Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules 41393

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Dated: June 14, 2000.

Gary Gulezian,

Acting Regional Administrator, Region V.

[FR Doc. 00–16514 Filed 7–3–00; 8:45 am]

BILLING CODE 6560–50–U

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[MM Docket No. 00–108; FCC 00–213]

Broadcast Services; Radio Stations,

Television Stations

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule.

SUMMARY: This document proposes to

eliminate that section of the

Commission’s rules that that would

prohibit affiliation with an entity

maintaining one of the major television

networks (ABC, CBS, Fox, and NBC)

and the UPN or WB television network.

Currently, this rule permits a television

broadcast station to affiliate with an

entity maintaining two or more

broadcast television networks unless the

two or more networks consist of two or

more of the major networks (i.e., ABC,

CBS, NBC and Fox) or one of these four

networks and either the UPN or WB

television network. This rule was

identified as one that should be

modified in the Commission’s Biennial

Review Report.

DATES: Comments are due by September

1, 2000, and reply comments are due by

October 2, 2000.

ADDRESSES: Federal Communications

Commission, 445 12th Street, SW.,

Washington, DC 20554

FOR FURTHER INFORMATION CONTACT:

Roger Holberg, Mass Media Bureau,

Policy and Rules Division, (202) 418–

2134 or Dan Bring, Mass Media Bureau,

Policy and Rules Division, (202) 418–

2170.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the NPRM in MM Docket

No. 00–108, FCC 00–213, adopted June

8, 2000, and released June 20, 2000. The

complete text of this NPRM is available

for inspection and copying during

normal business hours in the FCC

Reference Center, Room CY–A257, 445

12th Street, SW., Washington, DC and

may also be purchased from the

Commission’s copy contractor,

International Transcription Service

(202) 857–3800, 445 12th Street, SW.,

Room CY–B402, Washington, D.C. The

NPRM is also available on the Internet

at the Commission’s website: http://

www.fcc.gov.

Synopsis of Notice of Proposed

Rulemaking

I. Introduction

1. This Notice of Proposed

Rulemaking (NPRM) proposes the

amendment of Section 73.658(g) of the

Commission’s Rules (47 CFR 73.658(g)),

the ‘‘dual network’’ rule applicable to

broadcast stations. This rule permits a

television broadcast station to affiliate

with an entity maintaining two or more

broadcast television networks unless the

two or more networks consist of two or

more of the major networks (i.e., ABC,

CBS, NBC and Fox) or one of these four

networks and either the UPN or WB

television network. These networks are

not explicitly named in the rule.

However, the statute and legislative

history of the Telecommunications Act

of 1996, which required the

Commission to amend the dual-network

to its current form make it clear that

these are the networks intended to be

described by the legislation. As a result

of our analysis in our Biennial Review

proceeding concerning broadcast

ownership rules (Biennial Review

Report in MM Docket No. 98–35

(‘‘Biennial Report’’), FCC 00–191

(Adopted May 26, 2000; Released June

20, 2000)), we made a preliminary

determination that the current rule, as a

result of competition, may no longer

serve the public interest. Accordingly,

we indicated that we would commence

this rulemaking proceeding proposing to

amend the rule by eliminating the

portion of the rule that precludes the

ownership of the UPN or WB networks

by the ABC, NBC, CBS, or Fox television

networks.

II. Background

2. As we noted in the Biennial Review

Report, the Commission first adopted a

dual network rule for broadcast radio

networks in 1941 following an

investigation to determine whether the

public interest required ‘‘special

regulations’’ for radio stations engaged

in chain broadcasting (6 FR 2282 (May

6, 1941)). The rule provided that no

license would be issued to a broadcast

station affiliated with a network

organization that maintained more than

one broadcast network. The

Commission extended the dual network

rule to television networks in 1946

(Amendment of Part 3 of the

Commission’s Rules, 11 FR 33 (Jan. 1,

1946)). The Commission believed that

permitting an entity to operate more

than one network might preclude new

networks from developing and

affiliating with desirable stations

because those stations might already be

tied up by the more powerful network

entity. In addition, the Commission

expressed concern that dual networking

could give a network too much market

power. The dual network prohibition,

therefore, was intended to remove

barriers that would inhibit the

development of new networks, as well

to serve the Commission’s more general

diversity and competition goals. The

dual network rule for broadcast

television remained unchanged until

1996, when the Commission amended

the rule to conform with the provisions

in Section 202(e) of the

Telecommunications Act of 1996

(Public Law 104–104, 110 Stat. 56

(1996)).

3. Section 73.658(g) sets forth the

Commission’s current dual network

rule. It directly reflects the provisions of

the Telecom Act which permit a

television broadcast station to affiliate

with a person or entity that maintains

two or more networks of television

broadcast stations unless such networks

are composed of: (1) Two or more

persons or entities that were ‘‘networks’’

on the date the Telecom Act was

enacted; or (2) any such network and an

English-language program distribution

service that on the date of the Telecom

Act’s enactment provided 4 or more

hours of programming per week on a

national basis pursuant to network

affiliation arrangements with local

television broadcast stations in markets

reaching more than 75 percent of

television households. Section 202(e) of

41394 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules

the 1996 Act defines a ‘‘network’’ with

reference to § 73.3613(a)(1) of the

Commission’s Rules (47 CFR

73.3613(a)(1)). That Rule provides that a

network is ‘‘any person, entity, or

corporation which offers an

interconnected program service on a

regular basis for 15 or more hours per

week to at least 25 affiliated television

licensees in 10 or more states; and/or

any person, entity, or corporation

controlling, controlled by, or under

common control with such person,

entity, or corporation.’’

4. The Conference Report stated that

the Commission was being directed to

revise its dual network rule ‘‘to permit

a television station to affiliate with a

person or entity that maintains two or

more networks unless such dual or

multiple networks are composed of (1)

two or more of the four existing

networks (ABC, CBS, NBC, Fox) or, (2)

any of the four existing networks and

one of the two emerging networks

(WBTN, UPN). The conferees do not

intend these limitations to apply if such

networks are not operated

simultaneously, or if there is no

substantial overlap in the territory

served by the group of stations

comprising each such networks’’ (S.

Rep. No. 230, 104th Cong., 2d Sess. At

163).

III. Discussion

5. In the Biennial Report we

tentatively concluded that we should

explore modifying the dual network rule

by eliminating the prohibition on the

ownership of either the UPN or WB

network by one of the major television

networks. We stated that neither

competition nor diversity issues

appeared to warrant retention of the rule

in its current form.

