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[Senate Hearing 108-993]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-993

                            MEDIA OWNERSHIP

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 2, 2003

                               __________

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   

                         U.S. GOVERNMENT PUBLISHING OFFICE 

99-551 PDF                     WASHINGTON : 2016 
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                          Washington, DC 20402-0001

       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 2, 2003..................................     1
Statement of Senator Burns.......................................     2
    Prepared statement...........................................     2
Statement of Senator Dorgan......................................    26
Statement of Senator Lott........................................    40
Statement of Senator McCain......................................     1

                               Witnesses

Cooper, Mark N., President, Consumer Federation of America.......     3
    Prepared statement...........................................     5
Miller IV, Victor B.,Senior Managing Director, Equity Analyst, 
  Broadcasting, Bear, Stearns & Company, Incorporated............     9
    Prepared statement...........................................    11
Noam, Eli M., Director, Columbia Institute for Tele-Information; 
  Professor of Finance and Economics, Columbia University........    14
    Prepared statement...........................................    16
Napoli, Dr. Philip M., Director, Donald McGannon Communication 
  Research Center, Assistant Professor of Communications and 
  Media Management, Fordham University, Graduate School of 
  Business.......................................................    19
    Prepared statement...........................................    21

                                Appendix

Lautenberg, Hon. Frank R., U.S. Senator from New Jersey, prepared 
  statement......................................................    47
 
                            MEDIA OWNERSHIP

                              ----------                              

                       THURSDAY, OCTOBER 2, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:33 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. Today the Committee meets again 
to examine media ownership limits with the Federal 
Communication Commission's controversial revision of these 
limits having been stayed by a court, the Senate having voted 
recently to invalidate the FCC's new rules, this Committee 
having reported out a bill that would also undo the FCC's 
recent actions, and the Appropriations Committee 
inappropriately having inserted a rider on an appropriations 
bill regarding one aspect of the FCC's rules, the question of 
media ownership limits remains a pressing one.
    There seems to be widespread sentiment that the FCC drew 
the line in the wrong place. While the seven hearings the 
Committee has held this year on media ownership have made me a 
firm believer that a clearly drawn line is necessary, I still 
don't know where it should go.
    The Commerce Committee and the full Senate have loudly 
rejected the ownership limits adopted by the FCC, but these 
measures merely invalidate the unpopular Commission proposal 
and take the media ownership limits back to where they were 
before Congress and the courts ordered the Commission to revise 
them. But was the status quo ante? I don't know.
    I hope the witnesses before us today will help us answer 
the question of where media ownership limits should be drawn to 
best serve the public interest. The question may sound simple, 
but the answer, as the FCC can attest, is extremely complex.
    Before issuing its new rules on media ownership, the FCC 
commissioned 12 studies of the media marketplace and hosted a 
roundtable to hear testimony from academics and industry 
analysts. Three of today's witnesses were participants in these 
activities. We will hear from all these witnesses about their 
research on concentration in the media marketplace and the 
effects of such concentration. I appreciate our witnesses for 
joining us today, and I look forward to hearing their views and 
research findings.
    Our witnesses today are Dr. Mark Cooper, President, 
Consumer Federation of America; Mr. Victor B. Miller IV, Senior 
Managing Director, Equity Analyst, Broadcasting, Bear, Stearns 
& Company; Dr. Eli M. Noam, Director, Columbia Institute for 
Tele-Information, Professor of Finance and Economics at 
Columbia University; and Dr. Philip Napoli, Assistant Professor 
of Communications and Media Management at Fordham University.
    I thank you all for appearing this morning. Obviously, we 
have very busy times and a lot of things going on, but I think 
our witnesses would agree, before we begin, that this is a bit 
of a phenomenon. This issue sort of came from--if not nowhere, 
certainly from grassroots, and struck some kind of a cord among 
several million Americans that has raised the visibility of 
this issue from somewhat of an academic one, in all due respect 
to our academics here, to one that has attracted widespread 
attention. When I go on the talk shows back in Arizona and 
other places, if there's any period of time, usually we get a 
call on this issue.
    So I want to thank you all for being here. Before we begin, 
I wonder if my friend, Senator Burns, from Montana, has any 
comments.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. I have no statement. I have to go. I will 
see what these gentlemen have to say. But carry on.
    The Chairman. Thank you very much, Senator Burns. And I 
think you would agree with me, this issue has been rather 
surprising in the amount of attention that it's gotten.
    Senator Burns. It sure has. I appreciate the hearings. I 
will just submit a statement. Mr. Chairman, I appreciate your 
interest in it, because all of America has an interest.
    The Chairman. Without objection.
    Thank you.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
    I thank the Chairman for convening today's hearing concerning the 
critical and timely topic of media consolidation. I am confident 
today's hearing will be particularly instructive given that it will go 
into great detail about the data used to assess media concentration. 
Given the weight of the issue before the Committee today, which is so 
central to our democracy, it is key to determine whether the methods of 
analysis used to judge media concentration are appropriate and 
effective.
    On June 2, the Federal Communications Commission decided to 
significantly ease limits on media ownership.
    While I appreciate the difficulty of analyzing the current media 
marketplace in light of the rapid pace of technological change, I still 
feel strongly that this decision was fundamentally flawed. I fear that 
the Commission's sweeping ruling could lead to a wave of media 
consolidation that would imperil media diversity and localism in rural 
America.
    While there has been much talk about the ``500-channel universe'' 
we now all supposedly live in, the simple fact of the matter is that 
Montana is not Manhattan. The reality in rural America in particular is 
that the vast majority of consumers still receive vital local news and 
public safety information through free, over-the-air television. It is 
for this reason that I simply do not believe that the significant 
relaxation of the national cap on television broadcast ownership from 
35 percent to 45 percent is in the public interest.
    I believe that any further movement from this level of ownership 
tips a delicate balance and grants excessive leverage to the networks, 
turning local broadcast affiliates into simple generic outlets for 
national programming. I feel that the best way to make sure that 
localism is protected is to reinstate the 35o/o national cap on 
television broadcast ownership. I certainly do not believe that a 
relaxation of the cap is in the public interest. Many of my colleagues 
on the Committee share my concern, which was evidenced by the passage 
of Sen. Stevens' bill to reimpose the 35 percent) cap out of Committee.
    In recent years we have witnessed a remarkable evolution in the 
media landscape--technological advances have changed the way in which 
we access information and services. This transformation has also 
brought about an undeniable increase in video programming choices 
available to the consumer--direct satellite, cable services, on-demand 
video programs over the cable or Internet, are all options that have 
contributed to this tremendous growth.
    It is important to remember, however, that the vast majority of 
these services are produced and marketed at a national level. There is 
little room, if any, to cater to programming of local interest. Local 
broadcast television has filled this important niche, and we must 
ensure that any change in policy not jeopardize this valuable 
programming content for our citizens. The situation is even more 
critical in rural communities, where the absence of local broadcast 
television would mean only a choice between different national 
distribution networks.
    I look forward to the testimony of the witnesses on this

    The Chairman. Dr. Cooper, welcome.

STATEMENT OF DR. MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER 
                     FEDERATION OF AMERICA

    Dr. Cooper. Thank you, Mr. Chairman.
    This is, indeed, one of the most important issues that the 
Committee deals with, for a simple reason--it involves both an 
important area of economic commerce and a forum for democratic 
discourse in our society.
    For over 50 years, the Supreme Court has expressed a bold 
aspiration for the First Amendment in the electronic age, based 
on two fundamental principles. First, the court has declared 
that the widest possible dissemination of information from 
diverse and antagonistic sources is essential to the public 
welfare. Second, the court has recognized that broadcast 
licenses create powerful voices, particularly for television, 
and they are scarce. Because of interference, there are far 
fewer licenses than people who would like to hold them, so the 
holders of the licenses must serve the public interest.
    Unfortunately, with its most recent ruling, the FCC has 
turned its back on this aspiration, declaring instead that its 
job is not to promote the widest possible dissemination, but 
simply to prevent the complete suppression of ideas. And taking 
this narrow view, the FCC refuses to look at the actual market 
shares, the actual audience of media outlets. The result is to 
completely distort its analysis.
    Two examples: In Tallahassee, Florida, the PBS station 
operated by Florida State University, with less than 1 percent 
of the TV audience, counts as much as the number-one commercial 
TV station, with 60 percent of the audience. In New York City, 
the Duchess County Community College Educational TV Station 
counts more than the New York Times.
    In TV markets, the FCC ignores the fact that every network 
is now at the core of a vertically integrated television 
conglomerate. The national market is dominated by six entities 
that account for three-quarters of the prime-time, almost 
three-quarters of the writing budgets, three-quarters of the 
programming expenditures, 80 percent of prime-time shows, and 
virtually 100 percent of news viewers. Yet the FCC will allow 
these entities to reach larger markets.
    Antitrust practice cannot deal with this problem. To put 
the matter simply, antitrust officials do not do democracy; 
they do economic efficiency and profit, while the First 
Amendment is about understanding and truth. They may be able to 
tell you whether a merger between two TV stations will raise 
the price of advertising, but they do not examine if it lowers 
the quality of civic discourse.
    Using traditional economic methods and antitrust 
principles, we conclude that over 95 percent of the newspaper 
markets, 90 percent of the TV markets, and 85 percent of the 
radio markets in this country are highly concentrated. Local 
and national news markets are even more concentrated. And even 
defining media markets broadly, including all of the outlets, 
we conclude that over 90 percent of media markets in this 
country are concentrated.
    There is no public-policy purpose served by granting 
blanket approval to TV/newspaper combinations in approximately 
180 markets where 95 percent of the American people live to 
directly allow networks to control an additional 10 million 
households, or to permit a single entity to own multiple 
licenses when so many millions of Americans can't even own one.
    The FCC declared, in a remarkable statement, that it is 
not, quote, ``particularly troubling that media properties do 
not always, or even frequently, avail themselves to others who 
may hold contrary opinions, nor is it necessarily healthy for 
public debate to pretend as though all ideas are of equal value 
entitled to equal airing.'' I submit this is why you have a 
grassroots revolution, because this narrow view of democratic 
debate in our society is offensive to the vibrant tradition of 
civic discourse we have in America.
    I do not claim that ideas are of equal value, as the 
Commission wrongly implies, but we do insist that, in our 
democracy, ideas have an equal opportunity to be heard.
    By abandoning the bold aspiration for the First Amendment, 
the FCC will allow massively powerful media owners of multiple 
outlets to decide which ideas are broadcast widely and which 
merely leak out to the public. The rules violate this basic 
tenet of our democracy, and that is what has triggered this 
grassroots revolution.
    Now, I'm confident that the courts will overturn these 
rules, but that will only send them back to the agency, which, 
in my opinion, has spent 2 years misreading the empirical 
record, misinterpreting the law, and mangling the analysis. The 
national cap was enacted by Congress. The cross-ownership ban 
is a bright-line test that has been upheld by the courts. The 
evidentiary record supports both, and I believe that Congress 
needs to do so, as well.
    Thank you.
    [The prepared statement of Dr. Cooper follows:]

    Prepared Statement of Dr. Mark N. Cooper, Director of Research, 
                     Consumer Federation of America
    Mr. Chairman and Members of the Committee,

    My name is Mark Cooper. I am Director of Research of the Consumer 
Federation of America.\1\ I greatly appreciate the opportunity to 
appear before you today to discuss media ownership rules. This is the 
single most important issue confronting the Federal Communications 
Commission (FCC) because it deeply affects the fundamental structure of 
the forum for democratic debate in our society, in addition to 
affecting an extremely important area of economic commerce.
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    \1\ Consumer Federation of America (CFA) is a non-profit 
association of 300 pro-consumer groups, which was founded in 1968 to 
advance the consumer interest through advocacy and education.
---------------------------------------------------------------------------
    For two years we have urged the FCC to engage in rigorous market 
structure analysis and to adopt a high First Amendment standard for its 
media rules. It has completely failed to do so. The FCC has adopted a 
remarkably narrow view of the public interest under the Communications 
Act and abandoned the most elementary principles of market structure 
analysis. The result is a set of rules that bear no relationship to the 
reality of American media markets. The FCC's is wrong on the facts, 
wrong on the law and the resulting rules are entirely unreasonable. 
That is why Congress must step in and restore order.
The Facts
Illogical Assumptions in the Newspaper-TV Rule \2\
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    \2\ I have submitted for the record a study entitled Abracadabra' 
Hocus-Pocus! Making Media Market Power Disappear With The FCC's 
Diversity Index in which we examined over a dozen state capitals that 
demonstrates the FCC's analysis is riddled with these absurdities. 
(Available at www.consumerfed.org/abra.pdf)
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    The FCC refuses to look at the actual audience of a media outlet in 
calculating its Diversity Index. The Index underlies the decision to 
grant blanket approval to TV-newspaper combinations in over 80 percent 
of all markets where over 95 percent of all Americans live. Refusing to 
recognize reality leads to absurd results.
    For example, under the FCC's analysis, in Tallahassee Florida the 
PBS station operated by Florida State University, which captures less 
than I percent of the TV audience, counts as much as the number one TV 
stations, which captures almost 60 percent. Community Newspapers 
Holdings Inc., which owns the Thomasville Times Enterprise and the 
Valdosta Daily Times, counts twice as much as the Tallahassee Democrat, 
even though its newspapers have less than half the circulation. Under 
the FCC rules, the leading newspaper and the leading television station 
in Tallahassee would be given ``no questions asked'' approval to merge, 
even though the resulting company would have almost 60 percent of the 
TV audience, 70 percent of newspaper readers and control nearly two-
third of the news room staff in the market.
    The documents I have submitted for the record provide dozens of 
similar examples in markets of all sizes. These range from New York, 
where the Dutchess County Community College educational TV station 
counts more than the New York Times, to Lexington Kentucky, where the 
Corbin Times with a circulation of 5,000 is equal to the Lexington 
Herald, with a circulation of 115,000, and even more important than the 
CBS duopoly, which has over 60 percent of the TV market.
Unrealistic Analyses in the TV Rules \3\
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    \3\ I have submitted for the record a document entitled Free TV 
Swallowed by Media Giants'' demonstrating the flaws in this save free 
TV reasoning. (Available at www.consumerfed.org/free-tv.pdf)
---------------------------------------------------------------------------
    The TV rules are based on similarly unrealistic assumptions. For 
example, the FCC campaign to raise the national cap on direct network 
ownership of TV stations by national networks as a tool to save ``free 
TV'' ignores the fact that every one of the broadcast networks is 
embedded at the core of a vertically integrated television 
conglomerate. The recent acquisition of Vivendi's U.S. entertainment 
assets by NBC means that all five owners of broadcast networks (CBS, 
ABC, Fox and Time Warner (WB) in addition to NBC) all own film 
production, film libraries, TV production and cable networks in 
addition to their broadcast networks. Four of the five own publishing 
and theme parks as well.
    The synergies and economic power that result from internalizing 
production, initial distribution, syndication and repurposing are the 
hallmark of the television industry in today's multichannel environment 
This integration of production and distribution has been reinforced by 
legal rights that allow the media giants to gain carriage on cable 
systems, which have enabled the parent corporations of the broadcasters 
to capture a large share of the non-broadcast video market. As a 
result, the network owners have used their cable offerings to recapture 
between two-thirds and three quarters of the audience they claim to 
have been losing for over-the-air TV.
    These five firms and a sixth close ally \4\ account for almost 
three quarters of the TV audience, programming expenditures and writing 
budgets of the entire industry and own over four-fifths of the prime 
time shows. More importantly, the five owners of the broadcast networks 
capture virtually 100 percent of the television news audience. In 
market structure analysis, five firms, even if they are equal in size, 
is not considered a large number. In fact, by the Merger Guidelines of 
the Department of Justice, which have been used for over twenty years 
to indicate where mergers create an anticompetitive concern, such a 
market is considered highly concentrated.
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    \4\ Liberty has major financial interests in and business joint 
ventures with several of the big five.
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    In economic terms, the national TV market is a tight oligopoly. 
And, the industry is financially healthy; the FCC's own analysis said 
so. Advertising rates are going through the roof. Advertising revenues 
performed better in the 1990s, the decade when multichannel video was 
supposed to be undermining broadcasting, than the previous two decades.
    There is no public policy purpose to be served by allowing these 
entities to become larger and more powerful in either the national or 
local TV markets, yet that is exactly what the FCC proposes, allowing 
the networks to directly control stations that reach an additional 10 
million households. The new rules expand the number of markets in which 
a single entity would be allowed to hold the license for two stations 
from about 50 to about 150. For the first time, it would allow a single 
entity to hold the licenses for three stations in one city.
The Law
The FCC Defined Its First Amendment Duties Too Narrowly \5\
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    \5\ I have submitted for the record the first chapter of my book 
entitled Media Ownership and Democracy in the Digital Information Age 
which outlines the First Amendment principles that should govern media 
ownership policy. (Available on line at no charge under a creative 
commons license at http://cyberlaw.stanford.edu/blogs/cooper/archives/
mediabooke.pdf)
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    Any discussion of media ownership rules must start from the 
recognition that, above all, they are based on the First Amendment 
right of the people to speak. For over sixty years the Supreme Court 
has expressed a bold aspiration for the First Amendment in the 
electronic age that rests on two fundamental principles.
    First, the Court has declared that ``the widest possible 
dissemination of information from diverse and antagonistic sources is 
essential to the welfare of the public.'' Second, broadcast licenses, 
which create powerful electronic voices, especially for television, are 
scarce. ``Because of the problem of interference between broadcast 
signals, a finite number of frequencies can be used productively; this 
number is far exceeded by the number of persons wishing to broadcast to 
the public.'' Therefore, the Supreme Court has repeatedly concluded 
that there is no ``unabridgeable right to hold a broadcast license 
where it would not satisfy the public interest.''
    With its most recent rulings on media ownership, the FCC has turned 
its back on this First Amendment jurisprudence. Instead of accepting 
the challenge of the Supreme Court's bold aspiration for the First 
Amendment to promote ``the widest possible dissemination of information 
from diverse and antagonistic sources,'' the FCC has adopted the 
narrowest vision imaginable. It has declared that it is concerned only 
with ensuring that ideas can leak out and avoiding ``the likelihood 
that some particular viewpoint might be censored or foreclosed, i.e., 
blocked from transmission to the public.'' If the distribution of media 
ownership undermines a robust exchange of views, the FCC is 
unconcerned, declaring: ``Nor is it particularly troubling that media 
properties do not always, or even frequently, avail themselves to 
others who may hold contrary opinions . . . nor is it necessarily 
healthy for public debate to pretend as though all ideas are of equal 
value entitled to equal airing.''
    We do not claim that all ideas are of equal value, as the 
Commission wrongly implies, but we do insist that in our democracy 
ideas have an equal opportunity to be heard. By abandoning the bold 
aspiration for the First Amendment and adopting these remarkably lax 
rules, the FCC will allow massively powerful owners of multiple media 
outlets to decide which ideas are broadcast widely and which merely 
leak out to the public. There is a grass roots rebellion growing 
against the media concentration that these rules would spawn because 
the narrow view of the First Amendment adopted by the Commission is 
offensive to the traditions of vibrant civic discourse that the 
American people have always embraced. The rules violate the basic 
tenets on which our democracy stands and on which it has thrived.
Antitrust Practice Is Ill-Equipped to Deal with First Amendment 
        Analysis of Media Markets \6\
---------------------------------------------------------------------------
    \6\ I have submitted for the record the second chapter of my book 
entitled Media Ownership and Democracy in the Digital Information Age, 
which discusses the weakness of economic analysis for First Amendment 
policy. (Available on line at no charge under a creative commons 
license at http://cyberlaw.stanford.edu/blogs/cooper/archives/
mediabooke.pdf).
---------------------------------------------------------------------------
    The FCC claims that the confines of its narrow concept of the First 
Amendment prevent it from using the most fundamental information in 
market structure analysis, the shares of the firms in the market. 
Specifically, it has refused to look at the actual, real world 
audiences of media outlets, claiming that it must treat every outlet as 
if it had the same audience.
    By this twisted logic, the Communications Act, which is clearly 
intended to provide greater protection than the antitrust laws for the 
public interest in media markets because of their important role in 
democratic debate, is gutted. Under the FCC's new standard for the 
First Amendment, citizens get less protection from media corporations' 
accumulation of market power than consumers do under antitrust laws. By 
the FCC's own analysis, in over half the scenarios for broadcast-
newspaper mergers that it considered the FCC would give blanket 
approval to mergers that would violate the antitrust Merger Guidelines 
by a substantial margin.
    Antitrust law cannot deal with these problems. First, over the past 
two decades every major relaxation of structural limits on media 
ownership-deregulation of cable, repeal of the Financial and 
Syndication Rules, lifting the cap on radio ownership, and the TV 
duopoly rule--has been followed by a swift merger wave. Although some 
have argued that antitrust was intended to and should consider citizen 
issues, antirust practice has moved far toward pure economic 
considerations. Antitrust is about economic efficiency and profit; the 
First Amendment as it relates to the media is about understanding and 
truth. To put the matter simply, antitrust officials do not ``do'' 
democracy. As Justice Frankfuter put it almost sixty years ago in the 
seminal case, ``truth and understanding are not wares like peanuts and 
potatoes.'' Antitrust officials can tell you when a merger between TV 
stations will raise the price of advertising; they do not examine if it 
lowers the quality of civic discourse.
Reasonable Rules
Rigorous Market Structure Analysis Shows Media Markets to be 
        Concentrated \7\
---------------------------------------------------------------------------
    \7\ I have submitted for the record our analysis entitled Promoting 
The Public Interest Through Media Ownership Limits: A Critique Of The 
FCC's Draft Order Based On Rigorous Market Structure Analysis And First 
Amendment Principles. (Available at www.consumerfed.org/divindex.pdf)
---------------------------------------------------------------------------
    Over a year ago, the Consumer Federation of America presented a 
framework for examining media markets to the Commission that would 
allow it to apply rigorous market structure analysis within a framework 
of high First Amendment principles. Last spring we presented a detailed 
analysis of media markets based on traditional economic approach, a 
thorough review of the First Amendment jurisprudence and the empirical 
record before the FCC.

