32242 Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations

TABLE 1.—GENERAL SUPERFUND SECTION—Continued

State Site name City/County Notes (a)

*******

NY ...................... Consolidated Iron and Metal ................................................................ Newburgh.

*******

NY ...................... Shenandoah Road Ground Water Contamination ............................... East Fishkill.

*******

OR ...................... Taylor Lumber and Treating ................................................................. Sheridan.

*******

PA ...................... Lower Darby Creek Area ...................................................................... Delaware/Philadelphia Counties.

*******

TX ....................... Malone Service Company, Inc ............................................................. Texas City.

*******

VT ....................... Elizabeth Mine ...................................................................................... Strafford.

*******

* * * * *

[FR Doc. 01–14616 Filed 6–13–01; 8:45 am]

BILLING CODE 6560–50–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[MM Docket No. 00–108; FCC 01–133]

RIN 4211

Broadcast Services; Radio Stations,

Television Stations

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: This document amends the

Commission’s ‘‘dual network’’ rule.

That rule effectively prevented mergers

among the four major television

broadcast networks (ABC, CBS, Fox and

NBC) or between one of the four major

networks and the UPN and/or the WB

television networks. The action taken

eliminates that portion of the rule that

effectively prevents mergers between a

major television network and the UPN

and/or WB television networks.

DATES: Effective August 13, 2001.

ADDRESSES: Federal Communications

Commission, 445 12th Street, SW.,

Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Roger Holberg or Danny Bring, Mass

Media Bureau, Policy and Rules

Division, (202) 418–2120.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Report and Order (R&O)

in MM Docket No. 00–108, FCC 01–133,

adopted April 19, 2001, and released

May 15, 2001. The complete text of this

document is available for inspection

and copying during normal business

hours in the FCC Reference Center,

Room CY–A257, 445 12th Street, SW.,

Washington, DC and may also be

purchased from the Commission’s copy

contractor, International Transcription

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

SW., Room CY–B402, Washington, DC.

This R&O is also available on the

Internet at the Commission’s website:

http://www.fcc.gov.

Synopsis of Report and Order

I. Introduction

1. In this R&O we amend § 73.658(g),

the ‘‘dual network’’ rule, to permit one

of the four major television networks—

ABC, CBS, Fox and NBC—to own,

operate, maintain or control the UPN

and/or the WB television network. The

rule already permits any of the four

major television networks to own any

television network created subsequent

to the date that the Telecommunications

Act of 1996 was enacted. By this action,

we recognize that the economics of the

broadcast television network industry

have changed to the point that retention

of the rule in its current form is no

longer in the public interest.

II. Background

2. The dual network rule goes back

some sixty years. The Commission first

adopted a dual network rule in 1941,

following its investigation of ‘‘chain’’

broadcasting. The rule adopted then

mandated a flat prohibition on an entity

maintaining more than a single radio

network. As we noted in the Notice of

Proposed Rule Making (‘‘NPRM’’) in this

proceeding (65 FR 41393 (July 5, 2000)),

when the Commission extended the rule

to television networks in 1946, it

determined that permitting an entity to

operate more than one network might

preclude new networks from developing

and affiliating with desirable stations.

3. Title 47 CFR 73.658(g) sets forth the

current version of the dual network rule.

It reflects the provisions of section

202(e) of the 1996 Act. That section

directed the Commission to modify its

dual network rule to prohibit a

television station from affiliating with

any entity that owns more than one of

the four major networks (ABC, CBS,

Fox, or NBC) or one of the four major

networks and an emerging Englishlanguage network which, on the date of

the 1996 Act’s enactment, ‘‘provides 4

or more hours of programming per week

on a national basis pursuant to network

affiliation arrangements with local

television broadcast stations in markets

reaching more than 75 percent of

television homes. * * *’’ The legislative

history of this provision indicated that

it was intended to apply to only the

UPN and WB television networks.

Moreover, these two networks were the

only two entities other than the four

major networks that met this definition

of a network on the relevant date. (Both

UPN and WB argue that they did not

meet the legislative definition of a

network for these purposes. We rejected

UPN’s argument in this regard in

considering the Viacom/CBS merger.

We need not reach the merits of The WB

Network’s argument in this regard given

our resolution herein, which renders its

argument moot.)

4. The current dual network rule

differs markedly from the dual network

rule that existed from 1946 to 1996. The

Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations 32243

earlier rule prohibited a broadcast

station from affiliating with a network

organization that maintained more than

one broadcast network. As such, the old

rule effectively prevented network

organizations from creating a new

broadcast network or merging with an

existing broadcast network. In contrast,

the current dual network rule permits a

broadcast station to affiliate with a

network organization that maintains

more than one broadcast network. Such

affiliation is prohibited, however, if the

multiple network combination is

created by a merger among ABC, CBS,

Fox, or NBC, or a merger between one

of these four networks and UPN or WB.