6. Our proposal to relax the dual

network rule to permit ownership of

either the UPN or WB network by one

of the major networks is based on a

review of the current economics of the

network broadcasting industry. The

elements of our economic review are

briefly summarized in the following

paragraphs. We seek comment on our

view of the current economics of

network broadcasting both in general

and with respect to particular

conclusions derived from the review.

7. Framework. The dual network rule,

as modified as a consequence of the

1996 Act, may be viewed as an antimerger rule that constrains the current

organization of the network

broadcasting industry. This constraint

on the organization of the contemporary

network broadcasting industry may

result in organizational inefficiencies

that adversely affect industry

performance, including the type and

quality of network programming

available to viewers. One way to

examine the network broadcasting

industry for possible organizational

inefficiencies is the application of

concepts developed in the transaction

cost economics (TCE) literature. From a

TCE perspective, the economic

organization of firms and industries

reflects specific attributes of the

contracting process between buyer and

seller. The following discussion

identifies key attributes of critical

exchange relationships in the network

television broadcasting industry, e.g.,

the relationship between program

suppliers and broadcast networks, and

how these attributes contribute to the

efficiency or inefficiency of existing

industry organization. The commercial

television network broadcast industry

today consists of a number of verticallyintegrated firms. For example, ABC is

vertically integrated with Disney as a

program supplier; the Fox network is

vertically integrated with 20th Century

Fox as a program supplier; and UPN is

vertically integrated with Viacom. Thus,

an economic analysis of the effects of

potential mergers between the major

networks, i.e., ABC, CBS, NBC, and Fox,

or potential mergers between these

entities and an emerging network, i.e.,

UPN or WB, will in many cases involve

mergers between vertically-integrated

firms. To facilitate discussion, the

analysis decomposes a hypothetical

merger between two broadcast networks

into two parts. First, we examine the

relationship between a program supplier

and a broadcast network to determine

whether vertical integration is either

more or less efficient than simply

negotiating an arms-length contractual

relationship between the program

supplier and the broadcast network. The

comparative assessment of the

efficiency of contracting versus vertical

integration relies extensively on TCE

concepts. Second, we assess the effects

of a horizontal merger between two

broadcast networks by relying on

antitrust measures of market

concentration and an analysis of price

competition in the national market for

network television advertising. Finally,

the gains or losses resulting from the

analysis of vertical integration are

integrated into the measurement of the

efficiencies or inefficiencies resulting

from the horizontal merger to determine

the overall benefits and costs of a

merger between two verticallyintegrated firms. The merger of two

vertically-integrated enterprises may

have both horizontal and vertical

economic effects. Horizontal effects

refer to the economies or diseconomies

resulting from enlarging the size of the

firm post-merger and include effects on

consumers, such as higher or lower

prices and changes in the quantity and

quality of output produced. These

effects can be assessed at each stage of

production of the vertically-integrated

firm. For a television network verticallyintegrated into the production of

network programming, the assessment

of horizontal effects would include

assessing the economies or

diseconomies of increasing the size of

the network and the economies or

diseconomies of increasing the size and

scale of program production, assuming

that the network that is being acquired

is also vertically-integrated into program

production. The effects of the merger of

two program production enterprises on

competition in the network television

program production market would also

be included in the analysis of horizontal

effects. Growth in the size of the

vertically-integrated firm post-merger

may either accentuate the economies of

vertical integration post-merger or

diminish the efficiencies of vertical

integration as organizational complexity

increases and coordination of

decisionmaking within the larger firm

becomes more difficult and costly.

Vertical effects refer to the economies or

diseconomies of integrated production

as the size of the vertically-integrated

firm increases. The analytical

framework suggests a way to assess the

relative significance of some of these

horizontal and vertical effects that may

result from the merger of two television

networks that are both vertically

integrated into the production of

network television programming.

8. Standard economic analyses of the

effects of a horizontal merger of two

competing firms, such as two television

networks, do not ordinarily include an

assessment of the effects of the proposed

merger on the efficiency of vertical

integration within the acquiring firm,

especially if the acquired firm is not

vertically integrated. However, vertical

relationships within the network

television broadcasting business are

endemic in the industry and virtually

define its economic purpose and

industry structure, especially the

vertical relationship between a

television network and its affiliated

local broadcast stations. Increasingly,

television networks, like cable

television multiple system operators, are

vertically integrated into the production

of programming. Thus, television

networks today are intrinsically

vertically-integrated enterprises and to

ignore the impact of a horizontal merger

Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules 41395

on the efficiency of such integration is

to ignore a critical dimension of the

economic effects produced by the

merger. Consequently, this

unconventional approach seems

appropriate to evaluate more completely

the economic implications of a potential

merger between two television

networks.

9. Overview of the Analysis. The

application of TCE concepts suggests

that vertical integration between

program suppliers and major networks

may produce substantial economic

efficiencies (compared to market

contracting) that may benefit both

advertisers and viewers. The analysis of

horizontal mergers between broadcast

networks suggests that the merger of two

major networks would adversely affect

competition in the national network

television advertising market, while the

merger of a major network and an

emerging network may produce

efficiencies benefiting both viewers and

advertisers. Based on the aggregation of

the costs and benefits from both the

vertical and horizontal components of a

proposed merger, the analysis concludes

that the dual network rule should be

retained as it relates to mergers between

the major networks, but relaxed to

permit mergers between a major

network and an emerging network.

10. Attributes of Television Network

Output. From an economic perspective,

firms in the network broadcasting

industry, such as ABC, NBC, CBS, and

Fox, together with their local television

station affiliates and their owned and

operated (O&O) stations, are in the

business of producing audiences.

Access to network television viewers is

sold to advertisers that want to reach a

large, nationwide audience of potential

customers. Network advertising

provides audience reach unmatched by

any other broadcasting medium. No

single cable channel today provides the

audience reach of any television

network. Only network television is a

mass-distribution venue for

programming and advertising,

notwithstanding the continuing erosion

of network television audience

attributable to the growth of cable and

DBS viewership. Of the 27 prime time

programs viewed in more than ten

million households during the week of

January 17–23, 2000, all 27 were aired

by either ABC, CBS, NBC or Fox. The

largest share for a UPN program was

approximately 5 million homes and the

most popular cable program (during any

hour) was viewed in just under 5

million homes. Access to the mass

audience produced by television

networks is sold to advertisers in terms

of thousands of viewers for a defined

interval of commercial time, such as 30

seconds.

