces for media work similarly. So we should worry about local programming. But ownership

rules are an ineffective way to deal with the issue.

The CHAIRMAN. Thank you very much. The roll call is about to

go on, so the Committee is indebted to both of you, Mr.

Kimmelman, Dr. Noam. We appreciate your appearance. The

record will stay open for questions. The hearing will be in recess

subject to the call of the chair.

[Whereupon, at 12:03 p.m., the hearing adjourned.]

(101)

APPENDIX

PREPARED STATEMENT OF LOWELL ‘‘BUD’’ PAXSON, CHAIRMAN OF PAXSON

COMMUNICATIONS CORPORATION

Paxson Communications Corporation is the largest television station owner in the

country and the creator of the newest over-the-air television network. We would request that the following statement be submitted for the record of the July 17, 2001

Senate Commerce, Science & Transportation Committee hearing on broadcast ownership.

This statement sets forth our position on the current national television ownership cap. Our position is simply stated and, we believe, legally compelling. The

FCC’s current 35 percent television cap should be completely eliminated and the

issue of television concentration on a national level should be left to Federal antitrust authorities.

The 35 percent television cap is a totally arbitrary number bearing no relation to

any antitrust or even public policy concern, it was adopted without record support

and it fails to accurately measure the viewership reach of any television group

owner. For these reasons, it cannot and will not survive review by the Court of Appeals in Washington, DC. But, neither this Congress nor the FCC should wait for

such an adverse decision. The time is now for the repeal of this antiquated rule.

First, a brief history of the 35 percent rule. During the deliberations leading to

the 1996 Telecommunications Act, a group of television broadcasters, including

Paxon, formed the Local Station Ownership Coalition which lobbied for televison duopoly and local marketing agreements, i.e. LMAs. The Coalition supported H.R.

1555 (entitled ‘‘The Communications Act of 1995’’) which was voted out of the House

Commerce Committee by a 38-5; vote. This bill raised the television audience cap

to 35 percent for one year and then to 50 percent thereafter.

However, when the Bill went to the House floor, the Coalition became aware of

efforts to amend the bill to set the television ownership cap at 35 percent. The Coalition members convened by telephone conference and agreed to accept the reduction

in the television cap in return for keeping the support of the House members for

H.R. 1555. The Coalition’s views were then communicated to key Representatives

on the House Commerce Committee who were sponsoring the local television ownership changes. The Coalition’s position on this issue was dictated by the intense desire for local television and LMA rule relaxation and not by any analysis of the consequences of a 35 percent vs. a 50 percent audience cap. In short, the 35 percent

number was ‘‘plucked out of thin air’’ as the Court of Appeals noted recently in

striking down the cable ownership rule.

The second point worth noting is that the 35 percent audience cap does not actually provide a meaningful measurement of anything. As NBC’s President, Bob

Wright, has explained in testimony before Congress, although NBC’s 13 owned television stations reach about 25 percent of the country’s television households (as

measured by the current FCC rule), only 2-3 percent of those homes are actually

watching NBC on average, so that NBC’s owned stations garner about 6 percent of

television viewers nationwide.

The 35 percent rule is simply arbitrary and capricious and it fundamentally restricts the right of television owners to speak to their viewers. Local television markets are very competitive nowadays and we face competition from many sources including other television stations, cable, cable networks, Microsoft’s Web TV, TIVO,

Ultimate TV, radio, newspapers, DBS, magazines, billboards, the Internet, direct

mailings, etc. Notwithstanding this intense competition, a television owner at the

35 percent cap cannot buy a television station in a new market simply because of

its ownership somewhere else. There is no logic to this and it is violative of that

owner’s First Amendment free speech rights. And let’s be honest, the issue is not

local ownership vs. out-of-market ownership. First there is no legally justifiable reason for favoring local ownership of broadcast stations and most stations are owned

by group owners, not individual local owners. The issue is how the station is operated and how responsive it is to its obligations as a licensee. Second, most viewers

102

do not know, or care, whether a television station is owned by a local group, a national network or a newspaper group from another state. It is simply irrelevant.

In summary, Paxson Communications urges Congress not to wait until further

Court rulings striking down the 35 percent cap and other ownership restrictions but

to take the lead and eliminate these antiquated, useless, and constitutionally infirm

rules now so that our television industry can meet the new competitive challenges.

All existing antitrust laws are fully capable of protecting the consumer and preventing anti-competitive conduct.

PREPARED STATEMENT OF JAMES A. WADES, RADIO AND TELEVISION BROADCAST

INDUSTRY VETERAN

As a nearly 20 year veteran of the Radio and Television broadcast industries, I

feel it is my duty to offer input to the Committee on the issue of Media Concentration, a trend that has, over the past decade, resulted in a significantly reduced level

of quality broadcast service to communities throughout these United States.