   Considered as separate products, which the empirical 
        evidence indicates they are, we find that over 95 percent of 
        the newspaper markets, 90 percent of the TV markets and 85 
        percent of radio markets are highly concentrated by antitrust 
        standards.

   Local and national TV news markets are more concentrated 
        than entertainment markets.

    Although it is difficult to combined different types of media 
outlets in a single framework, for cross media analysis we treated 
newspapers and TV broadcasters as dominant co-equals in media markets. 
TV dominates on the demand-side-being cited by about twice as many 
people as their dominant source of news. But, newspapers dominate on 
the supply-side, with almost twice as many newspaper newsroom staff in 
daily newspapers as there are newsroom staff at broadcast TV stations. 
Newspapers also produce a great deal more news copy than TV stations 
and they are frequently the source of ideas for TV news stories.
    In response to survey questions, 80 percent or more of respondents 
cite newspapers and TV as the primary source of news and information, 
particularly about elections. Therefore, we assumed that other sources 
(radio/Internet/weekly) \8\ account for 20 percent. The FCC failed to 
ask the proper questions and botched the analysis. It vastly 
overestimated the importance of these sources, giving them a 45 percent 
weight, almost equal to newspapers and TV.
---------------------------------------------------------------------------
    \8\ The network claim that the Internet gives the average citizen 
an electronic voice equal to a broadcast license misrepresents the 
power of broadcast video as a distribution medium. Television is a 
powerful push medium; the Internet is still a weak pull medium. There 
may come a time when the Internet and widely available unlicensed 
spectrum may give citizens powerful electronic voices that rival the 
booming quality of the broadcast media, but that certainly has not 
happened yet. If the networks truly believe that the Internet equalizes 
the media landscape, they should be willing to turn back their licenses 
and distribute their programming over the Internet (they already 
supplement their broadcast licenses with websites). Let them advertise 
their URL and have the public log onto their prime time shows and give 
let the broadcast licenses be enjoyed by someone else.

   We concluded that, even by our broad definition, over 90 
---------------------------------------------------------------------------
        percent of all media markets in this country are concentrated.

   In the handful of markets that are unconcentrated, most 
        could only sustain one or two mergers before they, too, would 
        become concentrated, but the FCC would allow multiple mergers 
        within and across media in these markets.
Rigorous Market Structure Analysis Informed by High First Amendment 
        Principles Promotes the Public Interest \9\
---------------------------------------------------------------------------
    \9\ I have submitted for the record our Petition for 
Reconsideration,'' which outlines the important roles that source 
diversity has in ensuring ``widest possible dissemination of 
information from diverse and antagonistic sources.'' (Available at 
www.consumerfed.org/recon.pdf)
---------------------------------------------------------------------------
    Traditional antitrust practice defines a market as concentrated if 
it is has the equivalent of fewer than 10 equal sized competitors. 
Because media markets are so vital to democratic discourse, we 
recommended that the FCC adopt this standard as a bright line test, 
refusing to approve mergers in concentrated markets or that would 
create concentrated markets.
    Public policy should not allow cross media mergers in markets that 
are concentrated, with an exception for conditions of financial 
distress or deminus acquisitions. Preserving the institutional 
independence, competition and antagonism between newspapers and 
television in every city in America is one of the most critical ways to 
ensure a robust exchange of views.
    Public policy should not allow TV-TV mergers in markets that are 
highly concentrated. When hundreds of millions of Americans who would 
want a license cannot hold even one, it is difficult to justify 
allowing media conglomerates to own two, not to mention three in the 
same market.
    Given the high degree of vertical integration in the television 
industry and the penetration of cable by broadcasters, the 35 percent 
ownership limit, which is actually a traditional antitrust level for 
monopsony power analysis (i.e., networks as buyers of programming 
exercising market power over sellers), is generous. In the early 1990s 
two fundamental public policy changes were made for broadcast 
television. The Financial and Syndication rules which limited the 
ability of networks to own prime time programming were repealed and 
broadcasters were given must carry/retransmission rights. The results 
are clear. Independent production of prime time programming has 
virtually disappeared and vertically integrated giants dominate the 
industry. At this stage of the game, rather than increasing the 
ownership cap to 45 percent, Congress should be considering whether to 
drop the cap back to 25 percent, or reinstituting the FinSyn rules.
Inconsistencies and Contradictions in the FCC Analysis
    The FCC rules are also riddled with internal contradictions. The 
FCC justifies getting rid of the ban on cross ownership on the basis of 
a discussion of the market share, or the ``strength,'' or ``influence'' 
of individual outlets. Yet, when it comes to writing the new rule, it 
declares that market share, strength and influence do not matter.
    The FCC defends mergers in its competition analysis, claiming that 
the production of news programming is difficult and expensive. Then it 
claims it does not have to consider market shares in its diversity 
analysis because the production of news programming is easy and cheap.
    The FCC concludes that the top four local stations and the four 
major national networks should not be allowed to merge with each other 
because such mergers would increase economic market power, create 
dominant firms that are much larger than their nearest rivals, diminish 
the incentive to compete, and produce little public interest benefit 
because the merging parties are likely to be healthy and already 
engaged in the production of news and information products. Every one 
of these is a valid reason to ban a merger between dominant TV stations 
and dominant newspapers in the local media market. The FCC failed to 
apply this reasoning to cross-ownership mergers and ban dominant firm 
combinations.
    I am confident that the Court will overturn the rules, but that 
will only send them back to the agency, which has spent two years 
misreading the record, misinterpreting the law and mangling the 
analysis. Congress should take action. The national cap was enacted by 
Congress. The cross-ownership ban is a bright line test that has been 
upheld in the courts. The evidentiary record supports both; the 
Congress needs to do so, as well.

    The Chairman. Thank you, Dr. Cooper.
    Mr. Miller, welcome.

       STATEMENT OF VICTOR B. MILLER IV, SENIOR MANAGING

            DIRECTOR, EQUITY ANALYST, BROADCASTING,

             BEAR, STEARNS & COMPANY, INCORPORATED

    Mr. Miller. Thank you.
    Good morning, Mr. Chairman, Members of the Committee. I was 
pleased to accept your invitation to appear before you today to 
provide my perspective of the FCC's June 2 media ownership 
rulemaking.
    I am Victor Miller, the Broadcast Equity Analyst for Bear, 
Stearns. I have covered the broadcast industry for 16 years in 
lending and in equity research.
    Today, I would like to concentrate my remarks on two 
issues. First, I would like to address the effect of the long-
term health of free over-the-air broadcasting and related 
markets. Second, I would like to provide a market perspective 
of the FCC's June 2 order.
    On the factors affecting the long-term viability of free 
over-the-air television, one, TV is a robustly competitive 
business, with ten broadcast networks, 1,372 commercial TV 
stations, 287 national and 56 regional cable networks. Intense 
competition has taken its toll on over-the-air broadcast 
ratings and ad shares.
    Two, local TV players are facing a consolidating cable 
business. In 15 of the top 25 media markets, one MSO controls 
at least 75 percent of the local market's wire-line subscriber 
base. Increasing MSO concentration could adversely affect local 
broadcasters' retransmission discussions with MSOs and will 
create meaningful competition to local TV's ad dollars and 
programming franchises such as news and sports.
    Three, some estimate that devices with ad-skipping 
technology could reach sufficient mass by 2005, threatening 
free TV's only revenue stream, advertising. If TV's single ad-
only revenue stream broke down entirely, monthly cable 
subscriber fees would have to increase by $46 per month to 
replace the lost ad revenues.
    Four, the broadcast TV network business is becoming less 
and less profitable. From 2000 to 2002, in totality, we believe 
the big-four networks generated only $2 billion of profits on 
approximately $39 billion in revenue, which is a 5 percent 
margin. Now, if you exclude NBC, the most profitable network, 
the margins fall to 1 percent, $250 million in profit on $26 
billion in revenue.
    Five, because the TV business has significant levels of 
fixed cost, declines in revenues have created extremely strong 
effects on cash-flow. For example, in 2001, local TV station 
industry revenues fell by 15 percent, cash-flow fell by 25 to 
35 percent.
    Turning briefly to the newspaper market, there are 17 
percent fewer daily newspapers, 9 percent less circulation in 
the industry since 1975, despite 45 percent growth in 
households since 1975. Newspaper's share of measured media 
advertising has declined to 30 percent in 2002, from 45 percent 
in 1975. Newspapers have lost nearly 50 percent of one of their 
very highly profitable help-wanted businesses in just the last 
3 years, going from $8.4 billion to $4.3 billion. From a market 
perspective, this likely shows the reality that there has been 
no change in the structure of the newspaper business in 28 
years.
    Now, turning to the second topic, in general, Wall Street 
viewed the market impact of the order to be modest. First, from 
a market perspective, an upward revision in the national TV 
ownership rules should improve the overall health of the free 
over-the-air TV market. Healthy broadcast networks beget 
healthy local TV stations, and vice versa. We hope, too, that 
the networks will try to acknowledge the checks and balances 
that their affiliates seek in relation to the networks.
    Second, the FCC loosened duopoly rules and introduced 
triopolies into the largest TV markets. Duopolies have improved 
station economics, and 87 percent of duopoly stations support 
new broadcast networks, such as Univision, Telefutura, WB, and 
UPN. And except for one market, obvious triopoly candidates 
capture less than 1 percent of local viewing and ad share in 
the other ten potential duopoly markets. Triopoly rules will 
likely create a new viable TV entity, or preserve an existing 
one. However, in general, the market was disappointed that 
duopoly relief was not provided more widely to small and mid-
sized markets.
    Third, turning to the radio rule, we believe that the new 
geographic market-based rules of the order tightens potential 
local radio ownership. Our review of all 286 metropolitan areas 
suggest there are 214 noncompliant radio stations in 109 
different radio markets owned by 47 different broadcasters. We 
approximate that 94 of the 214 noncompliant stations are owned 
by 36 private radio groups, and that these noncompliant 
stations represent 15 percent plus of these private stations 
radio groups in 13 of those groups.
    Fourth, we believe there will be a modest level of deal-
making that will done after the rules go into effect. We do not 
anticipate meaningful deal-making opportunities in the networks 
in the near term. We anticipate a reduce in merger activity in 
radio. We believe that the large national multi-media players 
are not interested in newspaper assets, and neither are pure-
play TV and pure-play radio companies. And from a market 
perspective, radio stocks have declined nearly 40 percent since 
January 1, 2000. Local TV stocks have declined by 36 percent 
during that time. In both cases, local TV and local radio 
industry revenues in 2003 will be lower than the revenues that 
were achieved in 2000 for the industry, in general.
    Last, I hope I can be a resource to this Committee. I have 
had 16 years of experience covering media, and like any analyst 
that works for a Wall Street firm, our firm does have 
relationships with several players in this industry. But my 
obligation is to provide investors unbiased views, and I am 
proud that investors have acknowledged that effort by ranking 
me the as number-one most trusted broadcast analyst in the 
Greenwich Association poll last year.
    Thank you, Mr. Chairman and distinguished Senators of the 
Committee, for allowing me to submit this testimony.
    [The prepared statement of Mr. Miller follows:]

 Prepared Statement of Victor B. Miller IV, Senior Managing Director, 
        Equity Analyst--Broadcasting, Bear, Stearns & Co., Inc.
                                Opening
    I am Victor Miller, the broadcasting Equity analyst for Bear 
Steams. I have covered the broadcasting industry for 16 years in 
lending and equity research.
    I appreciate the opportunity to provide my perspective of the 
Federal Communications Commission's June 2, 2003 Media Ownership 
Rulemaking.
    We believe that the FCC sought to achieve two basic changes in its 
June 2, 2003 media ownership rulemaking:
    First, we believe the FCC's rules sought to provide opportunities 
for local TV, local radio and local newspapers to respond to the 
competitive pressures of a consolidating cable business and large 
national media players.
    Second, we believe that the FCC sought to address concerns 
regarding the long-term health of ``free-over-the-air'' TV.
    Ultimately, we believe that the FCC responded to mandates placed 
upon it by Congress and the Courts and changes in the media 
marketplace. Explicitly by:

   The Telecommunications Act of 1996, which requires the FCC 
        to ``repeal or modify any regulation it determines to be no 
        longer in the public interest'' as part of its Biennial review;

   Pressures created by the D.C. District Court's decisions to 
        remand the national TV station ownership and TV duopoly rules 
        back to the FCC and to create policy consistent with the D.C. 
        Court's decision to strike down the most offensive local cross-
        ownership rule, the cable (multiple system operator)-broadcast 
        rule.