11. Both a network television program

and the over-the-air broadcast

transmission that delivers the program

to viewers have economic attributes of

a pure public good, i.e., a good or

service with the property that one

individual’s viewing of the program

does not diminish the quantity of the

program available for any other

individual who wishes to view the same

program. By contrast, a pure private

good, such as food, clothing, and many

other consumer products and services,

are ‘‘rivalrous’’ in consumption, i.e., a

good consumed by one individual is not

available for consumption by a different

individual. Thus, a network television

program, having the property of a pure

public good, is not ‘‘used up’’ once it is

shown. Indeed, the same program may

be aired repeatedly to the same or

different audiences without physically

‘‘wearing out’’ the program as an asset

that produces audiences. It is possible,

of course, that new audiences for the

program cannot be found or existing

audiences tire of the program and will

no longer watch it. The program

becomes obsolete as an audienceproducing asset, although the program

itself is not physically depleted by

repeated airings on television.

12. The public good attributes of a

network television program imply

several things about its cost as an

audience-producing asset and its market

value to the program producer and the

network that broadcasts the program.

First, broadcasting a network program

represents, in substantial part, a fixed

cost of production for the network with

respect to the number of viewers

produced by airing the program. Once

the program is on the air, the cost of

production for the network and its

station affiliates is insensitive to the

number of viewers ‘‘consuming’’ the

program. In other words, the marginal

cost of adding an additional viewer

within the signal coverage area is zero

for both the network and the station

affiliate. This attribute of network

program costs suggests that large

audiences are always preferable to

smaller ones, since a larger audience

costs the network no more to produce

than a smaller one for the same level of

program quality, and network revenues

derived from advertisers depend

directly on the number of viewers

produced. Expressed differently, the

average fixed costs of production for the

network, i.e., total fixed cost divided by

the number of viewers, declines as the

size of the audience produced increases

in size. To the extent that such

economies are reflected in the pricing of

network advertising, then the marginal

price of network advertising per viewer

falls as audience size increases. Given

the fixed cost attributes of network

programming assets and the economies

of spreading such costs over large

audiences, economically viable

television networks must be large rather

than small as measured in terms of the

number of affiliated stations and the

viewers produced and sold to

advertisers.

13. Second, not only are the costs of

network programming fixed, they are

also sunk. Typically, a sunk cost refers

to an investment in highly specialized

productive assets that cannot be

redeployed to an alternative use. Sunk

cost investments reflect asset-specificity

and typically have little or no

productive value in any other use

beyond the intended application. While

asset-specific investments often

facilitate reductions in the cost of

production or improvements in the

quality of output produced compared to

the use of less specialized assets, they

involve substantially higher risks of

capital recovery compared to nonspecialized general purpose assets.

General purpose assets can be

redeployed to alternative uses should

demand for the asset in its original

application decline or disappear

entirely, while asset-specific

investments may become worthless.

Once created, investments in network

programming are asset-specific: an

action movie targeted to a specific

audience cannot be redeployed to attract

a totally different audience that prefers,

say, musical comedy. If the targeted

audience does not like the movie, then

much of the investment in the movie by

the network may be unrecoverable.

14. Third, the public good and cost

characteristics of network programs

result in a multiplicity of rights that can

be sold to television networks by

program producers. Among these rights

are the initial network exhibition rights;

the right to renew those rights (options);

and the right to earn revenues from the

syndication of a successful network

program, among other future revenue

streams. As a result, contract

negotiations between a program

producer and a network for the sale and

purchase of program rights are

extremely complex, involving especially

high stakes for the incumbent television

networks. The growth of cable television

and DBS have substantially increased

the number of viewing options for

viewers, resulting in a steady erosion in

the size of audiences attracted to

conventional, over-the-air network

television programming. Additionally,

program producers now have expanded

41396 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules

options for selling their programming

beyond the networks or through

syndication to local television stations.

Increasingly, the continuing growth in

cable networks provides significant

competition to the incumbent television

networks as purchasers of television

programs. Additionally, some program

suppliers, such as Warner Brothers and

Viacom, have decided to integrate

vertically into program distribution by

creating their own television networks.

This option for program suppliers

introduces additional complexity in the

contractual relationship between

program suppliers and the incumbent

television networks. As a result of these

changes in industry structure over the

past decade, the contracting

environment between and among

suppliers of network programming and

the incumbent networks is both more

complicated than before and somewhat

more risky for the networks. It is

imperative that networks obtain quality

programming to stem audience erosion

while dealing with suppliers that now

have expanded options for the sale of

their product.

15. The Market for Network

Programming. From the business

perspective of an incumbent television

network, programs are a critical input in

the process of producing a mass

audience. Like any business firm, a

network faces a ‘‘make or buy’’ decision,

namely, either make the input of

production itself or contract with an

independent supplier to make the input

according to specifications established

in a contract. Prior to the expiration of

the Commission’s financial interest rule

in 1995, which prohibited the networks

from acquiring equity and profit rights

in network programming produced by

independent program suppliers, the

Commission forced the network to

contract with independent program

suppliers rather than partially or fully

integrate vertically with such firms.

Following repeal of the Commission’s

financial interest and syndication rules,

the networks have partially or fully

integrated vertically with a number of

program suppliers. This integration

reflects, in part, the difficulties in

negotiating a contractual relationship

with program suppliers. These

difficulties reflect the peculiar attributes

of television network output previously

described.

16. The economic complexities of

contract negotiation between a

television network and a program

supplier may be illustrated by a specific

example. Suppose a network wants to

contract with a program supplier for a

prime time program series, say, a

situation comedy. Both the network and

the program supplier may be expected

to approach contract negotiations from a

self-interest maximizing point of view,

although the inherent uncertainties of

creating a successful program and

forecasting audience acceptance

probably makes it impossible to know

what decisions are profit-maximizing. In

the language of TCE, both parties

approach contact negotiations with

bounded rationality, i.e., ‘‘intendedly

rational, but limitedly so.’’ As

previously discussed, a program, or

program series, once completed is

‘‘durable’’ and can be rebroadcast as a

network re-run or put in syndication

after its network run. The economic life

of the program or series cannot be

known a priori, ranging from months to

decades. If the program producer

believes that the planned program may

have a long life in syndication, then the

program producer may be willing to

forego front-end profits in exchange for

the profits expected to be earned in

syndication. The network, however,

may have very different expectations

about the expected life of the program

series and its long-term profitability

which may pose a fundamental conflict

to be resolved through negotiation.