Historically, the regulatory approach affecting the electronic media has been

based in the public interest. This approach began during the 1920s under then-Secretary of Commerce Hoover and has been consistently reaffirmed under countless

administrations as well as through three distinct government agencies charged with

the responsibility of regulating broadcasting activities (e.g. Department of Commerce, Federal Radio Commission, Federal Communications Commission). Unfortunately, it appears that recent regulatory decisions have resulted in a climate that

de-emphasizes the requirement for licensees to act in the public interest.

Impact on Local Service

Over the past decade, the vast majority of local radio stations have eliminated any

meaningful commitment to local community affairs. While serving as a consultant

to a large number of AM and FM broadcast stations throughout the Great Lakes

Region, I have watched as local stations have been consistently absorbed by large

media conglomerates. The result has been, almost without exception, the elimination of local news directors and community affairs positions within these stations.

Whereas stations formerly owned by local community investors often maintained

ties with numerous organizations and local government entities, stations managed

from outside the area often fail to identify the potential value of coordination with

the local community. The results are often subtle, but nonetheless important. For

example, I have seen many stations de-emphasize the importance of Emergency

Alert System bulletins, such as Tornado Warnings, Flash Flood Warnings, and similar local emergency information simply because it does not fit into a prefabricated

format developed thousands of miles away at a corporate headquarters.

Media Concentration encourages the development of generic radio programming

transmitted to local affiliates via satellite. While this offers significant profitability

advantages for large corporate owners, such formats discourage the dissemination

of local community information and programming.

Media Concentration Discourages Cultural Diversity

Media concentration has resulted in the creation of generic radio formats, which

are unable to offer a range of choices to the local consumer. With programming

standards concentrated in the hands of a few large corporate entities, the natural

business tendency toward decreasing operating overhead results in the elimination

of local positions formerly held by qualified programming experts. Instead of local

broadcasters developing formats, which respond accurately and rapidly to the desires of a local community, the local listener must choose from a limited variety of

programming designed to appeal to the ‘‘lowest common denominator.’’ In many

cases, one can hear identical programming at multiple locations on the dial. This

programming often originates from a single location and is then rebroadcast through

multiple transmitter sites with overlapping coverage areas.

Those local investors that do attempt to compete with concentrated media entities

often meet with minimal financial success. Not only does an erstwhile attempt to

develop programming tailored to local needs result in higher overhead in the form

of employment expenses, but it also becomes difficult to capture scarce advertising

revenue. In simple terms, larger advertisers and agencies find it easier to deal with

a few large corporate entities rather than to work with numerous independent

broadcast stations. This situation has become even more serious as local businesses

are destroyed or marginalized by the invasion of large corporate chain stores, most

of which purchase advertising only through large agency representations.

I have spoken with many individual station owners who have ‘‘sold-out’’ to media

conglomerates simply because they were no longer able to generate sufficient reveVerDate 03-FEB-2003 11:34 May 03, 2005 Jkt 089019 PO 00000 Frm 00106 Fmt 6601 Sfmt 6621 D:\DOCS\89019.TXT SSC1 PsN: SSC1
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nues in competition with concentrated media power. The result has been a consistent lack of local programming and community involvement.

Media Concentration Limits the Voice of Minority Interests

Ethnic and minority owned broadcast stations are consistently marginalized by

media concentration. Many of these broadcast stations are often operated by individuals who have a sincere desire to serve a unique community, which lacks a voice

or cultural perspective in traditional mass media. Such stations find it difficult to

compete with duopolies and media consolidations within their communities.

I have watched as minority-owned stations struggle to generate advertising revenue when faced by competition from one or two companies, which often own all

remaining viable stations in a broadcast market.

Such stations are likely to be further marginalized by the ill-advised decision of

the Commission to create low-power FM broadcast stations to serve unique communities. Such stations offer little in the way of coverage area and they often lack the

necessary capitalization and revenue stream necessary to adequately serve their

community with a quality product. However, they do serve to drain valuable advertising revenue away from viable minority-owned stations. As a result viable ethnic

or minority-owned stations often find themselves caught between the excessive revenue flow to local duopolies and competition from ineffective low power UHF TV and

FM stations that offer only ‘‘lipservice’’ to broadcast diversity.

Media Concentration Lowers Technical Standards

My experience indicates that many stations owned by large corporate entities pay

little attention to those FCC regulations designed to insure that the interference between stations is limited and the average listener receives a consistent, quality,

broadcast signal.

I have observed AM Directional Antenna systems operating out of tolerance for

weeks, if not months on end, resulting in interference to co-channel stations in other

parts of the country. I have observed over-modulation, off-frequency operation, and

over-power operation at both AM and FM stations throughout the Great Lakes Region. Many of these stations are operated under a management structure that views

FCC technical standards as a cost-center and threat to the shareholder.

In some cases, stations consistently fail to meet technical standards simply because they have employed one under-qualified technician to maintain multiple studio and transmitter sites within the same market. Whereas each station formerly

employed a competent broadcast engineer or maintained a viable service contract

with an outside consulting engineer, consolidation often results in a single salaried

technician burdened under an impossible workload.