While the current rule gives all network

organizations the opportunity to pursue

any economic efficiencies that may arise

from the maintenance of multiple

broadcast networks, it restricts the

manner in which specific network

organizations become multiple

broadcast networks. The current rule

facilitates the maintenance of multiple

broadcast networks created through

internal growth and new entry. A

broadcast network may develop

multiple broadcast networks by creating

new broadcast networks from scratch, or

acquiring video networks from

nonbroadcast media (e.g., cable or

satellite) and moving them to broadcast.

In addition, the current rule facilitates

the creation of multiple broadcast

networks by permitting (1) mergers

between a broadcast network created

before the 1996 Act (i.e., ABC, CBS,

FOX, NBC, UPN, and WB) and

broadcast networks created subsequent

to the 1996 Act (e.g., PAXtv); (2)

mergers between broadcast networks

created subsequent to the 1996 Act; and

(3) a merger between UPN and WB.

5. Section 202(h) of the 1996 Act also

requires the Commission to review its

broadcast ownership rules, including

rules such as the instant rule that were

amended pursuant to Section 202, every

two years beginning in 1998 and to

‘‘repeal or modify any regulation it

determines to be no longer in the public

interest.’’ In our first biennial review

proceeding we examined, among other

broadcast ownership rules, the dual

network rule. Section 202(h) requires us

to determine whether any of these rules

remained ‘‘necessary in the public

interest as the result of competition.’’ As

a result of our analysis according to that

standard we tentatively determined that

the component of the dual network rule

that currently prevents the UPN or WB

networks from being owned by one of

the four major networks may no longer

be necessary in the public interest as a

result of competition

6. As a result of the findings made in

the Biennial Review Report, we issued

the NPRM initiating the instant

proceeding. In the NPRM, we analyzed

the dual network rule pursuant to a

framework that involved concepts

developed in the transaction cost

economics (‘‘TCE’’) literature. From a

TCE perspective, the economic

organization of firms and industries

reflects specific attributes of the

contracting process between buyer and

seller. We stated that application of TCE

concepts suggests that vertical

integration between program suppliers

and major networks may produce

substantial economic efficiencies that

might benefit both advertisers and

viewers. We also stated that horizontal

mergers between a major network and

an emerging network may produce

efficiencies that might benefit both

advertisers and viewers. Moreover, we

found that there should be little or no

adverse effect on the price for network

advertising as the result of such a

merger. Therefore, we proposed to

eliminate the major network/emerging

network merger prohibition from our

dual network rule.

III. Discussion

7. In this R&O, we consider our

proposal to relax the dual network rule

by eliminating the restriction on

mergers between the top 4 broadcast

networks and UPN or WB. Our focus,

pursuant to section 202(h), is whether

this aspect of the rule remains

‘‘necessary in the public interest as the

result of competition.’’ Accordingly, we

first identify several competitive

changes and trends in the video services

market that we consider relevant to the

continued necessity for the rule. We

then apply the framework, developed in

the NPRM, for analyzing both the

vertical and horizontal competitive

impacts of the potential combinations

that are currently prohibited by the rule.

After addressing the impact of the rule

on competition, we turn to the impacts

of maintaining or changing the rule on

diversity, the other primary public

interest concern. Weighing these factors,

we decide, as proposed in the NPRM, to

eliminate that portion of the rule that

effectively prohibits mergers between

UPN or WB and one of the four major

networks. We conclude that this change

will not harm, and indeed is likely to

promote, both competitive efficiency

and diversity. Although some

commenters also urged us to go beyond

the tentative conclusions of the Biennial

Review Report and the NPRM and to

eliminate the dual network rule in its

entirety, we note that the questions

presented in the NPRM related solely to

the emerging networks portion of the

rule. We therefore decline to eliminate

the dual network rule in its entirety at

this time, finding that more information

and analysis would be necessary to

address the more complex issues that

action would involve.

8. Marketplace Developments. Since

the enactment of the 1996 Act,

significant changes have occurred to the

competitive environment in which

networks, including emerging networks,

operate. These changes, which have

occurred both within the television

broadcast industry and throughout the

multichannel video programming

distribution (‘‘MVPD’’) industry, have

substantial implications for both the

competition and diversity concerns that

underpin the dual network rule. We will

first detail some of these developments

and then turn to an analysis of the

components of the rule in light of these

changes.

9. Within the broadcast industry, the

number of commercial and

noncommercial television stations has

increased from 1550 in August 1996 to

1663 as of September 2000. This

represents an increase of over 7% in 4

years. During roughly the same time,

prime time viewership among the top

six broadcast networks declined from

71% in 1996 to 58% in 2000. Thus,

within the last 4 years, there has been

both a small but significant increase in

the number of television broadcast

outlets available to viewers (and

potentially to new broadcast networks

such as PAXtv) and a substantial

decrease in the dominance of broadcast

networks in terms of viewership.