17. If the program series becomes a

‘‘hit’’, then the program producer may

wish to re-open the negotiated contract

with the network in an effort to obtain

a larger share of the anticipated large

network revenues resulting from the

success of the program in attracting

viewers and advertisers. Since the

program producer retains substantial

control over the creative process that

generates the programming, including

how and when the star talent is utilized

in the program, the program producer

may attempt to ‘‘hold up’’ the network

by threatening to adjust program quality

that may benefit the program producer

(e.g., altering the compensation of key

program talent) at the expense of the

network (e.g., reducing the value of the

program as a network re-run). In the

language of TCE, the program producer

may behave opportunistically, i.e., ‘‘selfinterest seeking with guile.’’ With

respect to other aspects of contract

negotiations, the network may also

behave opportunistically, especially if

such behavior is expected of the

program producer. Moreover, both the

network and the program producer

recognize that attributes of contractual

relationship between the program

producer and the network involve

certain external effects, i.e., costs or

benefits which may accrue to the parties

to the contract that are largely outside

the scope of the immediate transaction.

For example, should the network

suddenly cancel the program series due

to poor ratings rather than wait to see if

the ratings eventually improve, the

program producer’s future revenues

derived from its syndication rights may

be reduced or virtually eliminated.

Similarly, the network can vary the

audience attracted to a network program

by positioning the program in its

program lineup so that it benefits from

the audience attracted by the program

appearing immediately before it. Thus,

the network’s manipulation of its

program schedule to achieve its own

current profit objectives will have a

significant effect on the future revenues

produced by the program in

syndication. If the network is unable to

capture some fraction of these future

revenues, it has no incentive to consider

the external effects of its program

schedule decisions and may well

behave opportunistically toward the

program supplier’s financial interests.

18. An especially difficult aspect of

contract negotiations between a network

and a program supplier concerns the

allocation of the risks of program

development between the two parties.

Given the asset-specificity of every

network program and the significant

probability that the program will fail to

attract an audience of sufficient size to

attract advertisers, risk allocation

between the parties is a difficult issue

to negotiate, since attitudes toward risk

aversion will differ between the network

and the program producer. The

advantages of sharing the risks of

multiple program production will vary

with different program producers and

networks.

19. Given the substantial financial

risks implied in the production and

distribution of network programming,

both the program supplier and the

network have a mutual interest in

maintaining a mutually beneficial, longterm contractual relationship, especially

if (1) the program purchased is intended

as a prime time series; and (2) the

network and program producer expect

to maintain ongoing contractual

relationships for new programs in the

future. Such expectations may, in fact,

attenuate to some degree the possible

incentives to pursue opportunistic

behavior by either party. Nevertheless,

writing a contract that resolves inherent

conflicts between the parties,

incorporates the consequences of

external effects, discourages

opportunism, and anticipates many

future contingencies in the contractual

relationship including dispute

resolution, is both difficult and costly.

As suggested by the TCE literature,

transactions involving substantial asset

specificity, uncertainty, and frequency

Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules 41397

may be more efficiently effectuated by

some other governance structure than

contracting by two independent entities.

Vertical integration of program

production and network distribution

whereby the former market transaction

is made internal to the merged firms

under unified ownership results in a

major efficiency gain, namely, the

ability to adapt more readily the

(internal) relationship between the

program supplier division of the merged

enterprise with the network distribution

division to unanticipated changes in the

economic environment. As Williamson

explains,

The advantage of vertical integration is that

adaptations can be made in a sequential way

without the need to consult, complete, or

revise interfirm agreements. Where a single

ownership entity spans both sides of the

transaction, a presumption of joint profit

maximization is warranted. Thus price

adjustments in vertically integrated

enterprises will be more complete than in

interfirm trading. And, assuming that

internal incentives are not misaligned,

quantity adjustments will be implemented at

whatever frequency serves to maximize the

joint gain to the transaction.

Based on our analysis of the

comparative transaction costs of

effectuating exchange between program

suppliers and television networks by

market contracting versus vertical

integration, we believe that partial or

complete vertical integration between a

broadcast network and a program

producer may result in substantial

efficiencies that may benefit network

television advertisers and viewers. More

specifically, advertisers may benefit

from reduced rates if the efficiencies of

vertical integration are reflected in

reduced network costs of producing a

mass audience. Similarly, viewers may

benefit from the wider availability of

diverse programming that a network

may produce as a result from having

available its own program production

capability that may encourage new but

riskier programming possibilities. Once

fully or partially vertically-integrated

into program production, the network

has full or enlarged claim on revenue

opportunities in all distribution

windows which may enhance the

network’s incentive to invest in

innovative programming.

20. Tendency Toward Network

Industry Concentration. As explained

above, most costs of producing and

distributing programming are not

sensitive to the number of viewers that

actually watch a given program once

broadcast facilities are in place. In

effect, a television network shares the

substantial fixed costs of network

television programming among the

stations either owned by the networks

or affiliated with the network. Often, a

network affiliate shares the fixed costs

of network programming by giving the

network broadcast time which the

network then sells to network

advertisers. In some cases, network

affiliates make cash payments to

networks in addition to broadcast time.

The larger the number of owned or

affiliated stations belonging to a given

television network, the lower is the

average fixed cost of network

programming that each affiliated station

must recover and, all other things

remaining the same, the lower is the

effective price per viewer for an

advertiser so long as the network faces

some competition from other television

networks. Given the fixed cost nature of

the business, larger networks, in terms

of the number of affiliated stations and

viewers, tend to be more economically

viable than smaller networks.

21. The number of economically

viable television networks is presently

severely constrained by the number of

available local affiliates. The number of

available station affiliates is

constrained, in turn, by the amount of

spectrum the Commission has allocated

to broadcast television. A network must

have a sufficient number of affiliated

stations so that (1) a large enough

percentage of national viewership is

achieved so that national advertisers can

be attracted, and (2) average fixed cost

is reduced to a point where the

competitive price of network advertising

will produce network advertising

revenues sufficient to cover the total

cost of network operations. Television

networks today compete in a national

market and need, therefore, an affiliated

station in most local markets across the

country. If stations are unavailable in

too many local markets, or the available

stations have poor signal coverage, then

the network can neither attract

sufficient national advertisers nor drive

average fixed costs low enough such

that competitive rates for network

advertising will cover total network

operating costs. Both the fixed cost

attributes of network costs and the

Commission’s limited allocation of

spectrum to broadcast television present

obstacles to new broadcast networks.

22. National Television Advertising

Market. Within the national television

advertising market that includes

national spot sales by affiliated and

independent stations, a strategic group

consisting of the major networks, i.e.,

ABC, NBC, CBS, and Fox, can be

identified. (A strategic group refers to a

cluster of independent firms within an

industry that pursue similar business

strategies. For example, the major

networks supply programming to their

affiliated local stations that is intended

to attract mass audiences and

advertisers that want to reach such

large, nationwide audiences. By

contrast, the emerging networks target

more specialized, niche audiences

similar to cable television networks. The

conceptual basis for a strategic group is

developed in R. E. Caves and M. E.