Contract and Consulting Engineers are often harmed by the same economic forces

resulting from media concentration. Prior to the most recent wave of media consolidations, there were significant benefits to contracting one’s engineering services

through a local engineering company. This allowed stations to maintain their facilities on an as-needed basis. Today, large media groups often find it is in their best

interest to avoid engineering contracts. It is simply cheaper to hire a single, minimally competent technician on salary and then insist that he work an almost unlimited number of hours. If compliance with Commission Rules is impossible, it matters

little. Congress consistently fails to authorize adequate funding to the Commission

for reasonable inspections of broadcast stations and other licensed services. Therefore, there is little risk of being caught.

Media Concentration Encourages Unhealthy Speculation

Unlike most businesses, the unique nature of broadcasting, combined with the

current regulatory environment, has resulted in many broadcast properties having

two unique and distinct values. The first value is that of an operating business, offering investors a net profit or loss based on available revenue and expenses. Unfortunately, broadcast stations also have a ‘‘speculative value,’’ much like real estate.

The analogy to real estate is instructive. Like real property, an FCC broadcast

license serves as a ‘‘deed’’ to a property. It defines and protects a unique coverage

area as well as a location within the radio frequency spectrum. Therefore, like real

estate, the license has value simply as an investment property, even if the business

occupying that property is not viable.

It is my opinion that much of the media concentration is not motivated by a desire

or need to compete with technological or marketplace innovations, but rather

through a desire to speculate, and perhaps profit, on the future value of ‘‘real estate.’’ As more broadcast properties are concentrated in the hands of a single group

of investors or a publicly held company, the aggregate value of the real estate increases. Investment in the media consolidation occurs simply because the value of

this finite resource is likely to increase over time.

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As in the case of real estate, it is often desirable to limit any costs associated with

the property while it is accruing in value. Such costs are usually associated with

the production of a quality broadcast product and the maintenance of reasonable

technical standards.

In the past, Congress and the Commission recognized that this factor resulted in

the degradation of broadcast products and community service. Limits had been

placed on the frequency with which an investor could transfer a broadcast property.

In recent years, these limitations have been removed resulting in ‘‘trafficking’’ in

broadcast station licenses. Further deregulation has allowed consolidation of properties and even greater speculation.

Media Consolidation is a Threat to Balanced Political Coverage

During the 1930s, Powell Crosley, Jr. was licensed to operate a super-power station capable of dominating the broadcast marketplace, as it then existed. Evidence

soon emerged that Mr. Crosley was dictating policy to news personnel in an effort

to insure that his personal viewpoints were favored. The Commission soon ended

its experiments with such authorizations in order to insure that no single person

or business entity could control public access to news and information.

While it is true that the electronic media is more technologically diverse today

than at any time in the past, the fact remains that broadcast media maintains considerable power to shape ideas and values within our society. Even the Internet,

with its unprecedented growth, lacks the ability of broadcast media to encourage

consensus and the convergence of ideas.

Media concentration places unprecedented power in the hands of the few. These

individuals will not only have the ability to influence political debate, but also to

shape the individual values of our children through the control of popular culture

and entertainment. While the extent of the ability of popular culture and entertainment to shape individual values is debatable, few would argue with the suggestion

that its influence is significant. The current lack of stewardship and social responsibility on the part of mass media should be obvious to the thinking person. Does the

existing track record justify increased trust and confidence?

We Are at a Crossroads

If Congress allows the Commission to authorize greater media concentration, we

will be taking one more step away from the tradition of viewing radio frequency

spectrum as an asset to be managed in the public interest on behalf of the American

people. We have already set a dangerous precedent by auctioning spectrum to the

highest bidder, an action which, by the way, is a significant departure from a nearly

75 year history of spectrum management.

Unlike manufacturing or service industries, most of which can be largely regulated by the market place, broadcast media investors are given the privilege to serve

the community while engaged in a useful business enterprise. Congress must insure

that public resources are utilized in a manner that benefits the Nation as a whole,

while allowing shareholders to maintain a reasonable margin of profit. Any attempt

to compare broadcast media with other business activity is, by definition, incorrect.

No other business has similar access to a resource traditionally viewed as public

property.

Further media concentration will result in additional inequalities in the market

place and will serve only to silence the few local voices left within the electronic

media. The pressures on locally owned broadcast stations and those employed by

them will ultimately result in business failure and the need for local investors to

sell-out at whatever price they can obtain.

There is not substitute for an effective free press in the form of diverse, locally

owned broadcast media. Media concentration will only result in cultural narrowmindedness, a lack of economic diversity, and a dangerous consolidation of political

and cultural power in the hands of a few. It is my sincere hope that Congress will

take whatever steps are necessary to encourage true diversity in the broadcast marketplace.

Æ