10. Accompanying, and largely

causing, the reduction in broadcast

network viewership during the last 4

years has been the steady expansion of

the cable industry. At the end of 1995,

the cable industry had a penetration rate

of 67.8% of homes passed. By 2000, the

penetration rate had grown slightly to

69.7%. While this represents only an

incremental increase in penetration, the

increase is significant when viewed in

connection with the increase in channel

capacity on cable networks. As of

October 1995, 15.6% of cable systems

offered 54 or more channels of video

programming, and 63.8% of cable

systems offered between 30 and 53

channels, indicating that 79.4% of

systems provided 30 or more channels

of programming. In 2000, the number of

high capacity cable systems was

significantly higher. By 2000, 24.2% of

cable systems offered 54 or more

channels of programming. With the

percentage of cable systems offering 30–

53 channels virtually unchanged since

1996, the increase in high capacity cable

32244 Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations

systems means that in 2000 86.6% of

cable systems offered 30 or more

channels of programming to subscribers.

We anticipate that channel capacity on

cable systems will continue to expand

as more cable systems adopt digital

technology.

11. Because each additional channel

of capacity on a cable system represents

a distinct avenue that may be used to

deliver video programming, the increase

in channel capacity provides video

programming producers a greater

opportunity to distribute their

programming to consumers. Many cable

networks have been formed to take

advantage of this opportunity, and, as a

whole, they appear to have been

successful in capturing a significant

portion of viewers over the last 4 years.

In 1996, there were 162 cable

programming services; by 2000, the

number had increased to 214. In 1996,

cable networks had a 30% full-day

audience share; in 2000, cable networks’

share was 45.5%. As channel capacity

grows, we expect that new cable

networks will be formed and the reach

of existing cable networks will be

extended.

12. Perhaps the most significant

competitive change over the last 4 years

has been the rapid growth of the Direct

Broadcast Satellite (‘‘DBS’’) industry.

When the 1996 Act was enacted, DBS

service had been available to consumers

for less than 2 years. Although the DBS

industry had garnered 3.82 million

subscribers by October 1996, this

represented only 5% of MVPD

subscribers, and many of these

subscribers were located in rural areas

not served by cable. DBS also suffered

from certain competitive disadvantages,

such as the inability to offer subscribers

access to local broadcast signals via the

satellite signal. Over the last 4 years, the

industry has significantly matured. By

2000, the DBS industry had almost 13

million subscribers, representing more

than 15% of MVPD households.

Moreover, bolstered in part by the new

statutory right to provide ‘‘local-intolocal’’ broadcast service, DBS has grown

from a predominantly rural service to a

viable alternative to cable in all parts of

the country.

13. The growth of the DBS industry

since 1996 significantly affects the

opportunities available to network

programming producers and consumers.

Currently, the two operating DBS

providers, DirecTV and EchoStar, each

offer subscribers access to hundreds of

channels of video programming. As

with a cable channel, each DBS channel

provides an independent avenue

through which producers of video

programming can distribute, and

viewers may access, video

programming. Although a certain

number of DBS channels are used to

provide the same network programming

found on cable channels, a DBS operator

could choose, except where must carry

obligations are involved, to provide

regional or local programming in

response to market demand.

A. Competition

14. Mergers Between A Major Network

and UPN or WB. The developments in

the broadcast, cable, and DBS industry

have had a significant effect on the

competitive landscape in which

broadcast networks operate. Where

almost 84 percent of households

subscribe to an MVPD service, and as

television broadcast stations and

MVPDs, because of the increase in the

number of available channels, seek a

greater number of attractive programs to

offer their viewers, new opportunities

are created for producers to obtain

distribution channels. Moreover, nonbroadcast networks, whose niche

programming can provide advertisers

with more focused demographics, may

continue to erode the audience share of

broadcast networks and compete for

advertising revenue, especially with the

emerging networks. While we cannot

definitively predict how these

competitive forces will play out, we

believe that competitive developments

since the enactment of the 1996 Act

have diminished the importance of

obtaining broadcast affiliates to

establish a successful video

programming network. We believe that

these developments require us to

consider whether the dual network rule

should be modified.

15. As discussed above, markets for

video services have broadened and

grown, reflecting shifts in market

demand and supply in recent years.

Competitive rivalry between and among

suppliers of video services has

intensified as consumers find increased

choice of video programming and new

vendors that supply video programming

and video delivery services. Increased

competitive rivalry intensifies the

pressure on management to (1) improve

internal operating efficiency by using

inputs of production more effectively

and organizing the firm to reduce

redundancy in staffing or business

functions; and (2) reorganize the firm

through horizontal and vertical mergers

to achieve economies of scale and

scope. We focus here on the effect our

rules may have on the networks’ ability

to achieve economic efficiencies

through vertical and horizontal

integration. As explained in the NPRM,

TCE provides a conceptual framework

for assessing possible gains and losses

in organizational efficiency that may

result from the intensified pressure on

firm management to improve operating

efficiency induced by the greater

competitive rivalry confronting the firm.

16. In the NPRM, the Commission

noted that the commercial television

broadcast network industry today

consists of a number of verticallyintegrated firms. For example, ABC (a

broadcast network) is vertically

integrated with Disney (a program

supplier), Fox (a broadcast network) is

vertically integrated with 20th Century

Fox (a program supplier), UPN (a

broadcast network) is vertically

integrated with Viacom (a program

supplier), and WB (a broadcast network)

is vertically integrated with AOL Time

Warner (a program supplier). In

addition to these well-know examples,

NBC produces programs through NBC

Studios and CBS produces programs

through CBS Enterprises (formerly

Eyemark Entertainment and King World

Productions). Because mergers between

broadcast networks may involve

mergers between vertically-integrated

firms, the Commission examined and

sought comment on (1) the potential

efficiencies of vertical integration

between a program supplier and a

broadcast network and (2) the effects of

a horizontal merger between two

broadcast networks.