Porter, ‘‘From Entry Barriers to Mobility

Barriers: Conjectural Decisions and

Contrived Deterrence to New

Competition,’’ Quarterly Journal of

Economics 91 (May 1977): 241–261.

Also see Michael E. Porter, Competitive

Strategy: Techniques for Analyzing

Industries and Competition (New York:

The Free Press, 1980), Chapter 7. For

additional references on the application

of the strategic group concept, see F. M.

Scherer and David Ross, Industrial

Market Structure and Economic

Performance, 3rd Edition, (Boston:

Houghton Mifflin, 1990), pp. 284–85.

When properly applied, the concept of

a strategic group ordinarily implies that

only a relatively few firms will be

included within its boundaries so that

competitive rivalry will be oligopolistic

in nature, although the number of firms

actually populating the industry

aggregated over all strategic groups may

be quite numerous.) At present, the

network firms comprising this strategic

group provide the greatest reach of any

medium of mass communications. Since

delivering a mass audience is becoming

more difficult for all media, media that

can still produce mass audiences

become more valuable. As a result,

broadcast networks have achieved

double-digit gains in revenues in recent

years despite their loss of audience

relative to years past. The major

mobility barrier impeding entry into the

major network strategic group is the

availability of affiliated stations.

Notwithstanding some growth in the

number of stations over the last decade,

obtaining sufficient affiliated stations

remains a major obstacle to developing

a new network that can achieve

sufficient national reach to be attractive

to national advertisers.

23. At present, mobility barriers

protecting the major network strategic

group result in an oligopoly of

established networks where prices for

network advertising will also depend on

the number of networks. (Mobility

barriers are barriers to entry that deter

the movement of a firm within a given

industry from shifting from one strategic

group to another. Differed strategic

groups will be defended by different

mobility barriers that vary in the

effectiveness in restricting entry into a

41398 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules

given strategic group. In general, firms

protected by high mobility barriers will

have greater profit potential than firms

in other strategic groups protected by

low mobility barriers.) In general, as the

number of independently-owned

networks in the strategic group

decreases, the equilibrium price for

network advertising will increase.

Pricing and output behavior by the

major networks may be conceptualized

as Cournot competition in quantities. In

other words, the networks by

contractual arrangement with their

affiliated stations produce capacity

output at all times, representing the

profit-maximizing quantity of

programming that affiliated stations are

expected to ‘‘clear’’ over all dayparts. As

a result, each network in the strategic

group is expected to maximize profit

assuming that the quantity of output

produced by its rival networks is not

affected by its own output decisions.

24. Economic Effects of Network

Mergers. So long as mobility barriers

deter entry into the major network

strategic group, the pricing of network

advertising will be sensitive to the

number of network competitors. Thus,

horizontal mergers between the major

networks will increase the unit price of

network advertising, all other things

remaining the same. (The merger may,

of course, result in some scale

economies as the post-merger network

increases in size. The extent of such

possible economies, if any, is not

known.) Although network advertisers

may be harmed by such mergers,

viewers of network television may

benefit if the duplication of similar

types of network programming is

reduced and more programming for

specialized audiences is offered.

Whether the welfare gains to viewers—

if any—exceed the welfare loss to

network advertisers is not known.

25. Given our analysis of the potential

effects of a merger of networks in the

major networks strategic group, the dual

network rule as applied to the four

major networks should not be relaxed

until the mobility barriers defending the

major network strategic group are

lowered. An analysis by Commission

staff suggests that economic

concentration within the major network

strategic group as measured by the

Herfindahl-Hirschman Index (HHI)

presently exceeds 2600, indicating a

‘‘highly concentrated’’ market. Any

merger between or among the four major

networks would exceed 100 points,

suggesting that such a merger would

enhance market power or facilitate its

exercise. As noted above, the major

barrier impeding entry into the

broadcast networking industry is the

availability of affiliated stations created

by the amount of spectrum the

Commission allocated to broadcast

television. In the near future, we expect

that deployment of digital television

may lower barriers to new broadcast

networks by enabling broadcast stations

to carry multiple program streams. Our

biennial reviews of the dual network

rule will enable us to periodically

evaluate the impact of DTV on existing

barriers to new broadcast networks.

26. While retaining a prohibition on

mergers between major broadcast

networks, we believe a merger between

an emerging network, such as WB or

UPN, and a major network may produce

net benefits. Such a merger may

produce significant efficiencies by

internalizing the contentious issue of

program production risk-sharing within

a vertical relationship. For example, an

emerging network acquired by a major

network provides the major network

with an additional ‘‘window’’ for the

distribution of network programming. In

effect, this additional window allows

the merged network to broadcast the

same program in different time slots in

the same market if both the major and

emerging networks have affiliates in the

same city. Alternatively, if the emerging

and major network do not have affiliates

in the same city, then the merged

network entity will now reach more

households than before the merger. In

either case, the fixed costs of program

production are spread over additional

viewers in different time slots or

additional cities. As a result, the

effective program cost per viewer is

reduced in either case. Similarly, a

network program that fails, or is only

marginally successful, on the major

network’s affiliated station might

succeed, however, when broadcast to

the niche audience reached by the

affiliates of the emerging network. The

risks of network program development

are clearly attenuated for the merged

networks as a consequence of reaching

additional viewers at different times or

in additional cities or with audience

attributes that may differ from the mass

audience ordinarily targetted by a major

network. Moreover, since the emerging

networks, such as WB, UPN, or Pax Net

are not in the major network strategic

group, there should be little or no

adverse effect on the price for network

television advertising as a result of such

a merger. From an economic

perspective, the emerging networks

strategic group would include WB,

UPN, Pax Net, Univision, Telemundo,

and possibly some national syndicators.

From a legal perspective, the 1996 Act

restricted the membership of the

emerging networks strategic group to

include only WB and UPN.

Accordingly, we are proposing to

eliminate that portion of the dual

network that would prohibit the merger

of a network in the major network

strategic group with the WB or UPN

networks.

27. While we believe that relaxing the

dual network rule will result in net

benefits to both viewers and advertisers

as shown by our economic analysis,

such relaxation of the rule may

adversely affect our goal of diversity in

broadcasting. Clearly, the merger of an

emerging network with a major network

results in the loss of an independent

network ‘‘voice’’ and thus diminishes

source diversity. Such a result runs

counter to the Commission’s longstanding goal to foster the entry of

additional broadcast television networks

as a means of promoting diversity. So

long as substitutes for network

television remained limited, the entry of

additional television networks was

crucial to increasing viewer choices of

diverse television programming. With

the growth of cable television networks,

direct broadcast satellite services, and

the ongoing deployment of digital

television, however, encouraging the

entry of new, over-the-air broadcast

networks may have diminished in

importance relative to twenty years ago.