   Concerns relative to the longer-term health of ``free-over-
        the-air'' television.

    Elaborating on the last point, I believe that there are five 
factors that could affect the long-term viability of free TV.
    One, TV is a robustly competitive business, with 10 broadcast 
networks, 1,372 commercial TV stations \1\ and 287 national and 56 
regional cable networks.\2\ Intense competition has taken its toll on 
``over-the-air'' broadcast ratings and ad shares.
---------------------------------------------------------------------------
    \1\ BIA Investing in Television-4th Edition 2002, page 6
    \2\ Federal Communications Commission-Office of Planning and Policy 
Working Paper Series 37: ``Broadcast Television: Survivor in a Sea of 
Competition September 2002, page 40
---------------------------------------------------------------------------
    Two, local TV players are facing a consolidating cable business; in 
15 of the top 25 media markets, one MSO controls at least 75 percent of 
the local market's wire-line subscriber base.\3\ Increasing MSO 
concentration could adversely affect local TV broadcaster's 
retransmission discussions with MSOs and will create meaningful 
competition to local. TV's ad dollars and programming franchises (local 
news, sports). One cable operator already captures more ad revenue than 
does ABC's owned and operated TV group, we believe.
---------------------------------------------------------------------------
    \3\ Bear, Steams & Company-Television Industry Summit 2002, page 
71; BIA Financial Networks--2001
---------------------------------------------------------------------------
    Three, some estimate that devices with ad skipping technology could 
reach sufficient mass by 2005, threatening free-TV's only revenue 
stream, advertising. If TV's single ad-only revenue stream broke down 
entirely, monthly cable subscriber fees would have to increase by $46 
per month to replace lost ad revenues.\4\
---------------------------------------------------------------------------
    \4\ Bear, Steams & Company-Television Industry Summit 2002, page 42
---------------------------------------------------------------------------
    Four, the broadcast TV network business is becoming less and less 
profitable. From 2000 to 2002, we believe that the ``big four'' (ABC, 
CBS, NBC and Fox) networks generated only $2 billion in profits on 
approximately $39 billion in revenue, a 5 percent margin. Excluding the 
most profitable network, we believe that margins would fall to 1 
percent.\5\
---------------------------------------------------------------------------
    \5\ Bear Steams & Company estimate from industry sources
---------------------------------------------------------------------------
    Five, because the TV business has significant levels of fixed 
costs, declines in revenue can have negative effects on cash flow. For 
example, in 2001, local TV station industry revenues fell by 
approximately 15 percent,\6\ but cash flow plummeted by 25 percent to 
35 percent.\7\
---------------------------------------------------------------------------
    \6\ Television Bureau of Advertising Estimate
    \7\ Bear Stearns ``Television Industry Summit 2002'' November 26, 
2002, page 73; Company reports
---------------------------------------------------------------------------
    On the newspaper front, we believe that the FCC acknowledged the 
reality that the industry had not seen any deregulatory relief in 28 
years. There are 17 percent fewer daily newspapers and 9 percent less 
daily circulation in the industry since 1975 despite 45 percent growth 
in households since 1975.\8\ Newspaper's share of measured media has 
declined to 30 percent in 2002 versus 45 percent in 1975.\9\ Newspapers 
have lost nearly 50 percent of their highly profitable help wanted ad 
business in the last three years.\10\
---------------------------------------------------------------------------
    \8\ Newspaper Association of America Facts About Newspaper--2003
    \9\ McCann-Erickson Worldwide; Bear, Stearns--Television Factbook--
August 2003
    \10\ Newspaper Association of American; Bear, Stearns Estimates
---------------------------------------------------------------------------
    Given these operating pressures combined with the deregulatory tone 
set by the statute and the courts, we were not surprised to see 
newspaper-broadcast cross-ownership relief, an upward revision in the 
national TV station ownership rule and changes to duopoly rules. But, 
in general, Wall Street regarded the relief as modest.
    First, the only national rule changed by the FCC was an upward 
revision in the national TV ownership rule. If one believes that the 
long-term preservation of ``free-over-the-air'' TV is important, then 
the FCC's decision to raise the ownership cap is an essential piece of 
the broadcast-TV preservation puzzle. Networks essentially cross-
subsidize poor network economics by owning more profitable local TV 
stations.
    The ability for networks to at least have the option to increase 
station ownership is important to preserve broadcast TV's 
``ecosystem''. Networks and their local stations are married to the 
same terrestrial system. Healthy broadcast networks beget healthy local 
TV stations and vice versa. Having said this, there are many important 
checks and balances that are of great concern to local broadcasters in 
their relationship with the networks and we continue to hope that these 
will be resolved.
    Second, there have been some concerns voiced with the concept of 
duopolies and triopolies. Currently 80 percent of duopolies support the 
Univision, Telefutura, WB, UPN and independent TV stations. And, except 
for one market, obvious triopoly candidates capture less than 1 percent 
of local viewing and ad share in the other ten potential triopoly 
markets. Triopoly rules will likely create a new viable TV voice or 
preserve an existing one.
    Third, turning to the radio rule, we believe that the new 
geographic market based rules that is part of the June 2 Order, 
tightens potential local radio ownership. Our review of radio's 286 
metropolitan areas suggest that there are 214 non-compliant radio 
stations in 109 different radio markets owned by 47 different 
operators. We approximate that 94 of the 214 non-compliant stations are 
owned by 36 private radio groups and that these non-compliant stations 
represent 15 percent-plus of the stations of 13 of these private 
operators' groups. \11\
---------------------------------------------------------------------------
    \11\ Bear Steams & Co., Inc. ``FCC on Radio'' July 23, 2003
---------------------------------------------------------------------------
    This reality combined with the fact that radio groups were legally 
assembled under the Telecom Act was the guiding force for the FCC's 
decision to ``grandfather'' non-compliant stations, we believe.
    Fourth, there has been some concern with the level of deal-making 
that may be done after these rules go into effect. We believe that the 
FCC's new rules would lead to modest incremental deal activity:

   The increase in the cap is unlikely to lead to meaningful 
        deal-making opportunities; ABC, thus far, has shown little 
        interest in expansion, Fox seems focused on satellite TV, and 
        NBC's and CBS's affiliates are owned by companies committed to 
        broadcasting for the long run and which are unlikely to sell.

   Changes in radio rules probably will reduce merger and 
        activity in radio relative to the old rule regime. M&A activity 
        had already slowed; only 8 percent of all post-Telecom Act 
        radio deals were done in the last three years.\12\
---------------------------------------------------------------------------
    \12\ Bear, Steams & Co., Inc.--Radio Fact Book--May 2003

   We believe that large national multi-media players are not 
        interested in newspaper assets and that newspaper ownership 
        will remain unchanged in the vast majority of the top 100 
---------------------------------------------------------------------------
        markets.

   Deals that create undue levels of concentration will likely 
        run afoul of the FCC's Diversity Index or Department of Justice 
        standards.

    From a market perspective, radio stocks have declined nearly 40 
percent since January 1, 2000 and local TV stocks have declined by 36 
percent. In both cases, local TV and local radio industry revenues in 
2003 will not reach those achieved in 2000.
    What is often lost in the recent debate of the FCC's new media 
ownership rules is that many aspects of Congress' Telecom Act of 1996 
and other FCC policies have been quite successful and have served the 
public interest. Driven by the FCC's 1993 retransmission/must-carry 
rules, Congress' Telecommunications Act of 1996 and duopoly rules 
adopted in August 1999, the average home can view 150 percent more 
broadcast networks, 87 percent more local TV stations and has 725 
percent more viewing options on a national level now than in 1980. 
While duopolies seem controversial, they have been instrumental in 
creating new broadcast networks; 80 percent of existing duopolies and 
local marketing agreements support emerging networks such as 
Telefutura, WB and UPN.\13\
---------------------------------------------------------------------------
    \13\ Bear, Stearns--Television Industry Summit 2002, pages 90-91
---------------------------------------------------------------------------
    And the FCC's 1992 radio duopoly rules combined with the Telecom 
Act of 1996 helped permanently preserve the radio business; 50 percent-
60 percent of radio stations' recorded operating losses in 1991. And 
radio can now compete more effectively with all other media.
    There has been some considerable debate on the presence of minority 
operators in the broadcast business. Fortunately, some progress is 
being made again, thanks to Congress' Telecommunications Act of 1996 
and more robust capital markets. Many companies, such as Rad1o One 
(urban broadcasting), Univision (Spanish-language), Hispanic 
Broadcasting (Spanish-language), Entravision (Spanish-language), 
Spanish Broadcasting (Spanish-language), Radio Unica (Spanish-
language), Telemundo (Spanish-language), Salem Broadcasting (Religious) 
and Paxson Communications (Religious/Family Values) took advantage of 
the Telecommunications Act of 1996, accessed the capital markets and 
have assembled significant broadcast platforms. The enterprise value of 
these aforementioned companies currently stands at approximately $20-
plus billion. Most were not public companies or were a fraction of 
their size in 1995. Having said that, Chairman McCain's bill should 
continue to build momentum in minority access to media assets.
    Lastly, I want to state that I hope I can be of help to this 
Committee. I have had 16 years of experience covering media and I have 
been fortunate enough to be ranked #1 in the Institutional Investor 
poll during the last two years and to be ranked as the #1 most trusted 
analyst in the Greenwich Associate survey last year. I hope you will 
get the sense that my obligation is to provide investors with unbiased 
views and that investors have acknowledged that effort. I was asked to 
testify in front of the Chairman Kennard led Commission in January 1999 
and by the Chairman Michael Powell-led Commission in February 2003 and 
have been asked to testify in front of the Senate Commerce Committee 
here today. Again, I hope I can helpful in today's discussion.
    Thank you, Mr. Chairman and distinguished Senators of the Commerce 
Committee for allowing me to submit this written testimony.
    This report has been prepared by Bear, Steams & Co. Inc., Bear, 
Steams International Limited or Bear Steams Asia Limited (together with 
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    (c) 2003. All rights reserved by Bear Stearns. This report may 
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    The Chairman. Thank you very much, Mr. Miller.
    Dr. Noam?

         STATEMENT OF ELI M. NOAM, PROFESSOR OF FINANCE

          AND ECONOMICS; DIRECTOR, COLUMBIA INSTITUTE

       FOR TELE-INFORMATION, GRADUATE SCHOOL OF BUSINESS,

                      COLUMBIA UNIVERSITY

    Dr. Noam. Thank you very much, Mr. Chairman.
    Ladies and gentlemen, good morning. I'm Eli Noam. I run the 
media management program at Columbia University. In my former 
life, I also served as a public service commissioner for the 
State of New York, and so I have particular appreciation for 
the problems that the FCC Chairman is facing, who, I think, it 
should be said, in my view, is a good man with good values.
    Now, you've asked me to provide some numbers to the debate. 
We've got, at Columbia, perhaps the best data set on media 
ownership and market shares, covering about 100 information 
industries over 20 years. So some findings for your 
consideration are relevant, and we'd be very happy both for the 
majority and the minority to answer, using our data base, 
additional questions you might have in the future.
    Now, what we find is that the concentration of broadcast 
television, the most contentious issues in this debate, is a 
very mixed bag. We found local television station ownership on 
the national level, the national share of the top-four firms 
went up by 75 percent over the last 20 years, from 12 percent 
to 21 percent. But 21 percent, by the standards of the U.S. 
Justice Department, is still clearly within the range of 
unconcentrated. Now, this is not to say that those antitrust 
standards should be the governing standard, but they provide 
some relevant yardsticks.
    Now, at the same time, the local concentration of broadcast 
television, based on our analysis of 30 representative markets, 
has actually declined, rather than increased, as many people 
believe, due to the shift of viewership away from the 
affiliates of three networks, and, later, four networks, to a 
much broader participation of stations, and I'm not even 
including cable television in that--that would reduce the 
market share still further. And furthermore, much of that 
decline has happened over the last 5 years.
    Now, in contrast, concentration has grown considerably for 
radio stations. Today, with no national ownership ceiling, the 
top-four station groups account for 34 percent of stations by 
revenues, more than four times that of two decades ago. And 
while that is, by national antitrust standards, still not too 
high, what is important is the startling rapidity of that 
change.
    Now, arguably, local concentration is the most important 
issue to worry about. And for radio, the four-firm 
concentration ratio has grown from 53 percent of the audience, 
held 20 years ago, to 84 percent in 2002, well into the range 
of highly concentrated industry.
    Looking at it in perspective, local concentration of media 
has actually been highest for local newspapers. While the 
concentration of newspapers, on a national basis, is moderate, 
but rising, it is, on the local level, actually quite 
astonishingly high. Whichever index one uses, local newspapers 
are at the top of the list for local media concentration. But 
you won't read many editorials of that.
    To get an overall picture, we can report the aggregate--the 
aggregation of these various trends before local mass media--
TV, radio, newspapers, and local magazines and periodicals. And 
if we do that, the composite local concentration index is 
shaped like a big ``U.'' From 1984 to 1996, it declined 
somewhat, and subsequently it rose again to a level that is 
somewhat higher than 20 years ago.
    The Chairman. Why did that happen?
    Dr. Noam. Well, it happened after the 1996 Act, and that 
kind of accelerated some of the concentration of media, 
particularly on the radio front.
    The question is, how should the FCC rules--how would the 
FCC rules affect media concentration now, nationally or 
locally? We did, last night, I have to confess, some 
calculations. They're still a bit preliminary--it's a work in 
progress--but here's what we found. If we extend the reach of 
the top-four television firms to 45 percent from the present 35 
percent, the four-firm concentration index rises from a present 
21 percent--in terms of audiences and revenues, not in terms of 
stations--to about 27 percent, as the worst-case scenario. This 
is from 21 to 27 percent. It is an increase. It's not a 
dramatic increase, however.
    Second, the effect of duopoly and triopoly relaxation would 
be to raise overall local media concentration of TV, 
newspapers, radio, and magazines from today's HHI index of 1409 
to 1483. This is some increase on an overall local media 
concentration, but it is still not a huge one.
    In contrast, if we add to this effect of newspaper/
television cross-ownership following the FCC ruling, assuming a 
worst-case scenario in which every one of the large TV stations 
buys a newspaper, or vice versa, until none are left in the 
city, that impact is actually quite large. It would rise from a 
composite local media HHI of 1409 today to 1945 for such a 
hypothetical situation. This would be a considerable increase.
    Now, as a practical matter, the worst-case scenario is not 
likely to happen. Even so, I would be troubled by the 
potential, and I would be troubled, therefore, by the potential 
impact of such a cross-ownership rule on local concentration.
    On the other hand, I would be much less troubled by the 
increase of national TV concentration due to the rise of the 
ceiling to 45 percent from the present 35 percent based on the 
data that I've reported.
    Now, I'd be very happy to discuss also the proper limits on 
ownership, what they should be, and I can do this either now or 
in the question period.
    [The prepared statement of Dr. Noam follows:]