17. Our analysis of the economic

effects of the dual network rule

decomposes a hypothetical merger

between two vertically-integrated

broadcast networks into two parts. First,

the relationship between a program

supplier and a broadcast network is

examined to determine whether vertical

integration is either more or less

efficient than simply negotiating an

arms-length contractual relationship

between the program supplier and the

broadcast network. The comparative

assessment of the efficiency of

contracting versus vertical integration

relies on TCE concepts. Second, the

effects of a horizontal merger between

two broadcast networks is assessed by

relying on measures of market

concentration and an analysis of price

competition in the national market for

network television advertising. Finally,

the economic gains or losses resulting

from the analysis of vertical integration

are combined with the expected

economic gains or losses resulting from

the horizontal merger to determine the

overall benefits and costs of a merger

between two vertically-integrated firms.

18. As explained in the NPRM, our

economic analysis focuses on the

contemporary contracting environment

between television networks and

Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations 32245

program producers. We have concluded

that specific attributes of television

network output and the complexities of

contract negotiations between a

television network and a program

supplier tend to favor the replacement

of market contracting with a vertical

organizational relationship between the

network and the program supplier.

Applying TCE concepts, we further

conclude that this substitution of

vertical integration for a contractual

relationship is most likely an

economically-efficient response to the

hazards of market contracting rather

than the exercise of market power by the

television network. Thus, the vertical

integration of program suppliers and

television networks (1) reflects

competitive pressures induced by more

intense competition for viewers that

now enjoy greatly expanded video

programming choices compared to a

decade ago; and (2) minimizes

transaction costs by eliminating the

costly adverse effects of negotiating

contractual relationships between the

programmers and the networks. We

conclude that the merger of a program

supplier with a broadcast network

would result in transaction efficiencies

compared to a contractual relationship

between the network and the program

supplier. Given the growing competition

for viewers of video programming, we

anticipate that the efficiencies of

vertical integration between the

programming assets of an emerging

network and a major network could

accrue to the benefit of consumers.

19. We also explained in the NPRM

how our analytical framework allows us

to assess the horizontal effects of the

merger of an emerging network with a

major network on the national market

for network advertising. We explained

that within the national television

advertising market, which includes

national spot sales by affiliated and

independent stations, a strategic group

consisting of the major networks, i.e.,

ABC, NBC, CBS, and Fox, can be

identified. (A strategic group refers to a

cluster of independent firms within an

industry that pursue similar business

strategies.) At present, the network firms

comprising this strategic group provide

the greatest reach of any medium of

mass communications. Major broadcast

networks attract much larger audiences

than emerging broadcast networks.

Since delivering a mass audience is

becoming more difficult for all media

with the proliferation of media outlets,

media that can still produce mass

audiences have become more valuable.

As a result, notwithstanding some

recent erosion in revenue growth,

broadcast networks have achieved

substantial gains in revenues in recent

years despite their loss of audience

relative to years past. The major

mobility barrier impeding entry into the

major network strategic group is the

availability of affiliated stations.

Mobility barriers are barriers to entry

that deter the movement of a firm within

a given industry from shifting from one

strategic group to another. Different

strategic groups will be defended by

different mobility barriers that vary in

their effectiveness in restricting entry

into a given strategic group. In general,

firms protected by high mobility barriers

will have greater profit potential than

firms in other strategic groups protected

by low mobility barriers.

Notwithstanding some growth in the

number of stations over the last decade,

obtaining sufficient affiliated stations

remains a major obstacle to developing

a new broadcast network that can

achieve sufficient national reach to be

attractive to national advertisers seeking

to reach a mass audience.

20. With respect to our analysis of the

potential benefits of vertical integration

of a program producer and a television

network, Viacom was the only

commenter to specifically address the

potential efficiencies associated with

vertical integration, and Viacom’s

pleadings support the Commission’s

findings. With respect to our analysis of

the effects of horizontal integration of an

emerging network with a major network,

no commenter disagrees with our

finding that a horizontal merger

between a major network and an

emerging network (e.g., UPN or WB)

would generate net economic benefits.