In other words, rivalry between and

among direct competitors (i.e., the major

networks), which still remain relatively

few in number even after twenty years,

has been augmented by the growth of

partial substitutes, such as cable

television and direct broadcast

television, supplied by firms outside the

major networks strategic group. This

growth in partial substitutes dilutes to

some degree the market power of major

networks relative to their market power

in the absence of such substitutes.

Moreover, our local broadcast

ownership rules will continue to ensure

outlet diversity in local broadcasting

markets. In short, circumstances may

have so changed in broadcast markets

that our diversity goals may no longer

preclude the realization of the beneficial

effects resulting from the relaxation of

the dual network rule proposed in this

NPRM. We seek comment on the

possible effects of relaxing the dual

network rule on our diversity goals and

our tentative conclusion that such

effects are outweighed by the benefits

identified in our economic analysis.

28. We invite comment on any or all

aspects of our economic analysis of the

possible effects of relaxing the dual

network rule to permit the merger of an

emerging network with a major network.

In particular, we seek comment on (1)

Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules 41399

our analysis of the difficulties of

negotiating long term contracts between

a program supplier and a television

network; (2) the likely benefits of

vertical integration between program

producers and networks for network

advertisers and viewers; (3) our

application of the concept of a major

network strategic group; (4) the likely

effects on the price of network

advertising resulting from (a) a merger

of incumbent networks within the major

network strategic group and (b) a merger

of a major network and an emerging

network; and (5) the effects of the

merger of an incumbent network and an

emerging network on a viewer’s choice

of programming options (mass audience

vs. niche audience programming) and

the likely quality of such program

options. Comments supplying empirical

evidence that is consistent or

inconsistent with our economic analysis

will be especially useful. Theoretical

analysis that further refines our

economic analysis or identifies critical

weaknesses will also be useful.

29. We also seek comment on possible

merger conditions that might help

safeguard our broadcast diversity goals

while partially relaxing the dual

network rule to achieve the potential net

benefits identified in our economic

analysis. Are there conditions that could

maintain separation between the

programming decisions of the two

networks while still allowing them to

achieve the efficiencies described in our

economic analysis?

IV. Administrative Matters

30. Comments and Reply Comments.

Pursuant to §§ 1.415 and 1.419 of the

Commission’s rules, 47 CFR 1.415,

1.419, interested parties may file

comments on or before September 1,

2000 and reply comments on or October

2, 2000. Comments may be filed using

the Commission’s Electronic Comment

Filing System (ECFS) or by filing paper

copies. See Electronic Filing of

Documents in Rulemaking Proceedings,

63 FR 24121 (May 1, 1998).

31. Comments filed through ECFS can

be sent as an electronic file via the

Internet to http://www.fcc.gov/e-file/

ecfs.html. Generally, only one copy of

an electronic submission must be filed.

In completing the transmittal screen,

commenters should include their full

name, Postal Service mailing address,

and the applicable docket or rulemaking

number. Parties may also submit an

electronic comment via e-mail. To get

filing instructions for e-mail comments,

commenters should send an e-mail to

ecfs@fcc.gov, and should include the

following words in the body of the

message, ‘‘get form <your e-mail

address>.’’ A sample form and

directions will be sent in reply.

32. Parties who choose to file by

paper must file an original and four

copies of each filing. All filings must be

sent to the Commission’s Secretary,

Magalie Roman Salas, Office of the

Secretary, Federal Communications

Commission, 445 Twelfth Street, SW.,

TW–A325, Washington, DC 20554.

33. Parties who choose to file paper

should also submit their comments on

diskette. These diskettes should be

addressed to: Wanda Hardy, Paralegal

Specialist, Mass Media Bureau, Policy

and Rules Division, Federal

Communications Commission, 445

Twelfth Street, SW., 2–C221,

Washington, DC 20554. Such a

submission should be on a 3.5 inch

diskette formatted in an IBM compatible

format using Word 97 or compatible

software. The diskette should be

accompanied by a cover letter and

should be submitted in ‘‘read only’’

mode. The diskette should be clearly

labeled with the commenter’s name,

proceeding (including the lead docket

number in this case (MM Docket No.

00–108), type of pleading (comment or

reply comment), date of submission,

and the name of the electronic file on

the diskette. The label should also

include the following phrase ‘‘Disk

Copy—Not an Original.’’ Each diskette

should contain only one party’s

pleadings, preferably in a single

electronic file. In addition, commenters

must sent diskette copies to the

Commission’s copy contractor,

International Transcription Service,

Inc., 445 Twelfth Street, SW., CY–B402,

Washington, DC 20554.

34. Comments and reply comments

will be available for public inspection

during regular business hours in the

FCC Reference Center, Federal

Communications Commission, 445

Twelfth Street, SW., CY–A257,

Washington, DC 20554. Persons with

disabilities who need assistance in the

FCC Reference Center may contact Bill

Cline at (202) 418–0270, (202) 418–2555

TTY, or bcline@fcc.gov. Comments and

reply comments also will be available

electronically at the Commission’s

Disabilities Issues Task Force web site:

www.fcc.gov/dtf. Comments and reply

comments are available electronically in

ASCII text, Word 97, and Adobe

Acrobat.

35. This document is available in

alternative formats (computer diskette,

large print, audio cassette, and Braille).

Persons who need documents in such

formats may contact Martha Contee at

(202) 4810–0260, TTY (202) 418–2555,

or mcontee@fcc.gov.

36. Ex Parte Rules. This proceeding

will be treated as a ‘‘permit-butdisclose’’ proceeding, subject to the

‘‘permit-but-disclose’’ requirements

under 47 CFR 1.1206(b), as revised. Ex

parte presentations are permissible if

disclosed in accordance with

Commission rules, except during the

Sunshine Agenda period when

presentations, ex parte or otherwise, are

generally prohibited. Persons making

oral ex parte presentations are reminded

that a memorandum summarizing a

presentation must contain a summary of

the substance of the presentation and

not merely a listing of the subjects

discussed. More than a one or two

sentence description or the views and

arguments presented is generally

required. See 47 CFR 1.1206(b)(2), as

revised. Additional rules pertaining to

oral and written presentations are set

forth in 47 CFR 1.1206(b).

37. Initial Regulatory Flexibility

Analysis. As required by the Regulatory

Flexibility Act, see 5 U.S.C. 603, the

Commission has prepared an IRFA of

the possible economic impact on small

entities of the proposals contained in

this NPRM. Written public comments

are requested on the IFRA. In order to

fulfill the mandate of the Contract with

America Advancement Act of 1996

regarding the Final Regulatory

Flexibility Analysis, we ask a number of

questions in our IRFA regarding the

prevalence of small businesses in the

television broadcasting industry.