Prepared Statement of Eli M. Noam, Professor of Finance and Economics; 
 Director, Columbia Institute for Tele-Information, Graduate School of 
                     Business, Columbia University
    Chairman McCain, Senator Hollings, Senators, ladies and gentlemen, 
I am grateful to join you in discussing the important issue 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. 
The ownership of news and entertainment media is important to the 
health of democracy. But the debate over it must be healthy, too, and 
relate to facts rather than be driven by some dark fears.
    When it comes to concentration, views are strong but numbers are 
weak. We've got at Columbia perhaps the best data set on media 
ownership and market shares, covering about a hundred information 
sector industries, and going back about 20 years. We are therefore able 
to provide some empirical findings on trends, and we ran last night 
some simulations into the future that might be helpful to your 
considerations.
    The concentration of broadcast television is the most contentious 
issue in the debate. So let's look at the facts. For local TV station 
ownership, the national share of the top 4 firms about doubled, from 12 
percent in 1984 to 21 percent in 2001/2. By the standards of the U.S. 
Justice Department, it is still firmly in the range of 
``unconcentrated''. This is not to say that those guidelines should be 
the governing standards for media, but they provide some relative 
yardstick. If we let the top 4 firms be permitted to reach 45 percent 
instead of 35 percent of national population, as the FCC ruled, then 
the 4 firm concentration rises to 27 percent.
    At the same time, local concentration of broadcast TV, based on our 
analysis of 30 representative markets, declined rather than increased, 
as many have feared, due to the shift of viewership away from the 
affiliates of 3 networks to a wider range of broadcast stations. 
Whereas the largest 4 stations in a local market accounted for 90 
percent in 1984, that number had declined to 73 percent 20 years later. 
Furthermore, most of that decline was in the past 5 years. In terms of 
HHI, it fell from 2,460 to 1,714. (And I am not even including cable 
channels in that analysis, since they do not tend to provide their own 
news. If we included them, the market share drop would be much higher.)
    In contrast, concentration grew considerably for radio stations, 
where the ownership rules until the 1990s kept an industry of 12,000 
stations highly fragmented, with any firm from owning no more than a 
few stations. Today, with no national ownership ceilings, we've gone in 
the opposite direction, and the top 4 station groups account for 34 
percent of stations by revenues, more than four times the 8 percent of 
2 decades ago.
    Arguably, local concentration is the most important issue to worry 
about. For radio, it has grown from an average of 53 percent of the 
audience held by the top 4 station owners in each local market 20 years 
ago to 84 percent in 2002, well into the range of ``highly concentrated 
industries''. (HHI=2,400)
    For multichannel TV (cable and satellite), the 4-firm concentration 
rose nationally from 21 percent to 60 percent. But just as important is 
the extent of local concentration. Here, cable used to be for a long 
time the only option, wielding considerable gatekeeper power. Today, 
with satellite TV a viable option for national programs, cable's share 
has declined to a still considerable 78 percent and keeps sliding.
    Local concentration of media has actually been highest for 
newspapers. While newspaper national concentration is moderate but 
rising (27 percent, up from 22 percent twenty years ago), its local 
concentration levels are astonishingly high. Whichever index one uses, 
local newspapers are at the top of the list for local media 
concentration, with the top firm on average accounting for a market 
share of 83 percent, 3 percent higher than 20 years ago.
    To get an overall picture, we can report the aggregation of these 
various trends for 4local mass media, TV, radio, newspapers, and local 
magazines and periodicals. We use here the HHI index, for aggregation 
purposes, and weigh them by the FCC's and Nielsen Media Research's 
determination of people's usage of the medium as a source for local 
news and current affairs. This composite local HHI is shaped like a big 
U. From 1984 to 1996, it declined somewhat, and subsequently rose to a 
level somewhat higher than 20 years ago.
    Now the question is, how would the new FCC rules affect media 
concentration, nationally and locally? We did last night some 
preliminary calculations.

  1.  If we extend the reach of the top 4 firms to 45 percent, the 4-
        firm concentration index rises from 21 percent to 27 percent, 
        as a worst case scenario. The HHI would rise from a very low 
        152 to a still low 227.

  2.  The effect of duopoly and triopoly relaxation would be to raise 
        overall local media concentration of TV, newspapers, radio, and 
        magazines from today's HHI of 1865 to 1933. This is an 
        increase, but not a huge one.

  3.  In contrast, if we add to this the effect of newspaper-TV cross 
        ownership, if following the FCC rule, and assuming a worst case 
        scenario-that every one of the large TV stations buys a 
        newspaper, until none are left in that city, is quite large. It 
        would rise from a composite local media HHI of 1865 today to 
        3551. This would be a substantial increase.

    Therefore, I would be troubled by the impact of such a newspaper -
TV cross ownership rule on local concentration. But I would not be 
troubled by the increase of national TV concentration due to the rise 
in the national ceiling to 45 percent. On the local duopoly, the 
numbers indicate somewhat of an increase in concentration, but not a 
sharp one.
    At this point, you probably want to know what the proper limits on 
ownership should be. There are basically 3 ways to determine this. One 
is the incremental approach: gradually raise ownership levels and see 
what happens. And if the sky does not fall in, you loosen up a bit 
more. The problem with this pragmatic approach is that if things go 
wrong, it might not be possible to turn things back. Just look at what 
happened in Italy where the media winner became a political power.
    The second approach is to set a number of limits for each media 
industry, largely unconnected to each other. That's basically the 
system we have now.
    And a third approach, which I would support, would be to have an 
overall local measure that takes into account all local media of TV, 
radio, newspaper, magazines. Because the number of newspapers in a city 
makes a difference, for example, to the question of how many TV 
stations another company should be able to own.
    How high should such a composite local HHI be? Partly this is a 
policy question for you, not for an economist. What are we comfortable 
with? We could look at any past year and decide that its media 
concentration has been comfortable in democratic and economic terms, 
and maintain that level. That would be the HHI that would be a 
threshold, and an acquisition that would go over that line would be 
scrutinized closely. If we weigh the different local media firms by the 
attention to their news, as given by the FCC, then the average local 
media HHI, over the past 20 years, has been about 1708.
    Such a local media HHI level would realistically be different for 
different city sizes. Large cities are able to sustain a larger number 
of voices, and their often greater diversity and number of issues also 
requires them. The larger the city in population, the smaller the media 
concentration should be expected to be. So we can actually establish a 
formula, with the product of population and HHI being some constant K. 
It would be a benchmark. How large should it be? If you determine that 
in the largest 20 of media markets the number of voices should be 15--
TV stations with news programs, radio news and talk stations, 
newspapers, city magazines, local cable news channels. That translates 
to an HHI of about 700. If the market is medium sized, to maintain the 
same constant K the HHI could rise to 1,000, or about 10 equal sized 
voices. You'd get that from about 5 TV companies, 3 radio companies 
with news content, one newspaper and a local magazine.
    With this approach, as new media emerge and smaller media grow, or 
some of the larger firms stay stable in size, the others can own more, 
since its not their size or holdings that is constrained but only the 
overall market concentration.
    This would not be a hard-and-fast rule, but a threshold for greater 
scrutiny. It would also let local communities take a look at their own 
media situation and find out whether they stand. If you are interested 
in this approach, I will be glad to flesh it out.
    None of this should suggest that local media concentration is low 
or that there is no need for vigilance. But it's quite another matter 
to call it a burning crisis and a relentless trend, as many have done 
in the heat of the battle. That has not been the case, and, without the 
newspaper-TV cross ownership rule, is not likely to become one.
    Senators, thanks you for your attention.

    The Chairman. Why don't you go ahead now.
    Dr. Noam. OK.
    There are basically three ways to do this. One is an 
incremental approach. You raise the ceiling to raise the limit 
somewhat, and you see if the sky falls, you see what happens. 
And if the sky does not fall in, you loosen it up a bit 
further. And that's basically the approach we've been using for 
easily 20 or 30 years.
    The second approach is to set a limit for each media 
industry separately, those industries one can regulate, and 
largely unconnected to each other. That is the approach also 
we've been using--something for the radio, something for the 
TV, and so on.
    And a third approach which I would propose would be to have 
an overall local concentration measure that takes into account 
all local media--TV, radio, newspapers, and magazines. Because, 
for example, the number, the concentration of newspapers in a 
city is relevant to the extent of concentration in the 
television or radio markets that we would be comfortable with.
    Now, how to do that. First, kind of, how high should such a 
composite local HHI be? This is partly--this is mostly a policy 
question for you, not for an economist. But what are you 
comfortable with? We could look at any past year and decide 
when media concentration has been comfortable to us in 
democratic and economic terms, and maintain that overall level. 
That HHI would be at the threshold level, and an acquisition 
that would go over that line would be scrutinized more closely 
than an acquisition that would not cross that line.
    Such a local media HHI level would realistically be 
different with different city sizes. Large cities are able to 
sustain a larger number of voices, and their often greater 
diversity and number of issues require a greater number of 
voices. The larger the city's population, the smaller media 
concentration could be expected to be. So we can actually 
establish a formula, with a product of population and HHI being 
some form of a constant. And the policy question for FCC or 
Congress would be to give some guidelines on what that number 
ought to be, what the comfort level is, in terms of voices.
    I would say, for example, that the number of voices in a 
medium-sized market should be around ten. That translates to an 
overall HHI of about 1,000, and you get that from about five 
television companies independent of each other, three radio 
companies independent, with news content, one newspaper and a 
local magazine.
    This approach, to conclude, as new media emerge and smaller 
media grow, or some of the larger firms stay stable in size, 
others can own more, since it is not their size or holdings 
that is constraining but the overall market concentration.
    I can flesh this out gladly, and I'll be happy to work with 
you, Mr. Chairman, with the minority and the majority staff on 
these issues, and I thank you for the attention.
    The Chairman. Thank you, sir.
    Dr. Napoli?

          STATEMENT OF DR. PHILIP M. NAPOLI, DIRECTOR,

         DONALD MCGANNON COMMUNICATION RESEARCH CENTER,

           ASSISTANT PROFESSOR OF COMMUNICATIONS AND

   MEDIA MANAGEMENT, FORDHAM UNIVERSITY, GRADUATE SCHOOL OF 
                            BUSINESS

    Dr. Napoli. Thank you, Mr. Chairman.
    My name is Phil Napoli. I'm the Director of the Donald 
McGannon Communication Research Center at Fordham University, 
where I'm an Assistant Professor of Communications and Media 
Management in the Graduate School of Business.
    I'd like to emphasize today that the analysis of the media 
ownership rules should place a very high priority on the 
diversity and localism principles and their role in assuring 
the effective functioning of our media system and our 
democracy.
    While economic analysis is also vital to guiding this 
inquiry, it's also the case that the unique characteristics and 
functions of media industries require that the analytical 
perspective extend beyond economics. And the key question from 
this perspective, then, is whether ownership limits are 
necessary to preserve and promote the diversity and localism 
principles.
    In recent years, efforts to answer this question have 
focused on exploring the relationship between media ownership 
characteristics and media performance. I wish to stress that we 
do not have, at this point, a very thorough understanding of 
this relationship. I think it's very important that the 
Committee recognize that this is a relatively new and, 
consequently, not particularly well-developed area of inquiry. 
It's only been within the past decade or so that policymakers 
predictive judgments regarding the relationship between media 
ownership and media performance have been called into question, 
particularly by the courts. As a result, policy analysis has 
not focused on such questions with the intensity that they 
deserve, and this field of inquiry is, consequently, not nearly 
as well-developed as traditional economic analysis.
    I think this point is fairly well illustrated by the 12 
studies commissioned by the FCC in conjunction with the media 
ownership proceeding. A close reading of these studies, and of 
our outside parties' subsequent analysis of these studies, 
showed that, for the most part, those studies that focus on 
economic issues, such as market concentration, were quite 
rigorous, from both the theoretical and methodological 
standpoint.
    In contrast, much of the research that addressed non-
economic policy concerns, such as diversity and localism, was 
less sophisticated and less rigorous from both a theoretical 
and methodological standpoint.
    I think the FCC's diversity index provides another example 
at this point. FCC Chairman Powell undertook the admirable, but 
very difficult, task of creating an HHI for diversity. The HHI 
used an economic analysis is a measure that helps policymakers 
determine when a market has become concentrated enough that 
there's a legitimate danger of anti-competitive behavior. And 
this index is, of course, the outgrowth of a body of research 
that demonstrated that HHI scores are, in fact, useful 
predictors of anti-competitive behavior. There is a body of 
knowledge that gives meaning to an HHI of 1800.
    In contrast, the FCC diversity index has no comparable 
underlying body of knowledge yet. As a result, what does a 
diversity index score of 1800 really mean? It's really nothing 
but an arbitrary measure without an accompanying body of 
research that tells at what point on the index particular harms 
associated with a lack of diversity arise. And that's the other 
issue that we haven't developed particularly well yet, which 
is, ``What are the particular harms that we need to be keeping 
in mind?''
    But, in any case, if the new diversity index had been 
demonstrated to be a useful predictor of when the performance 
of media outlets in particular media markets declines in some 
way, then it would be a comparable analytical utility to the 
traditional HHI. Hopefully, in the future we'll be able to 
develop a sufficient body of knowledge to have an HHI for 
diversity that can truly stand alongside the traditional HHI. 
However, we're not there yet. And to treat the current 
diversity index as if it has all the analytical power of the 
traditional HHI would be a mistake.
    The question then is, do we know enough at this point to 
feel confident that the relaxation of the ownership rules will 
not result in significant harms for our media system, 
particularly in terms of both the diversity and the localism 
principles? My own work that has addressed the relationship 
between ownership characteristics and media performance hasn't 
yet produced the results that I would say are conclusive. For 
instance, one study found evidence that locally owned 
television stations, in fact, provide more public-affairs 
programming than stations that are not locally owned. The same 
study did not find any evidence that the size of a station-
group owner, in terms of national audience reach, bears any 
relationship to the amount of public-affairs programming that 
an individual station provides. Of course, these findings 
represent only one fairly superficial mechanism for 
investigating the relationship between ownership 
characteristics and media performance, and they don't answer 
the question, the very difficult question, of whether a 35 
percent cap or a 45 percent cap, or, for that matter, a 25 
percent cap is most appropriate. Nor has the broader research 
on the relationship between media ownership and performance 
provided a consensus that could definitely guide answering that 
question.
    In conclusion, though, we need to recognize that diversity 
and localism likely have value that may not lend itself to 
empirical analysis that is on par with economic analysis. When 
we talk about diversity and localism, we're ultimately talking 
about preserving particular decision-making structures, 
structures in which a greater number and diversity of 
individuals or organizations make determinations as to the 
information and entertainment available to us, and in which the 
individuals and organizations making these decisions are more 
closely tied to the communities that they serve. These 
structures have value independent of the extent to which they 
measurably affect content. This value extends from the 
relationship between these structures and a media system that 
reflects and embraces First Amendment and democratic 
principles. To weaken these structures on the basis of the 
result of economic analysis and the results of a fairly 
undeveloped systems of diversity and localism analysis strikes 
me as potentially dangerous.
    Thank you.
    [The prepared statement of Dr. Napoli follows:]

 Prepared Statement of Dr. Philip M. Napoli, Director, Donald McGannon 
 Communication Research Center, Assistant Professor of Communications 
 and Media Management, Fordham University, Graduate School of Business
    I would like to emphasize that the analysis of the media ownership 
rules should place a high priority on the diversity and localism 
principles and their role in assuring the effective functioning of our 
media system and our democracy. While economic analysis is vital to 
guiding this ownership inquiry, it is also the case that the unique 
characteristics and functions of media industries require that the 
analytical perspective extend beyond economics.
    The key question in this case is whether ownership limits are 
necessary to preserve and promote the diversity and localism 
principles. In recent years, efforts to answer this question have 
focused on exploring the relationship between media ownership 
characteristics and media performance. I wish to stress that we do not 
have, at this point, a very thorough understanding of this 
relationship. I think it is very important that the Committee recognize 
that this is a relatively new, and, consequently, not particularly 
well-developed area of inquiry. It has only been within the past decade 
or so that policymakers' predictive judgments regarding the 
relationship between media ownership and media performance have been 
called into question (particularly by the courts). As a result, policy 
analysis has not focused on such questions with the intensity that they 
deserve and this field of inquiry is not nearly as well-developed as 
traditional economic analysis.
    I think this point is fairly well illustrated by the 12 studies 
commissioned by the FCC in conjunction with the media ownership 
proceeding. A close reading of these studies, and of outside parties' 
subsequent analysis of these studies, showed that, for the most part, 
those studies that focused on economic issues such as market 
concentration were quite rigorous from both a theoretical and a 
methodological standpoint. In contrast, much of the research that 
addressed non-economic policy concerns, such as diversity and localism, 
was less sophisticated and less rigorous from both a theoretical and a 
methodological standpoint.
    The FCC's Diversity Index provides another example of this point. 
FCC Chairman Powell undertook the admirable, though difficult, task of 
creating an ``HHI for Diversity.'' The HHI (Herfindahl-Hirschman Index) 
used in economic analysis is a measure that helps policymakers 
determine when a market has become concentrated enough that there is a 
legitimate danger of anticompetitive behavior. This index is the 
outgrowth of a body of research that demonstrated that HHI scores were 
effective predictors of anticompetitive behavior. Thus there is a body 
of knowledge that gives meaning to an HHI of 1800.
    In contrast, the FCC's Diversity Index has no comparable underlying 
body of knowledge. As a result, what does a Diversity Index score of 
1800 really mean? It is really nothing but an arbitrary measure without 
an accompanying body of research that tells us at what point on the 
index particular harms associated with a lack of diversity arise. If 
the new Diversity Index had been demonstrated to be a useful predictor 
of when the performance of media outlets in particular media markets 
declines in some way, then it would be of comparable analytical utility 
to the traditional HHI.
    Hopefully, in the future we will be able to develop a sufficient 
body of knowledge to have an HHI for Diversity that can stand alongside 
the traditional HHI. However, we are not there yet, and to treat the 
current Diversity Index as if it has all of the analytical power of the 
traditional HHI would be a mistake.
    The question, then, is do we know enough at this point to feel 
confident that the relaxation of ownership rules will not result in 
significant harms to our media system--particularly in terms of both 
the diversity and localism principles. My own work that has addressed 
the relationship between ownership characteristics and media 
performance has not yet produced results that I would say are 
conclusive. For instance, one study found evidence that locally-based 
television stations provide more public affairs programming than 
stations that are not locally based. This same study did not find any 
evidence that the size of a station group owner bears any relationship 
to the amount of public affairs programming that an individual 
television station provides. These findings represent only one fairly 
superficial mechanism for investigating the relationship between 
ownership characteristics and media performance and they certainly 
don't answer the difficult question of whether a 35 percent cap or a 45 
percent cap, or, for that matter, a 25 percent cap is most appropriate. 
Nor has the broader research on the relationship between media 
ownership and performance provided a consensus that can definitively 
guide policymaking.
    In conclusion, we need to recognize that diversity and localism 
likely have value that may not lend itself to empirical analysis that 
is on par with economic analysis. When we talk about diversity and 
localism we are ultimately talking about preserving particular 
decision-making structures--structures in which a greater number and 
diversity of individuals or organizations make determinations as to the 
information and entertainment available to us, and in which the 
individuals and organizations making these decisions are more closely 
tied to the communities they serve. These structures have value 
independent of the extent to which they measurably affect content. This 
value extends from the relationship between these structures and a 
media system that reflects and embraces First Amendment and democratic 
principles. To weaken these structures on the basis of the results of 
economic analysis and the results of fairly undeveloped systems of 
diversity and localism analysis strikes me as potentially dangerous.

