Media Programming: Factors Influencing the Availability of Independent Programming in Television and Programming Decisions in Radio
Published: 2010-03-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The media industry plays a vital role in informing and entertaining the public. Media ownership and the availability of diverse programming have been a long-standing concern of Congress. Despite numerous programming choices in television and radio available to the public, some studies have reported that independently produced programming--that is, programming not affiliated with broadcast networks or cable operators--has decreased through the years. This requested report discusses (1) the extent to which the sources of television programming have changed over the last decade, (2) the factors industry stakeholders identified as affecting the availability of independent television programming, and (3) the factors industry stakeholders identified as influencing programming decisions in radio. To address these issues, GAO analyzed data from the Federal Communications Commission (FCC) and industry on sources of broadcast television programming in prime time (weeknights generally from 8:00 p.m. to 11:00 p.m.) and companies owning cable networks, as well as radio format data to determine programming variety. GAO also reviewed legal, agency, and industry documents and interviewed industry stakeholders, public interest groups, and others. GAO provided FCC with a draft of this report for comment. In response, FCC provided technical comments that we incorporated where appropriate.
section_title: What GAO Found
paragraphs: The sources of broadcast and basic cable television programming have changed little in recent years. As a source of programming for prime time television, major broadcasters (ABC, CBS, Fox, and NBC) and their affiliated studios produced the majority of programming in each of the selected years that GAO analyzed. In particular, GAO found major broadcasters produced about 76 to 84 percent of prime time programming hours. The remaining programming came from independent producers, which are not affiliated with the major broadcasters. Since basic cable networks are also a source of television programming, GAO analyzed the ownership of those networks as an indicator of which entities control the television programming. On the basis of GAO analysis of ownership in the 20 most widely distributed basic cable networks, major broadcasters and companies affiliated with both major broadcasters and cable operators have owned half or more of the top 20 cable networks for each year reviewed. Combining ownership in both prime time programming and basic cable networks, the major broadcasters have controlled a significant share of television programming over the last decade. Stakeholders primarily cited economic factors as influencing the availability of independent television programming. In this regard, producers GAO contacted stated that developing and producing broadcast television programs is costly and financially risky. And while funds need to be secured early on in the development and production process to finance these costs, independent producers stressed that it is difficult to obtain financing for production costs. For cable television (viewed through a subscription video service), representatives of independent cable networks said a new network faces considerable uncertainty as to whether it will be distributed by a sufficient number of video providers (such as Comcast and DirecTV) to make its operations viable. By contrast, cable networks developed by cable operators or major broadcasters are able to negotiate distribution of the network with video providers as part of an agreement for distribution of an established affiliated network. For radio, stakeholders cited economic factors, local community interests, and consolidation in the radio industry as influences on programming decisions. Among both commercial and public radio stations, stakeholders said that programming decisions are based on listeners' interests in a given market. GAO found that within two of the three largest local markets nationwide, many of the most common local radio formats differ from the most common radio formats nationally, indicating that programming decisions are affected by local community interests. Over the last 10 years there has been consolidation in the radio industry; however, stakeholders' opinions varied about the extent to which consolidation has affected programming decisions. While some studies show that consolidation has led to homogenized radio playlists in different markets nationwide, GAO's analysis shows diverse formats and preferences are reflected within individual local markets.

section_title: Letter
paragraphs: The media industry plays an important role in educating and entertaining  the public. Given this vital role, the ownership of media outlets and the  availability of diverse programming in the media have been a long-standing  concern of Congress. One such concern, in particular, is that with  consolidation in the media industry, the percentage of independently  produced programming content on media outlets has decreased, thus  limiting the number of distinct media voices and selection choices for the  public.  In 1995, the Federal Communications Commission (FCC)  repealed the Financial-Syndication Rules, thereby allowing broadcast  networks to have ownership interests in television programs during prime  time. In addition, the Telecommunications Act of 1996, among other  things, directed FCC to conduct a rulemaking to evaluate local limits of  ownership in television and relaxed the ownership limits in local radio  stations, leading to consolidation in some segments of the media industry.  For example, prior to the act, the largest radio station owner owned fewer  than 65 radio stations, whereas in 2009, the largest radio station owner  owned over 800 stations, raising concerns about the variety of  programming available on the radio. Although the current media  environment provides the public with numerous programming choices in  television and radio, and over the Internet, some media industry  stakeholders and studies have reported that independently produced  programming has decreased through the years as a result of media  consolidation.
You requested that we study the state of programming for television and  radio and the factors influencing programming decisions. As such, we  reviewed (1) the extent to which the sources of programming in television  have changed over the last decade, (2) the factors and conditions industry  stakeholders identified as affecting the availability of independent  programming in television, and (3) the factors industry stakeholders  identified as influencing programming decisions in radio.