Comments on the IRFA must be filed in

accordance with the same filing

deadlines as comments on the NPRM,

and must have a distinct heading

designating them as a response to the

IRFA. The Reference Information

Center, Consumer Information Bureau,

will send a copy of this NPRM,

including the IRFA, to the Chief

Counsel for Advocacy of the Small

Business Administration.

38. As required by the Regulatory

Flexibility Act (‘‘RFA’’) (5 U.S.C. 601 et

seq.), the Commission has prepared this

present Initial Regulatory Flexibility

Analysis (IRFA) of the possible

significant economic impact on small

entities by the policies and rules

proposed in this NPRM. Written public

comments are requested on this IRFA.

Comments must be identified as

responses to the IRFA and must be filed

by the deadlines for comments on the

NPRM provided above. The Commission

will send a copy of the NPRM, including

this IRFA, to the Chief Counsel for

Advocacy of the Small Business

Administration. See 5 U.S.C. 603(a). In

addition, the NPRM and the IRFA (or

summaries thereof) will be published in

the Federal Register.

41400 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules

A. Need for, and Objectives of, the

Proposed Rules

39. Section 202(h) of the Telecom Act

requires the Commission to review its

broadcast ownership rules every two

years, beginning in 1998, and to

‘‘determine whether any of such rules

are necessary in the public interest as

the result of competition.’’ It instructs

the Commission to repeal or modify any

regulation it determines to be no longer

in the public interest. In its first

Biennial Report, issued as a result of

Section 202(h) of the Telecom Act, the

Commission determined that the dual

network rule, as it currently exists,

appeared to no longer be in the public

interest. Accordingly, in compliance

with the provisions of Section 202(h) of

the Telecom Act, the Commission is

commencing this proceeding in order to

modify § 73.658(g).

B. Legal Basis

40. This NPRM is adopted pursuant to

sections 1, 2(a), 4(i), 303, 307, 309, 310,

of the Communications Act, 47 U.S.C.

151, 152(a), 154(i), 303, 307, 309, 310,

and Section 202(h) of the

Telecommunications Act of 1996.

C. Description and Estimate of the

Number of Small Entities To Which the

Proposed Rules Will Apply

41. The RFA directs agencies to

provide a description of, and, where

feasible, an estimate of the number of

small entities that may be affected by

the proposed rules, if adopted. The

Regulatory Flexibility Act defines the

term ‘‘small entity as having the same

meaning as the terms ‘‘small business,’’

‘‘small organization,’’ and ‘‘small

business concern’’ under section 3 of

the Small Business Act. A small

business concern is one which: (1) Is

independently owned and operated; (2)

is not dominant in its field of operation;

and (3) satisfies any additional criteria

established by the SBA.

42. Pursuant to 5 U.S.C. 601(3), the

statutory definition of a small business

applies ‘‘unless an agency after

consultation with the Office of

Advocacy of the SBA and after

opportunity for public comment,

establishes one or more definitions of

such term which are appropriate to the

activities of the agency and publishes

such definition(s) in the Federal

Register. A ‘‘small organization’’ is

generally ‘‘any not-for-profit enterprise

which is independently owned and

operated and is not dominant in its

field.’’ Nationwide, as of 1992, there

were approximately 275,801 small

organizations. ‘‘Small governmental

jurisdiction’’ generally means

‘‘governments of cities, counties, towns,

townships, villages, school districts, or

special districts with a population of

less than 50,000.’’ As of 1992, there

were approximately 85,006 such

jurisdictions in the United States. This

number includes 38,978 counties, cities,

and towns; of these, 37,566, or 96

percent, have populations of fewer than

50,000. Thus, of the 85,006

governmental entities, we estimate that

81,600 (91 percent) are small entities.

43. Small TV Broadcast Stations. The

SBA defines small television

broadcasting stations as television

broadcasting stations with $10.5 million

or less in annual receipts. According to

Commission staff review of the BIA

Publications, Inc., Master Access

Television Analyzer Database, fewer

than 800 commercial TV broadcast

stations (65%) subject to our proposal

have revenues of less than $10.5 million

dollars. We note, however, that under

SBA’s definition, revenues of affiliates

that are not television stations should be

aggregated with the television station

revenues in determining whether a

concern is small. Therefore, our

estimate may overstate the number of

small entities since the revenue figure

on which it is based does not include or

aggregate revenues from non-television

affiliated companies. It would appear

that there would be no more than 800

entities affected.

D. Description of Projected Reporting,

Recordkeeping, and Other Compliance

Requirements

44. Currently, § 73.3613 of the

Commission’s rules requires TV

broadcast licensees to file network

affiliation contracts. The NPRM

proposes no change to that requirement

or any new recordkeeping or other

compliance requirements.

E. Significant Alternatives Considered

Steps Taken To Minimize Significant

Impact on Small Entities, and

Significant Alternatives Considered

45. The RFA requires an agency to

describe any significant alternatives that

it has considered in reaching its

proposed approach, which may include

the following four alternatives: (1) The

establishment of differing compliance or

reporting requirements or timetables

that take into account the resources

available to small entities; (2) the

clarification, consolidation, or

simplification of compliance or

reporting requirements under the rule

for small entities; (3) the use of

performance, rather than design,

standards; and (4) an exemption from

coverage of the rule, or any part thereof,

for small entities.

46. As indicated above, the NPRM

proposes to allow licensees to affiliate

with a network entity that maintains

two or more networks unless such

multiple networks consist of more than

one of the ‘‘big four’’ networks (NBC,

ABC, CBS and Fox). This would

eliminate the bar on affiliation with an

entity that maintains one of the ‘‘big

four’’ networks and the UPN and/or WB

networks. All significant alternatives,

i.e., retention of the existing rule,

modification of the existing rule, and

elimination of the dual network rule

altogether, were recently considered in

the Commission’s 1998 biennial review

of its broadcast ownership rules (MM

Docket No. 98–35). In that proceeding

the Commission tentatively determined

that elimination of the subject provision

would be in the public interest. The

Commission considered the results of

this top-to-bottom review of the subject

rule in its consideration of alternatives

to the course proposed herein in the

instant proceeding. The proposed action

will provide television licensees,

including those considered to be ‘‘small

businesses,’’ to have increased

flexibility with regard to the broadcast

networks with which they may affiliate.

F. Federal Rules That May Duplicate,

Overlap, or Conflict With the Proposed

Rules

47. None.

48. Initial Paperwork Reduction Act

Analysis. This NPRM proposes no new

information collection requirements.