    The Chairman. Thank you very much, Dr. Napoli.
    I want to thank all the witnesses. From your testimony, no 
matter where you've come at this issue, it seems to me that the 
issue of cross-ownership--newspapers, television, radio--has 
significantly greater impact than the issue of the relaxation 
of the national ownership cap from 35 percent to 45 percent. 
Would you agree with that, Dr. Cooper, no matter where you 
stand on the issue?
    Dr. Cooper. Oh, absolutely. The separation between the 
print and the video media----
    The Chairman. Good.
    Dr. Cooper.--and the antagonism that exists is absolutely 
critical, and we devoted most of our attention in the comments 
to looking at that proposition.
    The Chairman. Dr. Miller, would you agree with that?
    Mr. Miller. I am not a doctor, but I like that.
    [Laughter.]
    The Chairman. Well, after your----
    Mr. Miller. I'd have to do a lot more----
    The Chairman.--accolades----
    Mr. Miller. I'd have to do a lot more schooling----
    The Chairman.--accolades from being ranked number one maybe 
earned you a doctorate.
    [Laughter.]
    Mr. Miller. Well, thank you.
    I would say that, from a market-based perspective--I don't 
do policy----
    The Chairman. Yes. Yes.
    Mr. Miller.--and I'm not an economist----
    The Chairman. Yes.
    Mr. Miller.--that the cross ownership is reflecting the 
reality of a decline, an overall decline, in the newspaper 
business----
    The Chairman. I'm asking about the degree of impact----
    Mr. Miller. The most impactful----
    The Chairman. Yes.
    Mr. Miller.--on a relative basis, I would say that's true. 
On a relative basis.
    The Chairman. Dr. Noam?
    Dr. Noam. Absolutely.
    The Chairman. Dr. Napoli?
    Dr. Napoli. I would say to the extent that we need to 
concern ourselves with local markets more importantly than at 
the national level, from a diversity and localism standpoint, 
that, yes, that's where we see greater cross-ownership.
    The Chairman. The reason why I mention that is because 
there are a lot of layers to this onion. We now have the 
Appropriations Committee, as I mentioned earlier, 
inappropriately relaxing the--or rolling back the 45/35 percent 
rule, but not including the cross-ownership. We all agree, and 
I strongly agree that the cross-ownership issue is far more 
impactful. I mean, I'm far more worried about Gannett owning 
the Arizona Republic, Channel 12, Channel 10, Channel 5, 
Channel 3, seven radio stations, and a cable company, than I am 
about, very frankly, moving from 35 to 45 percent ownership in 
a particular market. But the Appropriations Committee has 
addressed the 35 to 45 percent issue, not the cross-ownership 
issue. Why? The National Association of Broadcasters supports 
the relaxation of the 35 to 45 percent, and opposes the cross-
ownership rule. It's the height of hypocrisy to address one 
aspect of this issue and not the other.
    Now that I've gotten that off my chest----
    [Laughter.]
    The Chairman. When I asked the five Commissioners, there 
was disagreement, obviously, as you know, between viewpoints of 
the five Commissioners on this whole issue of relaxation. But 
the five Commissioners agreed on one issue, and that is that 
there is too much concentration in radio. I think--was it you, 
Mr. Miller, in your statement, that there--or Dr. Noam--Mr. 
Miller, Dr. Noam--that there has been a startling rapidity of 
concentration in radio. First of all, do you agree with that? 
And, Mr. Miller, you can just agree factually or not. And in 
the case of the other witnesses, what impact does this have on 
this whole issue of media concentration?
    We'll start with you, Dr. Cooper, and go down.
    Dr. Cooper. Well, I think the radio market tells us a 
lesson that we actually look at in our comments, and we've 
looked at four major relaxation of ownership and regulatory 
rules across these industries. And in every case, what you saw 
after the rules were relaxed was a rapid concentration and 
merger wave. The Fin-Syn rules, the duopoly rule, we looked at 
the number of mergers that took place, the radio rule, and 
cable deregulation. So there's a simple proposition here, ``If 
you let them, they will merge.''
    The fact that radio went quickly was, in part, I think, 
because Congress set that. And so Congress sort of did it, and 
they sent a clear signal that mergers would be allowed. The 
second important point is that antitrust will not stop it. This 
is Communications Act public policy, and that's why this 
Committee needs to think about it, as opposed to simply saying, 
``Let the antitrust laws take care of it.''
    The Chairman. Thank you.
    Mr. Miller?
    Mr. Miller. In terms of radio--I'm sorry, I impolitely had 
my phone on here--local radio is about 37 percent of the 
revenue for the top five players. That compares very poorly 
with music, at 85 percent, MSOs, at 72 percent, and the movie 
business, at 75 percent. That's from a national standpoint.
    On the local standpoint, Department of Justice head, Klein, 
in December----
    Senator Dorgan. Would you repeat those numbers for me 
again?
    Mr. Miller. Sure. Local TV, the top-five players in revenue 
was 37 percent of the industry. The top-five players in local 
radio were 37 percent of the revenue of the industry. And the 
top-five newspapers was about 36 percent. So it's a lot of the 
circulation--I don't have the revenue numbers for those--
relative to music, at 85, the multiple system operator, cable 
operators, at 72 percent, and the movie business, at 75 
percent.
    On the radio side, obviously, Department of Justice head, 
Klein, made some specific comments on this in 1998 about this, 
and basically forced billions of dollars of divestitures and 
set a theoretical 30 to 35 percent revenue test for the 
markets, which has been the effective----
    The Chairman. So you don't agree that----
    Mr. Miller.--it has been an effective control----
    The Chairman.--there has been a period of rapid 
consolidation?
    Mr. Miller. I believe there has been a rapid consolidation, 
but the radio business only has 8 percent of the entire revenue 
base, TV's got 15 percent, newspapers at 16 percent, and they 
have ten times the radio stations that there are television 
stations, it really made this market into a viable competitor 
with local TV and with local newspapers, I believe, and it also 
gave birth to a lot of new companies, such as Citadel, Cox, 
Emmis, Entercom, Radio One, and a lot of minority-based ones, 
like Salem, Spanish Broadcasting, Univision, Hispanic Radio 
One, and Paxson. So I do think that there are some upsides that 
came out of this, as well. And, at the end of the day, we had 
60 percent of all radio stations not healthy in 1992. And 
through the original duopoly rules the FCC passed in 1992, plus 
the ones in the Telecom Act, I think you might have a much 
healthier, robust marketplace.
    My stockholders, in the early 1990s, valued radio at a mid-
single-digit multiple of cash-flow, and now it's a mid-teen 
multiple of cash-flow, reflecting the robustness and----
    The Chairman. I can certainly understand that----
    Mr. Miller.--of the marketplace.
    The Chairman. I can certainly understand that, Mr.
    Miller. If one----
    Mr. Miller. And I'm just bringing a marketplace 
perspective.
    The Chairman.--one organization owned every radio station 
in America, I think that multiple would go up even more 
dramatically.
    Mr. Miller. Actually----
    The Chairman. Dr. Noam?
    Mr. Miller. OK.
    Dr. Noam. Well, I'm somewhat less sanguine. I would say 
that the industry, at some point, was perhaps overly 
fragmented. That is, that we had 12,000 radio stations 
nationally, and nobody could own more than a handful. And so 
maybe it was just about the least concentrated industry of just 
about anything in the United States.
    But now we've kind of gone the other direction, and now we 
have the marketshare, on average, for the top four companies in 
the 30 markets that we've studied is 84 percent, which strikes 
me as very high.
    The Chairman. Wall Street would like to see it at 100 
percent. Profits would be even higher, Mr. Miller.
    Mr. Miller. It has not translated to that, because the 
radio business actually has less revenue than it does in 2003 
than it did in 2000. The stocks are down----
    The Chairman. So your multiples----
    Mr. Miller.--46 percent.
    The Chairman.--are higher, because they're doing worse, Mr. 
Miller? I didn't----
    Mr. Miller. Well, the multiple----
    The Chairman. I was born at night, but not last night.
    [Laughter.]
    Mr. Miller. Well, the----
    The Chairman. Go ahead, Mr. Miller.
    Mr. Miller.--the multiples were higher in the year 2000, by 
about ten multiple points, than they are now. So--well, not 
ten; maybe six to seven multiple points higher then than they 
are today, reflecting the fact that industry revenues are only 
going to be up about one-and-a-half to 2 percent this year, 
after being down 8 percent in 2001. So we have not been able to 
see--you would think that advertisers would be the one 
complaining about radio concentration. And right now----
    The Chairman. Oh, not at all. Advertisers love radio 
concentration, because they only have to make one contract,
    Mr. Miller. Again, I wasn't----
    Mr. Miller. But the----
    The Chairman.--born last night.
    Mr. Miller.--but the radio industry has not been able to--
there's no market power with a radio station saying the only 
way you're going to get on is to pay 5, 10 percent more, 
because the industry revenues are proving----
    The Chairman. Mr. Miller----
    Mr. Miller.--that over the last 3 years they're actually 
down.
    The Chairman. Mr. Miller, if it's the only game in town, 
you have to go to the only game in town, and if you control, as 
in the case of Minot, North Dakota, every radio station, you 
only get--it's one-stop shopping. And, therefore, the parent 
corporation is going to make more money. This is fundamental 
economics.
    And so please don't--you know, I respect your views. 
They're just not logical, nor are they reflected in reality. 
I've noticed that disconnect between Wall Street and Main 
Street on other occasions on other issues.
    Mr. Noam?
    Dr. Noam. I would add that while, of course, radio is 
smaller than the other media that Mr. Miller described, that in 
certain time periods, such as drive time, and it's really, for 
most people, the only connection to news and media, and so, in 
that window at least, there is definitely influence in market 
power.
    The Chairman. Dr. Napoli?
    Dr. Napoli. I think it's important that we remember that, I 
think, of all the mass media, radio has been the one best able 
to serve and reflect the needs and interests of local 
communities. And I liked it very fragmented in that regard. And 
in many ways, things that have happened in the past few years, 
such as low-power FM that have struggled to come to fruition 
are an effort to sort of maintain that sort of orientation to 
local radio. And to the extent to which that goes away, and the 
lack of the extent, I think, to which alternative technologies 
are picking up that function, I think concentration in that 
area is something, particularly at the local level, that we 
need to be very concerned about.
    The Chairman. Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much.
    Is it true you were born at night?
    [Laughter.]
    Senator Dorgan. Well, check those birth records.
    [Laughter.]
    Senator Dorgan. First of all, let me say to the Chairman I 
appreciate very much his calling this hearing. He's talked 
about this issue at some length and indicated he was going to 
hold a hearing of this type, and I think it's really important 
for us to try to work through, here in Congress, what we expect 
from the basic requirements of those who have free licenses to 
use the airwaves, airwaves that do not belong to them.
    And the reason we have a Federal Communications Commission, 
Mr. Chairman, as you know, and don't just rely on antitrust 
legislation, for example, or antitrust laws, to deal with this 
issue of concentration is because this industry has a different 
responsibility. Otherwise, we wouldn't have an FCC. You 
wouldn't need it dealing with the issue of mergers and so on 
with respect to radio and television. You'd just say, ``Well, 
let Justice evaluate whether there's an antitrust issue here.'' 
But we don't do that. We have an FCC. Why? Because we require 
certain different things from this industry--localism, 
competition, public interest. Those are requirements. And the 
FCC is supposed to be wearing a striped shirt, have a whistle 
in its mouth, and be calling the fouls here and be the 
regulator on these issues.
    And I know the Chairman of the FCC has had great angst 
about what I have said about the FCC, and I'll repeat it again, 
because it is not meant to be personal to Mr. Powell, but it is 
meant to reflect my very strongly held view. This new set of 
rules caves in, in my judgment, completely and quickly to the 
special interest, and, in my judgment, in contravention to what 
I believe is the public interest.
    Now, let me ask an obvious question. Someone just mentioned 
that radio, many years ago, was the least concentrated of these 
industries. What's wrong with that? It seems to me that having 
a less concentrated industry in which the radio station in your 
home town is actually owned locally, is broadcasting the 
baseball games, is talking about the local charity, understands 
what's happening in the community and what the importance of 
relative issues are before the city council. It seems to me 
that's exactly what localism is about. And so I don't see a 
problem with less concentration. I certainly see a problem with 
more concentration.
    Mr. Miller, I think, is viewing concentration through the 
lens of dollars and cents. That's obviously one way to value 
things. But the issue of localism and diversity and public 
interest doesn't lend itself to dollars and cents, does it?
    So, if I could, I'd like any of you to answer the question, 
What is wrong with less concentration in this industry? Is 
there anything wrong with that?
    Dr. Cooper. There's nothing wrong. And let me make an 
important point, because Mr. Miller has held out the one place 
where we have to worry about that. And his proposition is that, 
and the Chairman has said it is--in his campaign to save free 
TV, ignoring how many people don't watch free TV anymore--but 
the proposition is the following, and it has always been true, 
that we are better off with a concentrated station, one that is 
bought out by someone else, than no station at all. That's 
their proposition. And the interesting thing is, the old rules 
already accommodated that situation. And that's the important 
point, is the old rules had a failing-firm waiver, just as the 
Department of Justice has. And so if you go into the FCC or the 
Department of Justice and say, ``I'm about to go out of 
business. Let somebody buy me,'' even though it violates your 
standards, they will let that happen. That was good enough in 
this industry. Maximizing profits is not what this is about. 
Preventing failure of firms is okay.
    So the answer to your question is, absolutely, the less 
concentrated the media markets, the better off we are, and if 
there's a financial distress situation, the old rules already 
accommodated that situation. There was no need to change these 
rules on that proposition.
    Senator Dorgan. Anyone else?
    Dr. Noam. Well, Senator Dorgan, on media concentration, in 
radio concentration, as far as I can tell, actually, those were 
not--the deregulation of radio ownership ceilings was not done 
by the FCC, but actually by Congress, including this Senate.
    Senator Dorgan. Absolutely.
    Dr. Noam. In fact, the Chairman was one of the few people 
that did not vote for this Act. And so I don't think we should 
lay this at the doorstep only of the FCC. Now, we've learned 
something from it, and concentration clearly has increased, 
increased here quite considerably.
    At the same time, we also should not romanticize localism 
in radio. The radios--most of the radio stations, whoever owns 
them, carry a variety of programs, either provided by networks 
that are national in origin, or providing music that 
essentially is provided also nationally by whoever produces the 
music, those five companies Mr. Miller described. And so it's 
not really all that local, except for some of those kind of 
news, and that news has also declined, and had already declined 
before this concentration trend, for various economic trends, 
which is that it is expensive to produce.
    Senator Dorgan. Dr. Noam, now where do you get that 
information from? You say local stations, locally owned 
stations are really not local? There is a radical and dramatic 
difference between programming of those stations that are owned 
by a group that has 200 stations or 1,200 stations than there 
is with respect to the programming of locally owned stations. 
Are you describing some study that doesn't exist? I hope not.
    Dr. Noam. Whether the station is owned locally or owned 
nationally, some of the same economic pressures apply to them 
all. They would like to have audiences. And if the audiences 
crave certain type of programs, the stations will offer it to 
them.
    Senator Dorgan. Well, let me just tell you that the 
previous hearings we've held here describe that the syndicators 
of programming that is moved nationally have a--in many ways 
they're joined at the hip with the same companies that own the 
stations. We understand what's being packaged is a homogenized 
programming that's sent out, and who it's sent out to. But I 
would say to you, if you have information that I'm not aware of 
that suggests that locally owned stations have essentially the 
same kind of programming that the stations owned in large 
concentration holdings, or programming--I disagree with that, 
but if you have information, I'd prefer that you send that to 
me.
    Dr. Napoli?
    Dr. Napoli. I think your question, sort of, reminded me of 
what I thought was a bit of a paradox in the entire analytical 