21. We conclude that a merger

between an emerging network, such as

WB or UPN, and a major network is

likely to produce net benefits to network

advertisers and viewers of network

television. With respect to vertical

integration, such a merger may produce

significant efficiencies by internalizing

the contentious issue of program

production risk-sharing within a vertical

relationship. For example, an emerging

network acquired by a major network

provides the major network with an

additional ‘‘window’’ for the

distribution of network programming. In

effect, this additional window allows

the merged network to broadcast the

same program in different time slots in

the same market if both the major and

emerging networks have affiliates in the

same city. Alternatively, if the emerging

and major network do not have affiliates

in the same city, then the merged

network entity will now reach more

households than before the merger. In

either case, the fixed costs of program

production are spread over additional

viewers in different time slots or

additional cities. As a result, the

effective program cost per viewer is

reduced in either case. Similarly, a

network program that fails, or is only

marginally successful, on the major

network’s affiliated station might

succeed when broadcast to the niche

audience reached by the affiliates of the

emerging network. The risks of network

program development are clearly

attenuated for the merged networks as a

consequence of reaching additional

viewers at different times or in

additional cities or with audience

attributes that may differ from the mass

audience ordinarily targeted by a major

network.

22. With respect to horizontal

integration of a major and emerging

television network, the merger should

have little or no adverse effect on

competition or pricing in the market for

television network advertising, since

major and emerging networks compete

in different strategic groups. To the

extent that the emerging network

continues to offer programming

following the merger that targets niche

or special interest audiences, then the

welfare of viewers of both mass

audience and niche programming

should not be adversely affected by the

merger and may indeed be advanced by

the resulting efficiencies.

23. Mergers Among the Four Major

Networks. After the rule change we are

making herein, the only multiple

network operations that will be

prohibited by our dual network rule will

be the common ownership of multiple

broadcast networks created by mergers

between ABC, CBS, Fox, or NBC.

Although the questions presented in the

NPRM related solely to the emerging

networks portion of the dual network

rule, Fox, Viacom, and WB argue for

elimination of the rule in its entirety.

They contend that the rule, established

over fifty years ago, is no longer justified

in light of prevailing conditions. They

argue that new competitors—both

broadcast and nonbroadcast—have

entered and attracted large portions of

the market formerly controlled by the

networks. They also argue that

developments over the past 20 years

have increased competition, reduced the

networks’ share of television

viewership, and reduced the networks’

share of television advertising revenue.

These developments, they conclude,

support elimination of the dual network

rule.

24. The questions presented in the

NPRM related solely to the emerging

networks portion of the dual network

rule; the question of eliminating the rule

32246 Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations

in its entirety was not squarely

presented to this Commission for

review. Therefore, we will not address

that issue in this proceeding. This issue

was considered in the 1998 Biennial

Review, which was completed in 2000.

B. Diversity

25. In addition to the competitive

concerns discussed above, the

modification of the dual network rule

involves diversity issues. In fact, the

only commenter urging retention of the

entire current dual network rule did so

on the basis that the proposed

modification would undermine

traditional Commission diversity

concerns. In this regard, UCC argues

that the NPRM in this proceeding

ignored the ‘‘vital first amendment

issues that animate the dual network

rule.’’ Allowing one of the top four

networks to buy UPN and/or WB will,

by definition, result in the elimination

of one or more independently owned

broadcast outlet at the national level.

The record demonstrates that emerging

networks make a significant

contribution to diversity of

programming at the national level and

the stability of their affiliates, thus

promoting outlet diversity at the local

level. The record also demonstrates,

however, that maintaining the dual

network rule in its current form would

actually jeopardize those contributions

to diversity, rather than promote them.

26. The record shows that some form

of relief from the dual network rule will

promote the viability of the UPN

network and thus promote diversity at

the national level. Viacom now owns

and operates both the CBS and UPN

broadcast networks. Absent today’s

action, Viacom/CBS would have until

May 4, 2001, to come into compliance

with the rule, which, as a practical

matter, would involve divestiture of

UPN. The record reflects that UPN is a

financially struggling network that has

suffered losses in every year of its

existence. The reasons for UPN’s

financial struggles include competition

from both broadcast and non-broadcast

video sources, decreasing broadcast

network viewership, and diversion of

investment capital to other competitors

partly as a result of the current dual

network rule. These factors affect both

UPN and the WB networks. Given these

factors, there is substantial likelihood

that the present level of independent

network ownership would not be

maintained absent the action we take

herein. In addition, as noted above, our

analysis suggests that the UPN broadcast

television network benefits from the

efficiencies of vertical integration with

Viacom’s program production facilities.

Divestiture would deprive UPN of these

efficiencies.

27. Retaining the current version of

the dual network rule could also have

cascading adverse consequences on

diversity at the local level. Affiliates of

a failed network, without network

affiliation and the programming it

brings, may not be able to sustain the

increases in the cost of programming

that they would have to bear should

they have to purchase programming in

the syndication market. Additionally,

such affiliates would be deprived of a

recognized brand that is promoted

locally by each affiliate and nationally

by the network and of first run

programming that affiliates would have

to replace by purchasing programming

in the syndication market. Thus, the

failure of a network could imperil the

position of many of that network’s

affiliates and have a negative impact on

diversity of outlets at the local level.