49. Additional Information. For

additional information on this

proceeding, please contact Roger

Holberg, Policy and Rules Division,

Mass Media Bureau, (202) 418–2130, or

Dan Bring (202) 418–2164, (202) 418–

1169 TTY.

V. Ordering Clauses

50. Accordingly, pursuant to the

authority contained in sections 1, 2(a),

4(i), 303, 307, 309, and 310 of the

Communications Act, as amended, 47

U.S.C. 151, 152(a), 154(i), 303, 307, 309,

and 310, and Section 202(h) of the

Telecommunications Act of 1996, this

Notice of 

51. Proposed Rulemaking is adopted.

52. The Commission’s Consumer

Information Bureau, Reference

Information Center, shall send a copy of

this NPRM, including the Initial

Regulatory Flexibility Analysis, to the

Chief Counsel for Advocacy of the Small

Business Administration.

List of Subjects in 47 CFR Part 73

Radio, television broadcasting.

Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Proposed Rules 41401

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 00–16820 Filed 7–3–00; 8:45 am]

BILLING CODE 6712–01–U

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[DA 00–1394; MM Docket No. 00–55; RM–

9836]

Radio Broadcasting Services; Falconer

and Fredonia, NY

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule; dismissal.

SUMMARY: The Commission, at the

request of North Country Broadcasting,

Inc., licensee of Station WCQA,

Fredonia, NY, dismisses its petition to

reallot Channel 243A from Fredonia to

Falconer, NY, and modify Station

WCQA’s license accordingly. See 65 FR

17618, April 4, 2000.

FOR FURTHER INFORMATION CONTACT:

Leslie K. Shapiro, Mass Media Bureau,

(202) 418–2180.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Report

and Order, MM Docket No. 00–55,

adopted June 14, 2000, and released

June 23, 2000. The full text of this

Commission decision is available for

inspection and copying during normal

business hours in the FCC Reference

Center (Room 239), 445 12th Street, SW,

Washington, DC. The complete text of

this decision may also be purchased

from the Commission’s copy contractor,

International Transcription Services,

Inc., (202) 857–3800, 1231 20th Street,

NW, Washington, DC 20036.

Federal Communications Commission.

John A. Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 00–16868 Filed 7–3–00; 8:45 am]

BILLING CODE 6712–01–U

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 74

[MM Docket No. 00–105; FCC 00–203]

Broadcast Services; Radio Stations,

Television Stations

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule.

SUMMARY: This document proposes to

eliminate the Commission rule that

prohibits an entity from controlling

more than one experimental broadcast

station license absent a showing of

need. As a result of the preliminary

determination in the Commission’s

biennial review proceeding that this

rule is no longer necessary in the public

interest as a result of competition, this

document proposes to eliminate the

subject provision.

DATES: Comments are due by September

1, 2000 , and reply comments are due

by October 2, 2000.

ADDRESSES: Federal Communications

Commission, 445 12th Street, S.W.,

Washington, D.C. 20554

FOR FURTHER INFORMATION CONTACT:

Roger Holberg, Mass Media Bureau,

Policy and Rules Division, (202) 418–

2134.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Proposed Rule Making (NPRM) in MM

Docket No. 00–105, FCC 00–203,

adopted June 5, 2000, and released June

20, 2000. The complete text of this

NPRM is available for inspection and

copying during normal business hours

in the FCC Reference Center, Room CYA257, 445 12th Street, S.W.,

Washington, D.C. and may also be

purchased from the Commission’s copy

contractor, International Transcription

Service (202)857–3800, 445 12th Street,

S.W., Room CY–B402, Washington, D.C.

The NPRM is also available on the

Internet at the Commission’s website:

http://www.fcc.gov.

Synopsis of Notice of Proposed Rule

Making

1. By this NPRM the Commission

proposes to eliminate the multiple

ownership rule for experimental

broadcast stations which now provides

that no entity may control more than

one experimental license absent a

showing of need (47 CFR 74.134). We

seek comment on whether this rule

remains necessary to achieve goals of

competition and diversity in the

broadcast market. The Commission

stated in the Biennial Review Notice of

Inquiry (Notice of Inquiry, In the Matter

of 1998 Biennial Regulatory Review,

Review of the Commission’s Broadcast

Ownership Rules and Other Rules

Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996, 13

F.C.C.R. 11276, 11293–94 (1998) (NOI))

a tentative belief that this rule has a

negligible impact on these goals and

sought comment on whether this rule

remains necessary in the public interest.

Accordingly, this NPRM seeks comment

on the repeal of § 74.134. Commenters

advocating less than the outright repeal

of the rule are encouraged to propose

alternatives to the current restriction.

I. Background

2. The multiple ownership rule for

experimental broadcast stations was

adopted in 1946 and generally limited

ownership to one station. In 1963 this

rule was redesignated as part 74

(74.134) with no changes. In 1984 the

Commission combined parts 74 A

(Experimental TV), 74 B (Experimental

Facility) and 74 C (Developmental

Broadcast Stations) into the present

subpart 74 A (Experimental Broadcast

Stations) without changing the

ownership limit.

3. By Section 202(h) of the

Telecommunications Act of 1996

(Public Law 104–104, 110 Stat. 56

(1996)), Congress directed the

Commission to review its broadcast

ownership rules as part of the biennial

ownership review. That section requires

the Commission to review its broadcast

ownership rules biennially and to

determine whether any of these rules

are necessary in the public interest as

the result of competition. Furthermore,

it requires the Commission to ‘‘repeal or

modify any regulation it determines to

be no longer in the public interest.’’

4. Subpart A of part 74 of the

Commission’s Rules 1 sets forth the rules

for licensing ‘‘experimental broadcast

stations,’’ which are defined as stations

‘‘licensed for experimental or

developmental transmission of radio

telephony, television, facsimile, or other

types of telecommunication services

intended for reception and use by the

general public.’’ Experimental broadcast

facilities are used to carry on ‘‘research

and experimentation for the

development and advancement of new

broadcast technology, equipment,

systems or services which are more

extensive or require other modes of

transmission than can be accomplished

by using a licensed broadcast station

under an experimental authorization.’’

The rules governing experimental

broadcast stations encourage innovation

while protecting existing services from

interference. Licensees are subject to

operating and reporting requirements

and are prohibited from using the

experimental broadcast facility in a

commercial manner.

5. Currently, § 74.134 states that ‘‘[n]o

persons (including all persons under

common control) shall control, directly

or indirectly, two or more experimental

broadcast stations unless a showing is

made that the program of research

requires a licensing of two or more

separate stations.’’ This NPRM proposes