procedure in going into the relaxation of these rules, and that 
was specifically--one of the guiding forces underlying the 
relaxation of the various caps has been to facilitate 
competition, but it's particularly defined in terms of 
intermedia competition. As you point out, a highly 
unconcentrated, highly competitive radio market does sound 
great. And, in fact, the rationale behind allowing greater 
concentration in a number of these industries is, in fact, to 
facilitate so that, for example, broadcast can better compete 
with cable, or radio can better compete with newspapers in the 
marketplace. Yet, at the same time, very often the rationales 
that are also employed throughout the--particularly in terms of 
the report and order from June 2, emphasized that. In fact, 
these different media operate in different marketplaces and are 
not particularly substitutable for many advertisers. They're 
not even particularly substitutable for audiences.
    So, at best, what I viewed here was there was a need to, 
sort of, develop some sort of cross-subsidization process for 
cross-media owners, not one that necessarily looked at 
competition the way we traditionally think about it, but really 
looked at trying to facilitate competition across media 
sectors. And I don't know if that should be as strong a policy 
priority as it has been.
    Senator Dorgan. Let me ask Mr. Miller. According to the 
Federal Communications Commission, most radio markets are 
dominated by one or two firms, which have an average of 74 
percent of the market's radio and advertising revenue. That's 
at odds with the answer that you gave to the Chairman that--
your suggestion was, look, there's no great concentration here, 
it is not of great concern. But the fact is, you live in this 
concentrated area locally, and you buy advertising locally. And 
if you're a business on Main Street in a town in which two--
let's say two firms, two radios or two television stations, 
average 74 percent of the market, is that healthy? Is that 
competition, in your judgment?
    Mr. Miller. Well, first of all, my statistics at 74 
percent--I would like to send you my view of--I've got them for 
top 50, top 100, top 150 markets. I don't have that level of 
concentration for two players.
    Senator Dorgan. Do you think the----
    Mr. Miller. But I'd like to----
    Senator Dorgan.--FCC is wrong?
    Mr. Miller. Their data may be different than my data. They 
could have different sources than my data. They----
    Senator Dorgan. You're welcome to say they're wrong.
    Mr. Miller. They could be----
    Senator Dorgan. I happen to think they're wrong from time 
to time.
    [Laughter.]
    Mr. Miller. No, it just differs from mine, and I'd 
certainly like to reconcile that. But in your earlier point, 
you've got to remember that ratings are the lifeblood of local 
radio stations. You cannot just ignore a local market and think 
that you're going to generate ratings sufficient enough to earn 
the advertising dollars from your local advertisers. Because, 
let's face it, radio is--80 percent of its revenue is local, so 
obviously the advertisers are very in tune with the value that 
a local radio station brings them, and you cannot ignore the 
fact that if no one is listening to the station, you won't get 
paid.
    You know, the other thing you've got to remember--Dr. 
Cooper mentioned something interesting in his statement when he 
said that when things are failing, that's a time at which you 
might be able to basically have more concentration. Remember, 
in radio, we had so many move-ins, so many additional new radio 
stations were put into the marketplace in the 1980s. And you 
combine that with a 6 percent drop in the revenues of the 
business in 1991, and you had 60 percent of radio stations 
actually operating at a loss. So, in 1992, the Commission made 
a slight adjustment and allowed people to own two stations, two 
AMs, two FMs, in the same market, and up to 40 stations 
nationwide. The Telecom Act took that one step forward with the 
radio business--we preserved the radio industry; now we want to 
make it a viable competitor relative to other local media.
    Now, one other thing I just want to mention on your 
original question was on cross-ownership. You've got to 
remember, the court struck down the most defensible local 
cross-ownership rule that I can think of, which is the cable 
MSO broadcast cross-ownership. So theoretically, the largest 
cable system, which could have 75-percent-plus of the local 
wire-line subscribers, which I mentioned, in 15 of the 25 
markets, could buy the largest television station in the 
marketplace.
    Now, for the other entities, for the FCC to be consistent 
with that and the reality of what is happening, we think, in 
the TV business--you may not agree with me, Dr. Cooper--and 
what we see in the newspaper business--again, you may not agree 
with my point of view--you have to be consistent with--if 
you're going give relief to someone that has that kind of 
market share, you would think that newspaper/broadcast cross-
ownership, TV/broadcast cross-ownership would not be that 
offensive. And you often bring a chart, which you don't have 
today, of the media concentration in the large players.
    Now, what's interesting is, you could actually say that 
this FCC rule is more targeted to local media, other than the 
cap, and I can talk to you about what my stance is on the cap 
later. But it was to say, OK, you've got this consolidating 
cable business, you have this encroaching national media 
marketplace, what protections can you have for the relative 
value--that's how we look at the market, looking at these two 
encroachments--the ability to have cross-ownership to preserve 
local TV, local newspapers, local radio, relative to the 
realities of the marketplace and the reality of the court's 
decision.
    Senator Dorgan. Mr. Miller, you know, I used to teach 
economics, very briefly, and I was very poor at it, I'm sure, 
but I overcame that experience.
    [Laughter.]
    Senator Dorgan. And, you know, the market is a wonderful 
thing. It is the finest instrument, in my judgment, known to 
man for the allocation of goods and services. It is, of course, 
imperfect. Sometimes it is perverse in its result. I've told my 
colleagues before that, you know, a shortstop for a baseball 
team makes the equivalent of 1,000 elementary school teachers 
in a year. That's the market. Judge Judy, that out-of-sorts 
judge on television, makes $25 million a year. That's the 
market system. Judge Rehnquist makes $180,000. So, I mean, I 
could go through the market system at great length. It is not a 
perfect system, as you know.
    And, interestingly enough, the discussion about the market 
system really has little to do with that which is important 
with respect to broadcasting. Because these rules and these 
issues have interest in what we see, read, and hear in this 
country of ours, which is essential to a democracy--free flow 
of information. And the fewer people that control that which we 
see, hear, and read, in my judgment, the less desirable for our 
democracy.
    And you started by saying, for example, that ``the over-
the-air free TV is in jeopardy, therefore''--that's what you 
were implying. Let me tell you what Barry Diller says, quote, 
``Anybody who thinks the networks are in trouble hasn't read 
the profit statements of those companies. The only way you 
could lose money in broadcasting is if somebody steals it from 
you.'' Now, you know, I've also read some of the financial 
sheets of these companies. It's a hard case to make, really a 
hard case to make, that somehow they're impoverished.
    And I just want to make one final point to you. You're 
talking about dollars and cents, and you're talking about cost 
and value. And I'm talking about public interest, localism, and 
diversity. And there isn't any way that you can, through that 
prism of yours on Wall Street, put a value on that, nor should 
you. That happens to be a public-policy function. And that's 
why this hearing is so important. Regrettably, there are very 
few people at this hearing. But the Chairman, I think, 
understands the value of these issues.
    Incidentally, I agree with the Chairman that the cross-
ownership piece of this is the more odious piece. Regrettably, 
I think, because my legislative veto, or the Congressional 
Review Act that passed the Senate will now likely be waylaid by 
the House and perhaps vetoed by the President--regrettably, I 
think we probably will not see success on this issue. And the 
cross-ownership piece that has been given us now by the FCC is 
probably going to stick. And I regret that very much. This FCC 
will be seen as having made the biggest mistake, in my 
judgment, of an FCC in dozens and dozens of years. And it'll 
have to do, yes, I think, with the 45 percent, but I think, 
more, it'll have to do with the cross-ownership piece, which, 
in my judgment, was almost un---well, I shouldn't use this 
language. So let me just say it was wrong and try to imagine 
better language than that.
    Mr. Miller. Senator----
    Senator Dorgan. Dr. Cooper----
    The Chairman. Could we let Mr. Miller respond. You're----
    Senator Dorgan. Yes.
    The Chairman.--welcome to respond. And Dr. Noam and Dr. 
Napoli, if you'd----
    Mr. Miller. No, I----
    The Chairman.--like to respond, you're welcome to, also.
    Mr. Miller. I am an analyst. I look at the marketplace. I 
look at the pressures on the marketplace. I look at pressures 
on the model. When you--on one of the charts that you show, 
which is very interesting that you always have, it shows how 
many different players there are and how much concentration 
they have, in terms of viewership. You could stand back, from 
my standpoint, and say, well, there's probably no other 
conclusion that you'd reach.
    The networks are competing against a highly--or a more 
concentrated cable business that is saying they want to reduce 
programming costs. So if you're losing leverage to the cable 
operator, what are you likely to do? You're likely to try to 
add more--buy more cable networks, add more distribution so 
that you can counter that leverage.
    Also, don't forget that in 1993, a retransmission consent 
agreement, I believe sponsored by the Federal Communications 
Commission, came into being, and every 3 years the networks are 
allowed to say, ``I would like to get paid for my TV stations 
or some other form of payment.'' What most networks decided to 
do was add new programming services. So, at the end of the day, 
that's not a bad thing, because I think it creates value for 
these network players, it creates a new thing for you and I to 
watch, hopefully that we like, and it just makes sense from 
what the market pressures are.
    So all I'm trying to do here is give you a sense of what 
pressures the market is exerting on these things, and that's 
why you see what you do in the marketplace.
    I'm not--I do not do public policy, you're exactly right. I 
just want to give you my perspective to the Commission. That's 
it.
    The Chairman. Thank you, Dr. Miller.
    Dr. Cooper. Senator McCain, Senator Dorgan, the interesting 
thing is, obviously we lament the concentration in the cable 
industry, as well. And we've heard some noise out of Congress 
about that from time to time.
    Two important points. One, first of all, the fact that the 
networks have used the retransmission rights and the end of the 
Fin-Syn rules to completely dominate the airwaves is extremely 
important. So what we've had is the migration from over-the-air 
to to-the-wire, but it's integrated within one company. And so 
we showed that the five owners of broadcast networks--and there 
are only five, you know, even though there are more networks, 
or major networks--had recaptured between two-thirds and three-
quarters of the eyeballs they claim they're losing over the air 
in their through-the-wire offerings, and that is a power that 
you gave them through the right of must-carry and 
retransmission.
    And so you have to analyze this industry as a vertically 
integrated industry in which they know they do over-the-air for 
prime time high advertising dollars, and then they re-purpose 
on their cable operations, and they produce it all themselves, 
and they own it all themselves now. And you simply cannot pull 
out free TV and say it's going to die if you don't let them own 
more stations, because they own the whole shebang using the 
powers that you folks have given them. First observation.
    Second observation. An interesting suggestion, that the 
court overturned the cable broadcast ban--actually the only one 
it vacated; all the other ones have been remanded, and I think 
there's a difference between remand and vacate, but some 
people--the FCC keeps saying there is none--but they vacated 
that rule, and that was not on the First Amendment grounds, it 
was not even very well vetted in the proceeding, and we were 
upset about that. And the suggestion that since the court did 
that, ``They will overturn all these other rules,'' is simply 
reading way beyond what the court said. In fact, the court said 
they take no position on any of the levels of these voices. 
They didn't tell the FCC to get rid of these rules.
    Third observation, very interesting, about inconsistencies. 
The FCC looked out at the TV market and said, ``You know, we 
can't let the top four TV stations in a market merge.'' It's a 
dominant-firm problem. They looked out at the national TV 
market and said, ``We can't let the dominant national networks 
merge.'' It's a strategic-group problem. And they gave a series 
of reasons about too much market power, too big compared to the 
second competitor, no public-interest benefits. And yet they 
never considered the same proposition with respect to dominant 
TV stations and dominant newspapers, which, of course, are to a 
greater extent, more of a threat to local news and information, 
and they failed to apply that dominant firm exclusion. Had they 
done that, the aspect of this rule would have been completely 
different. But there is no reason that they failed to do that. 
And, obviously, that is one of the things we are going to point 
out to the court. Had they done a dominant-firm exclusion for 
cross-ownership, you would have had an entirely different 
debate here.
    The Chairman. Thank you.
    Dr. Noam, do you want to comment?
    And, by the way, you've helped me answer my--I think you're 
helping me answer my question about how much is too much, et 
cetera. At least you've provided us with something to look at, 
as far as a formula is concerned. And I think it's very 
appropriate that you point out the difference between large 
markets and small markets. So I thank you for that.
    Go ahead.
    Dr. Noam. Well, thank you very much, Senator McCain.
    I think that, addressing Senator Dorgan, I doubt that there 
are many people who disagree with the principle that economics 
isn't the only thing in media, and that issues of democracy 
have to be considered. I just don't think that that's, kind of, 
the stark choice. So the question is always, kind of, the 
balance of the free market and free speech and the diversity of 
speech and so on. The question is exactly where you want to be 
in that continuum.
    I mean, clearly we don't want to have a situation, say, 
like in Italy, where the winner in the media business also kind 
of gained political power that's not a situation we want to go 
to. But, at the same time, the other extreme, the 12,000 
different owners of 12,000 different stations without any 
economies of networking and so on is probably also going too 
far in the opposite direction.
    Therefore, this seems to me an issue that's largely a 
pragmatic type of issue of different market and different media 
that is resolvable once we, kind of, climb down from, kind of, 
positions in which the other side has described as anti-
democracy.
    The Chairman. Dr. Napoli, do you have anything to add?
    Dr. Napoli. First of all, I thought I might pick up on the 
free-TV issue threat a little bit, because I think it came up 
before. And, to me, I think the appropriate way to think about 
it is to think back to when--I remember it was a number of 
years back when the FOX network, I believe spent a ridiculous 
amount of money on football, more than they could ever possibly 
earn back in ad revenues for the NFL broadcasts. And 
strategically it was described as--almost as a loss leader, 
that the football broadcast acted as a valuable platform for 
cross-promoting other content offerings. And I think it may be 
possible we're heading into an era when we might need to start 
thinking about--and, in fact, I suspect that firms are starting 
to think about the broadcast network business as something of a 
loss leader as it becomes the platform by which audience 
exposure and attention is generated for content that's on cable 
holdings and also audience exposure and interest is generated 
for content that is then distributed on later distribution 
platforms, such as cable, DVD, et cetera, which is now 
content--which the networks are able to maintain an ownership 
interest in through that stream.
    So we're in the midst of a changing business model, and I, 
personally, wouldn't be as concerned if the networks' profits, 
narrowly defined, are not what they used to be, the same way 
I'm not concerned that apparently most films don't earn back 
their production costs in the theatrical box-office window 
anymore. There's a shift in business model, I think, that 
technology is creating here.
    Dr. Cooper. Senator, one point. In our documents we filed 
for you, we adopted Dr. Noam's ten-firm limit. We applied it 
rigorously across markets, and we found that there would be ten 
markets in which you could tolerate cross-ownership mergers, 20 
or 25 where you could tolerate TV mergers. We applied those 
rules in this record, submitted it to the Commission, and they 
obviously went in a very different direction.
    The Chairman. Thank you.
    Just a comment, Dr. Napoli. I think you would agree that 
that buying of the football rights basically, at least in the 
view of most, legitimized the entire network. So you would view 