28. Additionally, we agree with those

that argue that the proliferation of video

programming networks warrants

relaxing the rule. At present, some 83.8

percent of television households obtain

their service from an MVPD such as

cable, direct broadcast satellite or

Multichannel Multipoint Distribution

Service. Most of the subscribers to such

systems have available to them a

cornucopia of video services. As

discussed above, nearly 87 percent of

cable television systems have 30 or

more channels. These systems serve 99

percent of cable subscribers. Although

many of the video programming

networks presented on cable systems are

vertically integrated with cable multiple

system operators, they nevertheless

contribute to diversity by providing

programming to most viewers that is

from a source other than the six

broadcast television networks covered

by the instant rule. Such developments

have diminished the importance of

maintaining UPN and WB as

independently owned network

‘‘voices.’’

29. Also, we agree with commenters

that a major network and an emerging

network under common ownership

would have a strong economic incentive

to diversify their program offerings,

particularly by increasing service to

minority or ‘‘niche’’ tastes and interests.

A single broadcast network has the

incentive to attract the largest possible

audience with mass appeal

programming (which is similar to the

programming offered by its rivals).

However, if two networks are owned by

a single entity, the entity has an

incentive to attract an array of viewers

with differing interests to produce the

largest combined audience for the

overall enterprise. This allows for the

major network to pursue mass tastes,

with the smaller network programming

to minority and niche tastes.

30. The record also supports the

proposition that eliminating the

emerging network portion of the dual

network rule will not adversely affect

the provision of news and public affairs

programming. As noted by Viacom,

common ownership may offer the only

realistic potential for the carriage of a

substantial amount of news and public

affairs programming by affiliates of the

emerging network by allowing the

resources of the larger network to be redeployed in ways that serve the viewers

of the emerging networks by providing

them with news and public affairs.

C. Additional Matters

31. The WB Network argues that if we

relax the dual network rule we are

obligated to also eliminate the cable/

television cross-ownership rule.

Otherwise, it contends, we will actually

be allowing only the UPN Network to be

merged with a major network because

the cable/television cross-ownership

rule precludes The WB from such a

merger. It argues that the Commission

cannot, as a matter of law, grant

regulatory relief to certain competitors

but not equivalent relief to others. Since

the cable/television cross-ownership

rule ‘‘stands in the way of similar

creative business arrangements with an

established network, The WB cannot be

part of a corporate family with any

attributable interests in licensed

broadcast stations in numerous major

DMAs. This, it asserts, violates

fundamental fairness and administrative

law that requires the Commission to

accord comparable treatment to

similarly situated parties.

32. Modification or elimination of the

cable/television cross-ownership rule is

not within the scope of the NPRM

issued in this proceeding. We will

consider it again in a future proceeding

or our next biennial review of our

broadcast ownership rules. WB network

is receiving equal treatment by reason of

the modification of the dual network

rule we are making herein.

33. Additionally, the UPN and WB

Networks have each raised arguments

that the provision of the 1996 Act that

defines an emerging network does not

include it. Given our decision herein,

this issue is moot.

34. Finally, we have previously

granted Viacom, Inc., a period of twelve

months, commencing May 3, 2000,

within which to come into compliance

with the dual network rule. Given our

action herein, we will extend that

temporary waiver of the rule until the

Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations 32247

effective date of the instant rule

amendment.

IV. Conclusion

35. Based upon the record and our

own analysis, we find that the benefits

of vertical integration between a

program producer and television

networks will not be lost and may well

be augmented by a merger of one or

more emerging networks with a major

network. Additionally, the horizontal

integration of an emerging and major

network should not adversely affect

competition or pricing in the relevant

television advertising markets and may

produce merger-specific efficiencies that

provide new benefits to viewers and

advertisers not otherwise available prior

to the merger. The aggregation of the

possible efficiencies of both vertical and

horizontal integration that provide the

resources for viewer and advertiser

benefits support our decision to abolish

today that part of the dual network rule

that prohibits the merger of one or more

emerging network with a major

television network.

36. With regard to diversity, we do

not believe that the loss of up to two

independently owned networks that

potentially could result from our

modification of the dual network rule

would seriously compromise our

diversity concerns. On the contrary,

diversity of programming will be

fostered at the national level as a result

of our permitting struggling emerging

networks to combine with major

networks, thereby allowing them to

continue serving their current niche and

minority audiences. At the local level,

our action will contribute to outlet

diversity by strengthening the emerging

networks and thus promoting the

stability of their affiliated stations.

Therefore, on balance, we believe that

the modification of the dual network

rule is warranted on diversity grounds,

as well.

37. We do not believe that a waiver

is the better approach to this issue and

so do not reach those arguments of

commenters favoring such relief. The

subject portion of the dual network rule

is unusual because, while in form it is

a rule of general applicability, in effect

it only applies to one entity other than

UPN (i.e., the WB Network). Thus, the

rule is so narrow that the specific facts

concerning one of the only two parties

to which the rule applies are quite

relevant. Also, the two networks are

similarly situated from the standpoint of

economic analysis. Both UPN and WB

are nascent broadcast networks that

target younger audiences compared with

the major networks. In addition, both

networks use UHF stations and LPTV

facilities that result in a substantial

coverage disadvantage compared with

the major networks. Our foregoing

analysis pertains equally to UPN and

WB and demonstrates that distinct

benefits for either or both of them can

be derived generally from elimination of

that section of the rule that prohibits

these two entities to merge with a major

network. Accordingly, elimination of

that provision of the rule itself, rather

than grant of waiver relief to only one

of the two parties affected by that

portion of the rule, is appropriate.