it, perhaps, in the long run as a very smart investment.
    Dr. Napoli. Right. But an investment--in other words, if 
you were to look strictly at what they earned on ad revenues on 
football----
    The Chairman. Yes. So there's more to it than just 
economics, which I think is what Senator Dorgan--the point 
we're trying to make.
    Go ahead, Byron.
    Senator Dorgan. Well, let me say to Dr. Noam, I don't know 
whether you were referring to something you heard this morning, 
but no one talked about another side being against democracy 
or--what I talked about was, in my judgment, the highly 
concentrated industry in information is antithetical to the 
free flow of information, which I think is the foundation of 
democratic values. But I don't want you to suggest that you 
heard this morning somebody said, ``Well, if you're on the 
other side of this issue, you're against democratic values.'' 
So I just didn't want your statement to lay there. Maybe you 
heard it somewhere else. I don't know.
    Yes, proceed.
    Dr. Noam. I think the broader context is--and this is why I 
think people differ in their perspective here, Senator--which 
is, there has been, indeed, an increase in concentration in the 
last five, 6 years in media, cross-media, and all over the 
place, and it's not just in the mass media that we're, kind of, 
discussing here. But there has been a decline over the last 20 
years, so you do you have that same U-shaped curve that is 
for--since 1984, even, kind of, after the AT&T divestiture, 
things had, kind of, come down for awhile and then climbed up 
again. They have not normally, in most media industries, 
climbed back to the level of 20 years ago. So if you look back 
20 years, there is less of a problem than if you look back 5 or 
6 years. So it's a bit of a glass half-full/half-empty. There's 
a good chance that these things will correct themselves, 
because some of these large media mergers are unstable. And 
Time-Warner and AOL, that doesn't seem to be going very well. 
And Vivendi is, kind of, in trouble. And who knows who's going 
to be next? So some of these things are self-correcting, and 
others you, as policymakers, are dealing with.
    Senator Dorgan. Mr. Chairman, if I might, I----
    The Chairman. Sure.
    Senator Dorgan.--might make two additional quick comments. 
One, individual companies will follow the rules, and, because 
they serve the interest of their stockholders, will attempt to 
maximize profits in following the rules. It is not anyone's 
province to blame companies for concentration. It's the rules. 
And that's why the recent controversy we've had, and the votes, 
have been about rules themselves. What are the rules, and how 
shall the rules be enforced?
    And, second, Mr. Miller, you were asked here because you're 
an analyst, so I didn't----
    Mr. Miller. I am.
    Senator Dorgan.--I don't want to browbeat you because 
you're talking about economics. That was your job here, and I 
appreciate that.
    Mr. Miller. Of the marketplace, yes.
    Senator Dorgan. Of the marketplace. And I----
    Mr. Miller. Equity analyst.
    Senator Dorgan.--I think--I mean, that is a piece of this. 
I didn't say it wasn't a piece of it. I think there's----
    Mr. Miller. Absolutely.
    Senator Dorgan.--another piece. And I want to just ask one 
question of your testimony. On page 4, you say, ``On the 
newspaper front, we believe the FCC acknowledged the reality 
that that industry had not seen any deregulatory relief''----
    Mr. Miller. In 28 years.
    Senator Dorgan.--``in 28 years.'' Yes. How can one really 
deregulate the newspaper industry? What are the regulations 
that inhibit that industry? As you know, for example, in North 
Dakota, I think there's one daily newspaper that is owned in 
the state. All the rest are part of a big chain. So I----
    Mr. Miller. Well, it's a fair--maybe it's a bad 
phraseology, as they say. In the newspaper business, it's the 
ability to have other options in linking up with a television 
station or a radio station, so I apologize for that. As you 
know, there are about 21 newspaper/TV cross-ownerships that 
have existed since 1975. There's 27 newspaper/radio cross-
ownerships.
    What's interesting is, had we seen a public outcry from 
these--you know, remember, every 5 years, in the old days, now 
7 years, you have to go through a license renewal process. And 
at any point someone can say, ``Hey, you know what? This 
relationship is unhealthy for our local market, and we're 
against it.'' But we have not seen any of those in the last 
three decades.
    And the other thing, we did a study that showed the early 
news and the late news performance of a newspaper/TV cross-
owned group versus the second- and the third-ranked TV station 
news. And, in general, the first-place news beats the second by 
about 50 percent, and the first beats the third place by about 
200 percent. So you could reach the conclusion that newspaper/
television cross-ownership, to a certain extent, improves local 
news meaningfully enough that it actually shows up in the 
ratings.
    Senator Dorgan. Mr. Chairman, again, let me just observe, 
in a separate industry with respect to the licensing and the 
consumer opportunities, we've been through this with respect to 
railroads, and there's not much more concentrated in this 
country than the railroad industry, and there are, I think, 
nine pending rail rate complaints. You know why? It doesn't pay 
to complain. Nothing happens. Ever. Ever. And so when you say, 
you know, people have a right when the license is up, the fact 
is that, you know, they're going against a 500-pound gorilla, 
and you're not going to see a barrel full of complaints.
    But, again, this has been an interesting panel. I have to 
be over on the floor of the Senate in just a moment, so I'm 
going to have to leave, Mr. Chairman. But I, again, appreciate 
your putting together a really interesting panel coming at this 
issue from different directions.
    And the testimony of all of you has been very valuable, I 
think, to the record of this Committee.
    The Chairman. Thank you, Senator Dorgan.
    You wanted to wrap up, Dr. Cooper?
    Dr. Cooper. Well, I just wanted to respond to this last 
point. Because we looked at the question of whether or not 
those cross-ownerships produce better news--and here's the 
point. It's not--he's told you that the number-one station, 
which is cross-owned, gets a larger share. The public-policy 
question is, Is there more news in that market? Because we've 
lost an independent voice here, and that's a cost--not an 
economic cost, but a public-policy voice. And we looked, and 
you could not show that there was more news done in those 
markets. What you had shown is that an entity that was cross-
promoting catches more eyeballs. And that's good for economics, 
but I'm not sure it's good for our democracy if you can't also 
show me there's a lot more news in that market.
    The Chairman. Mr. Miller? Go ahead, Mr. Miller.
    Mr. Miller. I believe that cross-owned stations actually 
produce sizably more news than other players.
    Dr. Cooper. But it's the total news in the market that we 
worry about, you see. You're absolutely right, they produce, 
they drive the others out, but the question is, does that 
marketplace have more total news and more diverse news? And 
that, you can't tell. There's no doubt they produce more, but 
that's because they have cannibalized the other stations that 
can't own the number-one newspaper. And, believe me, here's the 
fundamental problem, is that if we could have fair and balanced 
competition between four combinations--but the problem is that 
the average number-one newspaper, which is going to own a 
number-one TV station, will have 60 or 70 percent of the 
newspaper market, 30 or 40 percent of the TV market; and the 
number-two guy is going to have a 10 percent newspaper and a 20 
percent TV station. And that's competition that just can't get 
balanced.
    The Chairman. Mr. Miller, before this debate continues, let 
me just give you an example of the kind of practical real-world 
situations that I'm trying to work my way through. And Dr. 
Noam's formulas may be helpful here. But let me just give you a 
specific example.
    Gannett owns the Arizona Republic and Channel 12, the NBC 
affiliate. That's fine. I have never seen any problem at 
least--nor have I ever heard a complaint about it. No one has 
said, ``Hey, I'm not getting diversity and localism out of my 
media outlets in the City of Phoenix,'' one of the larger media 
markets in America.
    Mr. Miller. Right.
    The Chairman. Is it OK for Gannett to own Channel 12, as 
well, Channel 5, as well, Channel 15, as well, or one or two of 
those, or all of the above? This is what--I still--again, as I 
said, and I'll say it for the third time, perhaps Dr. Noam's 
formula can be helpful in here. But I don't know where the 
breaking point is.
    Mr. Miller. Right.
    The Chairman. Now, again, and I don't mean to be combative 
with you, but I think if Gannett owned them all, I think that 
they would make more money than they do now by only owning one, 
because the advertisers would have no place else to go.
    Setting that aside, at what point is media concentration 
crossover between efficiencies and economics to the point where 
we repeat, if not the Italian experience, certainly something 
that deprives average citizens of a broad variety of issues and 
localism and viewpoints?
    Dr. Cooper. Well----
    The Chairman. Dr. Cooper, I know what your opinion is.
    [Laughter.]
    Mr. Miller. Well, let's look at newspaper/TV in Phoenix, 
specifically. I believe Phoenix actually qualifies as a 
triopoly market, where you could actually own three television 
stations in that marketplace. Now, in general, in the studies 
we've done, duopolies--in other words, that second station--80 
percent of them capture less than 5 percent of the revenue 
share of the marketplace, and 80 percent of them support 
Univision, Telefutura, WB, FOX, pure Independents. So, in 
general, I think what's happened with duopolies is they've 
actually helped establish brand-new networks and give them firm 
footing to create competition against Gannett's owned and 
operated stations in that marketplace.
    The triopoly candidates, other than in San Francisco, where 
you have Young Broadcasting, has a sizable independent that 
might be of interest to three companies.
    The Chairman. In L.A., you've got----
    Mr. Miller. You have--well, Viacom has two stations, Cox 
has two stations, and General Electric has two stations. But, 
aside from that, there is a 1 percent revenue share and 1 
percent----
    The Chairman. But I'm not talking about revenue shares. I'm 
talking about----
    Mr. Miller. Well, but, in other words, they'll try to 
create a--hopefully what would happen is, we'd create a new 
entrant into the marketplace that would maybe run news 24 
hours, 7 days a week, that would be of value to people in 
Phoenix. Now, if they go overboard, you're going to see the 
Department of Justice, I imagine, who's made comments with 
radio consolidation. I'm not a Justice Department lawyer. I'm 
just assuming that the Justice Department would know when 
enough is enough.
    But Gannett, you know, if you look at their overall 
audience, I believe their audience, over the last 3 years, has 
declined amongst their station group by about 10 percent as 
they compete with a lot of the new entrants and the cable 
entities.
    The Chairman. As I say, I am perfectly satisfied with the 
status quo. My question was, at what point do you deprive the 
people of the place where I live of localism, diversity, and 
begin to reach a danger point?
    Mr. Miller. I guess duopolies have created more viewpoints, 
although not----
    The Chairman. So, therefore, using that logic, triopolies 
would be even better.
    Mr. Miller. Well, if you take a 1-percent-revenue-share and 
1-percent-audience-share station and make it into a 24-hour/7-
days-a-week news channel that's for Phoenix, I think that 
viewers in that marketplace might accept that type of concept. 
So that's all I'm saying. I mean----
    The Chairman. I see.
    Dr. Noam, do you agree?
    Mr. Miller. That's all I'm saying.
    Dr. Noam. Well, I'd say that, kind of, if you want to 
increase diversity, there are several ways of going about it. 
One is to restrict or even roll back mergers and acquisitions. 
The other one is to open and to provide for more voices. And 
that would be one way also to go about it and to think about 
it. For example, I mean, people want to be able to start new 
local low-power television stations as well as radio stations. 
And one way to go about this is to say, well, if the newspaper 
wants to own a TV station, then it should be a news station, a 
UHF, but, even better, a low-power station, one of those 
stations that haven't been, kind of, approved yet. And that 
would give such low-power stations instant credibility as well 
as, kind of, a feeder of information and news. So there are, 
kind of, positive ways to look at this, not only negative, not 
only restrictive.
    Similarly, you can go through this licensing process and 
increase diversity by focusing also on minority-owned stations 
in similar ways in which you, kind of, create diversity within 
those news stations that you license.
    The Chairman. As we all know, minority ownership of both 
radio and television stations has gone down, rather than up, as 
we have seen these consolidations. So we've been headed in the 
opposite direction here. Is that correct?
    Dr. Noam. That is empirically correct, and, in fact, it 
would, therefore, suggest that one way to go about it is not so 
much by limiting people buying and selling, but rather by, kind 
of, creating new outlets for minority ownership, and thereby 
establishing that diversity that has been lost through some of 
those consolidations.
    The Chairman. Dr. Napoli?
    Dr. Napoli. Since we're on the subject of minority 
ownership, we conducted a study--just to add to the challenges 
we're already talking about here--that examined what are the 
factors that affect the value of radio-station audiences, and 
we found two significant determining factors of the value that 
advertisers pay for radio-station audiences was, in fact, 
minority composition. That is, stations that had the greater 
the percentage of an audience that was either African American 
or Hispanic, the less stations were able to earn, on a per-
audience-member basis for those stations, for those audiences. 
And given the fact that--some of my colleagues' research has 
shown that it's minority owners that tend to provide content 
that serves minority interest and concerns, so they have a 
greater likelihood of doing that, find ourselves in a situation 
where there is an economic hurdle to maintaining stations of 
this type that's addition to the hurdle that might exist to 
obtaining one in the first place.
    The Chairman. Mr. Miller and then Dr. Cooper.
    Mr. Miller. One success of the Telecom Act is we do have 
public companies that are now basically only focused on 
minorities, which we didn't have before the Telecom Act. We 
have Uni---well, Univision was a public company, but hardly at 
this scale. Salem Communications, as a Christian broadcaster, 
was not a public company. Spanish Broadcasting was not public. 
Radio One, which is the largest urban radio broadcaster in the 
country, was not a public company, and neither was Paxson, 
which is a religious family values programming vehicle.
    So it has not been all a failure, because at least there 
are some companies with access to the capital markets, access 
to the equity markets, access to banks, that hopefully will 
build these groups up to be much larger than they are today. 
And hopefully we'll have new entrants, as well.
    The Chairman. Dr. Cooper?
    Dr. Cooper. Again, it's interesting. We supported the two 
concepts that Dr. Noam has suggested, and the example that Mr. 
Miller gave, because it's easy to give you an example in which 
he takes a small TV station that doesn't do news and says, 
well, Gannett's going to buy that one, and that doesn't harm 
the public interest, and actually we support that. The problem 
is that, well, Gannett might buy a big TV station that already 
does news under this rule. And so the sensible approach, as 
I've suggested, was, you have a series of situations in which 
you allow mergers to go forward because they--we know they will 
add a voice. And he's given you an example of where they add a 
voice. But I'm telling you, the money lies where you get market 
power, where you get a big newspaper that buys another big TV 
station, not a little TV station, or another big newspaper. And 
that's the problem with the rules, is that they give a blanket 
approval to every merger, cross-ownership merger, in 180 
markets, and they don't say ``only the little ones,'' which is 
the perfect example. I support that example. That's what the 
rule should have said. Only the little ones who don't do news, 
none of the----
    The Chairman. Next time, Mr. Miller, we'll have two 
microphones there.
    [Laughter.]
    Dr. Cooper. We're getting friendly over here.
    [Laughter.]
    Mr. Miller. Look, Mark, none of the top-four TV stations 
can merge in a market, so you cannot have two large stations, 
affiliate stations----
    Dr. Cooper. They can own a newspaper.
    Mr. Miller. No.
    Dr. Cooper. They didn't give me that dominant----
    Mr. Miller. No, you said two television stations that were 
two dominant TV stations. You can't do that. You can only own 
one of the top four.
    Dr. Cooper. But a dominant TV station and a dominant 
newspaper can merge.
    Mr. Miller. Your example was adding a second TV station 
that was of--I just want to clarify that.
    The Chairman. Well, I think we're getting down in the weeds 
here. I'd rather----
    [Laughter.]
    The Chairman.--defer to my friend, Senator Lott, but isn't 
it true in L.A. now? You've got the L.A. Times owning two of 
the television stations?
    Mr. Miller. Is that Tribune?
    Dr. Cooper. I believe it is.
    The Chairman. I think we're losing sight of the big picture 
here.
    Senator Lott?
    At least I am.