38. In view of the foregoing, we

conclude that the dual network rule

should be amended by eliminating the

provision prohibiting the common

ownership of one of the four major

networks and the emerging networks.

We will reexamine that part of the dual

network rule that prohibits mergers

between the major networks in a future

proceeding, possibly our next Biennial

Review. At that time we will explore in

greater detail how repeal or

modification of that part of the rule may

affect diversity and consider whether

the rule remains necessary in the public

interest as the result of competition.

V. Administrative Matters

39. Paperwork Reduction Act of 1995

Analysis. This R&O has been analyzed

with respect to the Paperwork

Reduction Act of 1995 and found to

impose no new reporting requirements

on the public.

40. Regulatory Flexibility Analysis.

Pursuant to the Regulative Flexibility

Act of 1980, as amended, 5 U.S.C. 601

et seq., the Commission’s Final

Regulatory Flexibility Analysis in this

R&O is as follows. As required by the

Regulatory Flexibility Act (RFA), an

Initial Regulatory Flexibility Analysis

(IRFA) was incorporated in the NPRM in

this proceeding. The Commission

sought written public comment on the

proposals in this NPRM, including

comment on the IRFA. The comments

received are discussed below. This

present Final Regulatory Flexibility

Analysis (FRFA) conforms to the RFA.

41. Need For, and Objectives of,

Report and Order. In February 1996, the

Telecommunications Act of 1996 (‘‘1996

Act’’) was signed into law. Section 202

of the 1996 Act directed the

Commission to make a number of

significant revisions to its broadcast

media ownership rules. Section 202(h)

also requires us to review our broadcast

ownership rules every two years

commencing in 1998. One of the rules

reviewed in our first such biennial

reviews was § 73.658(g), the dual

network rule. In our Biennial Review

Report we tentatively concluded that a

portion of this rule was no longer

necessary in the public interest.

Accordingly, we issued an NPRM

proposing the elimination of this rule

consistent with the goals of the 1996

Act.

42. Significant Issues Raised by the

Public in Response to the Initial

Analysis. No comments were received

concerning the Initial Regulatory

Flexibility Analysis.

43. Description and Estimate of the

Number of Small Entities To Which the

Proposed Rules Will Apply. The RFA

directs agencies to provide a description

of, and, where feasible, an estimate of

the number of small entities that may be

affected by the proposed rules, if

adopted. The Regulatory Flexibility Act

defines the term ‘‘small entity as having

the same meaning as the terms ‘‘small

business,’’ ‘‘small organization,’’ and

‘‘small business concern’’ under section

3 of the Small Business Act. A small

business concern is one which: (1) Is

independently owned and operated; (2)

is not dominant in its field of operation;

and (3) satisfies any additional criteria

established by the SBA.

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

statutory definition of a small business

applies ‘‘unless an agency after

consultation with the Office of

Advocacy of the SBA and after

opportunity for public comment,

establishes one or more definitions of

such term which are appropriate to the

activities of the agency and publishes

such definition(s) in the Federal

Register. A ‘‘small organization’’ is

generally ‘‘any not-for-profit enterprise

which is independently owned and

operated and is not dominant in its

field.’’ Nationwide, as of 1992, there

were approximately 275,801 small

organizations. ‘‘Small governmental

jurisdiction’’ generally means

‘‘governments of cities, counties, towns,

townships, villages, school districts, or

special districts with a population of

less than 50,000.’’ As of 1992, there

were approximately 85,006 such

jurisdictions in the United States. This

number includes 38,978 counties, cities,

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

percent, have populations of fewer than

50,000. Thus, of the 85,006

governmental entities, we estimate that

81,600 (91 percent) are small entities.

45. The SBA defines small television

broadcasting stations as television

broadcasting stations with $10.5 million

or less in annual receipts. According to

Commission staff review of the BIA

Publications, Inc., Master Access

Television Analyzer Database, fewer

than 800 commercial TV broadcast

stations (65%) have revenues of less

than $10.5 million dollars.

32248 Federal Register / Vol. 66, No. 115 / Thursday, June 14, 2001 / Rules and Regulations

Approximately 90 of these small TV

broadcast television stations are

affiliates of the WB or UPN networks

and may be affected by our rule change.

We note, however, that under SBA’s

definition, revenues of affiliates that are

not television stations should be

aggregated with the television station

revenues in determining whether a

concern is small. Therefore, our

estimate may overstate the number of

small entities since the revenue figure

on which it is based does not include or

aggregate revenues from non-television

affiliated companies. It would appear

that there would be no more than 800

entities affected.

46. Description of Projected

Reporting, Recordkeeping, and Other

Compliance Requirements. The R&O

imposes no reporting, recordkeeping, or

compliance requirements.

47. Steps Taken to Minimize

Significant Economic Impact on Small

Entities and Significant Alternatives

Considered. The RFA requires an

agency to describe any significant

alternatives that it has considered in

reaching its proposed approach, which

may include the following four

alternatives: (1) The establishment of

differing compliance or reporting

requirements or timetables that take into

account the resources available to small

entities; (2) the clarification,

consolidation, or simplification of

compliance or reporting requirements

under the rule for small entities; (3) the

use of performance, rather than design,

standards; and (4) an exemption from

coverage of the rule, or any part thereof,

for small entities.

48. As indicated, the R&O allows

licensees to affiliate with a network

entity that maintains two or more

networks unless such multiple networks

consist of more than one of the ‘‘big

four’’ networks (NBC, ABC, CBS and

Fox). This eliminates the bar on

affiliation with an entity that maintains

one of the ‘‘big four’’ networks and the

UPN and/or WB networks. All

significant alternatives, i.e., retention of

the existing rule, modification of the

existing rule, and elimination of the

dual network rule altogether, were

considered in the Commission’s 1998

biennial review of its broadcast

ownership rules (MM Docket No. 98–35)

and herein. In the Biennial Review

proceeding the Commission tentatively

determined that elimination of the

subject provision would be in the public

interest. The Commission considered

the results of this top-to-bottom review

of the subject rule in its consideration

of alternatives to the course proposed

herein in the instant proceeding. The

instant action provides television

licensees, including those considered to

be ‘‘small businesses,’’ with increased

flexibility with regard to the broadcast

networks with which they may affiliate.

It also may help small stations that are

affiliated with the UPN or WB networks

survive and prosper in an increasingly

competitive media marketplace. Finally,

it gives the four major and two emerging

broadcast television networks, none of

which are small businesses, more

merger flexibility.

49. Report to Congress. The

Commission will send a copy of this

R&O, including this FRFA, in a report

to be sent to Congress pursuant to the

Small Business Regulatory Enforcement

Fairness Act of 1996, see 5 U.S.C.

801(a)(1)(A). In addition, the

Commission will send a copy of this

R&O, including FRFA, to the Chief

Counsel for Advocacy of the Small

Business Administration. A copy of this

R&O and FRFA (or summaries thereof)

will also be published in the Federal

Register. See 5 U.S.C. 604(b).

50. Accordingly, pursuant to the

authority contained in 47 U.S.C. 154(i)

and (j), 303(r), 308, 310 and 403, as

amended, 47 CFR part 73 is amended as

set forth in ‘‘Rule Change.’’

51. Viacom, Inc.’s, temporary waiver

of 47 CFR 73.658(g) of the Commission’s

Rules, will be extended until the

effective date of this rule amendment.

52. The Commission’s Consumer

Information Bureau, Reference

Information Center, will send a copy of

this R&O, including the Final

Regulatory Flexibility Analysis, to the

Chief Counsel for Advocacy of the Small

Business Administration.

Federal Communications Commission.

William F. Caton,

Deputy, Secretary.

List of Subjects in 47 CFR Part 73

Television.

Rule Change

For the reasons discussed in the

preamble the Federal Communications

Commission amends 47 CFR part 73 as

follows:

PART 73—RADIO BROADCAST

SERVICES

1. The Authority citation for part 73

continues to read as follows:

Authority: 47 U.S.C. 154, 303, 334, and

336.

2. Section 73.658 is amended by

revising paragraph (g) to read as follows:

§ 73.658 Affiliation agreements and

network program practices; territorial

exclusivity in non-network program

arrangements.

* * * * *

(g) Dual network operation. A

television broadcast station may affiliate

with a person or entity that maintains

two or more networks of television

broadcast stations unless such dual or

multiple networks are composed of two

or more persons or entities that, on

February 8, 1996, were ‘‘networks’’ as

defined in § 73.3613(a)(1) of the

Commission’s regulations (that is, ABC,

CBS, Fox, and NBC).

* * * * *

[FR Doc. 01–14936 Filed 6–13–01; 8:45 am]

BILLING CODE 6712–01–U

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 40

[Docket OST–99–6578]

RIN 2105–AC49

Procedures for Transportation

Workplace Drug and Alcohol Testing

Programs

AGENCY: Office of the Secretary, DOT.

ACTION: Request for comments on final

rule.

SUMMARY: On December 19, 2000, the

Department of Transportation published

its final rule on drug and alcohol testing

procedures. One provision of this rule

requires employers to inquire into the

drug and alcohol testing records of

applicants for employment. A group of

maritime industry organizations

requested that the Department provide a

comment period on this provision. In

response to this request, the Department

is opening a comment period for 30

days.

DATES: Comments on 40 CFR 40.25 must

be received by July 16, 2001.

ADDRESSES: Comments should be sent to

Docket Clerk, Attn: Docket No. OST–99–

6578, Department of Transportation, 400

7th Street, SW., Room PL401,

Washington DC, 20590. Persons wishing

their comments to be acknowledged

should enclose a stamped, selfaddressed postcard with their

comments. The docket clerk will date

stamp the postcard and return it to the

sender. Comments may be reviewed at

the above address from 9:00 a.m.

through 5:30 p.m. Monday through

Friday. Commenters may also submit

their comments electronically.