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Well, thank you, Mr. Chairman, for having 
this hearing and continuing to make sure that we are getting 
all the statistical and scientific information that we need to 
take the right positions on these FCC rules in the future in 
broadcast and print media.
    My position's pretty clear. I feel pretty strongly about 
all this. And you may have even asked these questions. Let me 
just ask a couple of questions.
    First of all, as I understood it, when the FCC 
Commissioners were here, and we were questioning them about how 
did they come up with 45 percent, the best explanation we 
received was, well, basically, you know, you put it, or you all 
put it, in the Telecommunications Act, 35 percent, after a lot 
of debate. It was down to 25 percent, and we settled on 35 
percent. But he said, ``Well, now two groups are basically over 
the 35 percent now, so we probably--we need to go to 45 
percent.'' Is that all, you know, the justification for it? I 
mean, why 45 percent?
    Senator McCain and I have talked about this, and he has 
made the point. Most people think that a cap, at some level, is 
probably a good idea. The question is, what is the level? How 
do you make that determination? Why 35 versus 45? Why not, you 
know, 37-and-a-half or 50? What is the basis for moving it up 
to 45? If it's just because they've gone over 35, then what are 
we going to do when they get to 45, 55, 65? Are we just going 
to keep moving it up?
    So that's my question, if any of you would like to address 
that. What was the more substantive basis for the decision that 
was made to go to 45?
    Dr. Cooper, you want to----
    Dr. Cooper. Well, I don't think there was a substantive 
basis. But in my testimony today, I suggest that the 35-percent 
figure, given the vertical integration, which we've talked 
about a great deal here--given the vertical integration, given 
the control of cable channels that the parents of the broadcast 
owners have acquired, the 35-percent figure actually is a 
figure that turns up in the antitrust literature as a monopsony 
power number. Now, monopsony power is the flip side of monopoly 
power. That is, we worry about monopoly power, we worry about 
someone controlling too many products sold through the 
marketplace. With monopsony, the networks buy from TV 
producers. And if they get too big, they can control which 
producers sell to them. This is the control of purchases.
    And so one can argue--and if you go back and look at the 
antitrust practice, the figure of 30 or 35 percent actually is 
the trigger where antitrust officials--and maybe for First 
Amendment, we should do better--actually start looking, 
worrying about monopsony power. And there will be a big debate 
about, you know, the kinds of products and those kinds of 
things.
    But if you look at the literature, that's a pretty good 
darn place to start your concern, and then you can work up or 
down from there. I, frankly, think we should have gone back to 
25 percent, but that's a different question.
    Senator Lott. Mr. Miller?
    Mr. Miller. Thank you, Senator Lott.
    Let me tell you what the marketplace perspective is. Again, 
I'm a Wall Street analyst. I'm trying to look at what I think 
market forces are in compelling some of the changes.
    First of all, the marketplace suggests that the network 
business has been less and less profitable. So if we look at 
the 3-years of revenues and profit from ABC, CBS, NBC, and FOX, 
we have $38 billion in revenue and $2 billion of profit, which 
is a 5 percent margin. Now, if we strip out NBC, we get down to 
$250 million on $26 billion of revenue. So it's a 1 percent 
margin basis.
    When we look at the marketplace, we believe there are two 
networks at any given time, given ratings pressures, that are 
losing money. And, in fact, Disney, we believe, last year, 
between its networks and the profits it made at its stations, 
was breakeven. So the whole broadcast TV, the network plus the 
owned and operated stations was about breakeven in profit.
    Senator Lott. I wonder if they wouldn't get an idea from 
that, that they're not doing a good job.
    [Laughter.]
    Mr. Miller. Yes, well, their----
    Senator Lott. Their product is not being enjoyed and used 
by the people.
    Mr. Miller. Well, their--you're exactly right--their 
ratings are down 36 percent in the last three seasons, so 
that's not particularly great.
    But the bottom line is, if you have weak networks, you 
probably are going to have weak affiliates. It's an ecosystem. 
If you have healthy networks, it is great for stations; healthy 
stations, great for networks.
    So what's interesting is that we actually saw live examples 
of people taking advantage of the cap because of the poor 
economics of the networks. The FOX network, when it went on the 
air in 1986, was not making a lot of money, and it didn't make 
a lot of money until--well, it hasn't made a lot of money, 
period, but it raised the ownership of its TV station base to 
help subsidize the losses at the network.
    Viacom and then CBS only, lost 28 percent of its 
distribution in 1 year because of affiliation switches, where 
FOX stole a lot of their affiliates. And their ratings went 
very poor. They bought a larger TV station base that--which 
overall subsidized.
    Now, what's interesting is, both of these networks now have 
the NFL. Why? Because they have so many NFL cities that they 
can actually make enough money on the local stations to 
legitimize paying $500 million to $600 million a year for 
these. Because you're--you know, the Monday night football is a 
loss leader, and FOX wrote off $800 million, I believe, of the 
football contract.
    So why we thought 45/50 is, it doesn't allow a super voting 
share for the networks to dominate the affiliates, because, you 
know, the affiliates are worried about advertising inventory, 
rejecting programming, assignment, compensation. So we felt 
that would allow some of balance.
    Now, also, if we roll back the cap to 35 percent, what's 
going to happen is, CBS and FOX will sell UPN affiliates, 
because that's the one that'll take them under the cap. Now, 
the UPN network is only on the air because the losses at the 
network are being borne by the fact that they own affiliates.
    Now, what's interesting is that if you look at the 
composition of the demographics just of the UPN network, 65 
percent of the viewership is African American. So that if you 
take away--if you strip out the UPN network, there's a good 
chance UPN will not survive. So that's why we think rolling 
back the cap doesn't make complete sense.
    And, last, everyone talks about the largest TV groups, if 
you take all the owned and operated stations of Viacom and 
FOX--we did a study recently, we would be happy to give it to 
you--and you look at the sign-on/sign-off audience, so the 
average number of households tuning into these stations from 7 
a.m. to 1 a.m., it's two million households. There's 108 
million households in America. There's 1.9 percent of the total 
TV audience that's actually watching the specific owned and 
operated TV stations.
    Thank you.
    Senator Lott. I don't think each one of you needs to 
respond. However, Dr. Noam, if either one of you would like to 
respond on that one, I've got another question.
    Dr. Noam. I will be very brief, Senator.
    I think your question is a correct one, why 35, why 45? On 
some level, it's arbitrary; but at another level, it's a 
logical next step. What we have is, kind of, this increasing 
openness of media in which other channels are emerging on 
cable, on satellite, Internet and other ways, and as that 
increases we can loosen up the restrictions on the stations.
    The question really is the pacing. I'm totally convinced 
that whatever the Senate does now, in a few years there will be 
45 percent, and at some point you will support it. But the 
question is really the timing. That is, how much is the opening 
proceeding with the loosening up. And I think that's what we 
have to argue over.
    Senator Lott. An interesting point.
    Dr. Napoli. I may be delivering bad news here, but maybe 
not. I would argue that you really can't achieve the kind of 
specificity that you're asking for until you develop a system 
that very specifically outlines and measures the kinds of 
diversity and localism concerns and harms that you want the cap 
to prevent. And this may be too much to ask, at least in the 
short-term, and it may, in fact, be a reflection of the fact 
that we're going too far in terms of applying methods of, say, 
antitrust analysis, that kind of analytical framework, to the 
diversity and localism objectives that underlie these policies. 
So you might have to find yourself in a position where you say, 
look, this cap doesn't seem to be--need to be at this level in 
order to prevent anti-competitive behaviors, from a traditional 
economic sense, but we're going to impose it anyway, on the 
basis of diversity and localism concerns, and we may not, in 
fact, even be able to measurably show why it needs to be there 
in the name of diversity and localism concerns, in which case 
then you find yourself in the position of needing to go forward 
and develop the rigorous First Amendment analysis that will 
help the cap withstand the judicial scrutiny that it would 
likely come under in that situation. But that's been the change 
of perspective I think that's taken place in recent years, and 
that's the enormous, sort of, empirical challenge that those 
who want these caps to exist for non-economic rationales face.
    Senator Lott. I think I understand that.
    [Laughter.]
    Senator Lott. Now, let me ask one other question, because I 
know Senator McCain's chairing this and maybe has other 
questions, or maybe we're ready to wrap it up, but, you know, 
I've always had an interest in media and telecommunications, 
and was involved, in my early years, with radio, and I'm a big 
fan of radio. I'm one of those candidates for office that still 
believes radio is a good political tool in the campaign. A lot 
of people have quit doing radio and billboards. I still think 
those work. A lot of people listen to radio that don't even pay 
any attention to TV.
    But, having said all of that, I have not had that big a 
problem with this consolidation of radio stations and, you 
know, one or two companies owning more and more and more, 
partially because there were so many other options and because 
our lifestyles have changed so much. I mean, I've made this 
speech on the floor of the Senate, I miss the old remotes, 
where the local radio station went to the opening of the new 
Market Street Furniture Store, and ``Come on down and get a 
ticket to win, you know, a lamp.'' There was something really 
neat about that, unique. The localism is gone in my home town. 
You know, it's just not there. If I want to listen to music, 
good music, I have to listen to a station 19 miles away in 
Biloxi, Mississippi. And that's what the consolidation has led 
to.
    I didn't see it as that big a problem, because, you know, 
we did have the options of television and media and the 
Internet and all these other things. But that's what happened 
when we basically said to the radio industry, ``You can--you 
know, you can go ahead. You know, we deregulate. Consolidate 
all you want to.''
    Why do we think that the same thing is not going to happen 
if we go with what the FCC did, both in networks and with the 
cross-ownership? I mean, I just--I don't want to pick on, 
necessarily, the one newspaper in my home state, but I get a 
Gannett newspaper. And my home state, Jackson, Mississippi, I--
I mean, does anybody really believe they're not going to buy 
WLBT, the biggest television station, and two or three of the 
biggest and best radio stations, and further dominate the news 
and the views that are given, which the people summarily reject 
in the state repeatedly? But they're going to continue to 
force-feed it to us, even though we don't want it, don't like 
the programming, don't like their editorial policy, don't like 
their news, just generally don't like them. But we have to buy 
it, because that's it. You know, you want to see what is on 
sale at Miss Kelly's Furniture Store, you've got to buy the 
Clarion-Ledger to get their whole-page ad, even though I've 
told them you get more bang for the buck if you do TV.
    [Laughter.]
    Senator Lott. So, you know, that's what I think's going to 
happen. You can get into all kind of nuances of localism and 
ownership, and you can overanalyze it. But, in my opinion, I 
think that if we do what they've done here, if you go with it, 
you're going to have more and more and more concentration, and 
I don't think that's good for the general public.
    Dr. Cooper, I suspect you're anxious to agree with all 
that.
    Dr. Cooper. Well, we looked at an interesting proposition. 
We started down the markets and asked two questions, because 
Mr. Miller has made a point that some people--newspaper 
business is not like the shoeshine business or the vegetable 
business; it's a very specialized business. You need experience 
to get into it. And we also asked the question--we know that 
the major networks are not going to sell their O&Os. They spent 
a lot of time accumulating them, and they'd like to accumulate 
more. So we asked a simple question. In how many markets, in 
which markets, is there an available top-five TV station that's 
not an O&O and a corporation that has experience in the 
newspaper business? Because this is where the mergers are going 
to take place. And actually--and there won't be acquisitions. 
There will be lots of swaps, because there's that benefit. And 
you know what? We went through the top 50 markets, and we 
excluded one, and I'll have to go back and look at which one. 
The simple fact of the matter is that this market is out there, 
primed. It turns out that the top--there are 12 newspaper 
corporations in this country that also own TV stations. It 
turns out they own 20 percent of the newspapers and 10 percent 
of the TV stations already. And what they want to do is swap so 
they get the leverage of the cross-promotion. And so this will 
be a fertile field, and we do think that that will happen. It's 
not that they have a lot of cash. Mr. Miller will tell you they 
don't have a lot of cash. But if you can work a swap where 
you've got a top-50 TV station over here, but a newspaper over 
there, and you swap them, you don't have to--a lot of cash 
doesn't have to change hands, and you accomplish the 
concentration that you want.
    So we do think that there is that fertile field. There 
won't be a tidal wave, but there will be a constant pattern. 
And when we are done, we would expect those deals to get done. 
And we stopped at 50 markets. You know, that's where 75 percent 
of America lives.
    Senator Lott. In the interest of time, I'd like to get the 
opposing view. Mr. Miller, have you got a different view?
    Mr. Miller. Well, I'd just like to--we've actually looked 
at the four major rules and what we think would actually occur, 
in terms of transactions.
    First of all, in the radio business, we think there's--we 
did a survey of the top 280---well, the only 286 metros there 
are. We looked at every radio station, every combination under 
the new rules. And we found that we have 214 non-compliant 
stations in 109 radio markets with 36 private and 11 public 
companies, ranging from $1,800,000 in revenue all the way up to 
$3.2 billion, being affected. And 13 of those private 
companies, who would be anywhere between 15 and 50 percent of 
their stations, would have to be divested under this new 
ownership rule. So we think that actually tightens somewhat.
    On newspaper/television, we don't believe any pure-play 
radio operator will buy newspapers. We do not believe any pure-
play TV operator will buy newspapers. We do not believe any of 
the companies that Senator Dorgan has on his chart will buy 
newspapers, because Disney had the opportunity and actually 
sold their--because they bought them through Cap Cities, and 
sold those off to Knight Ritter. They were not interested in 
those properties whatsoever.
    Now, the problem is, you've got to remember, a lot of these 
newspapers have been owned for a very, very long time, and they 
tend to have a low tax basis. So for a family to sell a cash-
flow positive thing that they've had for years and years, and 
then pay horrendous tax implications, will also, we think, 
diminish some of the activity.
    So we don't believe--we think maybe a dozen of the top-100 
markets that we've done in our analysis--and Dr. Cooper may 
have a different analysis--would potentially see some change.
    On the cap, what's interesting there is, if you look at the 
ABC affiliates, the largest ABC affiliate is Hearst-Argyle, the 
second one is Scripps, the third one is Cox. CBS is Meredith, 
Gannett, and Belo. NBC is Gannett, Hears-Argyle, and Belo. 
These are the--we don't believe these are the type of companies 
that have any interest whatsoever in selling out to the 
networks. So while theoretically we'd like to see the option 
available to networks in the long-term, if, indeed, the model 
gets worse and worse and worse, if you look at the available 
pool, it's not very attractive.
    Last, the duopoly/triopoly issue. We actually didn't think 
there was enough relief in the duopoly business for some of the 
smaller markets where you have very, very small economics 
relative to larger markets. So, for example, you don't--in 50 
of the 100 markets, between 51 and 150, you can't do any 
duopolies in TV. Yet if you look at the mid---let's look at the 
markets 61 through 70. They get 8.2 times less revenue than the 
top-10 markets, and their cash-flow is 12 times less, even 
though they're in same business, but their cap-X is a lot 
higher because the digital buildout is proportionally more 
impactful to them.
    So we actually thought it would be helpful to preserve some 
of the smaller TV groups, to have more duopoly, not less. But 
since that didn't happen, then we'll obviously not have any 
deals in those 50 markets.
    Other than that, there's some concern over the triopoly.
    Senator Lott. Maybe we should have done that.
    Mr. Miller. Pardon?
    Senator Lott. Maybe we should have done that. That last 
point.
    Mr. Miller. Well, on triopoly there's some concern--how 
could someone own three television stations? Well, the average 
triopoly candidate, other than in San Francisco, has 1 percent 
revenue share and 1 percent audience share. So we don't see, on 
balance, a lot of deal-making coming out of this rulemaking.
    Senator Lott. I guess part of my problem is, when you look 
at the business decision of the corporate giants that own the 
networks, and even some of these other--some of the other 
companies, and the decisions of the media companies, why would 
anybody have any confidence in them doing the right thing in 
the future? I mean, their track record is pretty abysmal, in my 
opinion.
    Mr. Miller. Are you talking about the networks, 
specifically?
    Senator Lott. I'm talking about GE and Disney and the 
networks, too.
    Mr. Miller. Yes. Well, what's interesting is, the people 
that I pointed out that would be likely candidates to buy their 
stations, like Hearst, a Scripps, a Cox----
    Senator Lott. And all of those----
    Mr. Miller.--they're unlikely to----
    Senator Lott. Include those, too. Yes.
    Mr. Miller.--they're unlikely--oh, include those, too?
    Senator Lott. Yes.
    Mr. Miller. Well, I mean, I have--I mean, if you look at 
Hearst-Argyle, Belo, Gannett, or Cox, they have some of the 
best news ratings in the country. They finish at the top of the 
heap in their affiliation versus even----
    Senator Lott. I wonder if it's because what other option do 
the people have? I mean, they own the big newspaper in a big 
town. What else are you going to read?
    Mr. Miller. Oh, I'm sorry, I was just referring to the 
television stations.
    Senator Lott. OK. Well, I'm----
    Mr. Miller. I'm sorry.
    Senator Lott. You know, I am going back----
    Mr. Miller. I just----
    Senator Lott.--and forth. But that does--that's kind of 
the----
    Mr. Miller. Yes, sir.
    Senator Lott. I'm worried about the cap, but I'm also 
worried about the cross-ownership.
    Thank you, Senator McCain, for letting me get in there.
    The Chairman. I want to thank the witnesses. This hearing 
has been very helpful. We'll be having more of them. This issue 
is not going away. But the information we received today is 
extremely helpful.
    I thank the witnesses.
    The hearing is adjourned.
    [Whereupon, at 11:15 a.m., the hearing was adjourned.]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

                            A P P E N D I X

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman:

    Thank you for holding this hearing on media ownership 
concentration. You have been diligent in making sure that the Committee 
has all of the information it needs as we grapple with this 
controversial subject.
    Today, we will hear from a panel of media market experts. The 
economic impacts of the media ownership rules are certainly very 
important.
    As a former businessman, I appreciate the fact that businesses need 
efficiencies of scale as they try to provide a product or services that 
consumers want and are willing to buy. That's true for automakers and 
it's true for broadcasters.
    But we need to remember that the airwaves constitute a public asset 
to be managed and regulated by government. There may be doubt about 
whether spectrum is infinite, but there is no doubt that it is a public 
asset. Because it is a public asset, the public interest must always 
prevail.
    The need to protect the public interest is even more pronounced 
when one considers that the media transmit news and information.
    Democracy is based on the free exchange of plentiful and often-
times opposing ideas and views. Maintaining that diversity of views 
serves the public interest.
    Share-holder concerns about profitability are secondary. It might 
be ``efficient'' from a business standpoint to allow a company like 
Clear Channel to dominate the airwaves, but it's not in the public 
interest.
    Thank you, Mr. Chairman.

                                  [all]
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