To determine the extent to which the sources of programming in television  have changed during the last decade, we analyzed available data on two  key sources of television programming—companies producing prime time  television programs for major broadcast networks and companies with  basic cable network ownership interests over the last decade. We focused  on programs broadcasted on prime time because that is the block of time  on television with generally the most viewers, and in turn these programs  generate the most advertisement revenue for networks. To determine  which companies produced prime time broadcast television programming,  we classified prime time programs into two categories: (1) programs  produced by major broadcasters, and (2) programs produced by  independent production companies not affiliated with a major broadcaster  (independent producers). Because annual data that track program  production in these categories are limited, we analyzed the fall prime time  schedules in 2002, 2005, 2008, and 2009 and classified them in the two  categories. We selected these years based on available data from FCC’s  previous study that contained data in the two categories for 2002. We then  conducted our analysis for every third year and classified the programs  into the two categories. We also analyzed the 2009 fall prime time schedule  to provide the most current data available. Since basic cable networks are  also a source of television programming, we analyzed the ownership of  those networks as an indicator of which entities control the television  programming on the networks. Specifically, we used data from SNL Kagan  to determine the types and the number of companies with ownership  interests in basic cable networks that were available from 1998 to 2008,  and the companies that owned the largest number of basic cable networks  during this period. Of the 20 most widely distributed basic cable  networks, as measured by the number of subscribers for each year from  1998 to 2008, we determined how many were affiliated with major  broadcasters, cable operators, and other media companies and how many  were unaffiliated independent cable networks.
To determine the factors industry stakeholders identified as affecting the  availability of independent programming in television, and as influencing  programming decisions in radio, we met with FCC officials and  interviewed or obtained written comments from selected academic  experts and industry stakeholders and associations, including  representatives from broadcasting (such as ABC and Fox), cable and  satellite (such as Comcast and DirecTV), commercial and public radio  (such as Clear Channel Communications and National Public Radio),  independent programming groups (such as Future of Music Coalition and  Independent Film and Television Alliance), and public interest groups  (such as Consumers Union and Free Press). See appendix I for a complete  list of academic experts and industry stakeholders we contacted. We  selected experts and industry stakeholders based on published studies,  representation of the different segments of the media (i.e., broadcast and  cable televisions and radio), and recommendations from other industry  stakeholders; we intended to obtain diverse views and did not weight  views of the experts and stakeholders but grouped similar stakeholders  that represent a segment of the media industry. We also reviewed the  relevant laws, regulations, and literature, including comments filed by  stakeholders in various FCC proceedings. Additionally, for radio, we  focused on radio station formats indicating the types of programming a  station might play. To conduct this analysis, we obtained historical data  on the distribution of radio stations by their primary formats nationwide  and in local markets from 1999 to 2003 and station-level format data from  the Broadcast Investment Analyst Financial Network’s (BIAfn) Media  Access Pro Database for commercial and public radio stations from 2004  to 2009. Although the BIAfn format data provide a general overview of the  type of programming aired on a given radio station, they do not identify  specific programming content that is played on the station. We did not  assess independently produced programming on radio because a national  playlist database identifying record label affiliation is not available. We  analyzed the format data to determine programming variety and  distribution of radio stations by their format nationwide and in two  selected local markets in 2009. For local markets, we selected New York  and Chicago because they are similar in size with different demographic  populations. We also examined 2009 format data for commercial and  public radio stations and identified the top 10 most popular formats (based  on the number of stations with the particular formats available) for each  group nationwide. To examine the extent of programming variety among  radio stations, we selected the top 10 radio station owners—that is,  owners who own the most radio stations nationwide—and examined  similarities and differences in formats for each owner’s radio stations in  the same market. To identify the top 10 radio station owners in 1996-1998,  2000-2002, 2007, and 2009 we used data from FCC reports and the BIAfn  database. The top 10 radio station ownership data were not available in  2003-2006 and 2008. We also reviewed studies on radio programming for  information on radio station playlists and the extent to which playlists for  each owner’s radio stations overlap in the same market. We determined  that the television and radio data we obtained were sufficiently reliable for  the purposes of this report.
We conducted our work from May 2009 to March 2010 in accordance with  all sections of GAO’s Quality Assurance Framework that are relevant to  our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and discuss any limitations in our work. We believe that  the information and data obtained, and the analysis conducted, provide a  reasonable basis for any findings and conclusions in this product.  Appendix I contains a more detailed discussion of our objectives, scope,  and methodology.
subsections: section_title: Background
paragraphs: The media industry has its own terminology, and the following glossary  provides the definition of terms used throughout this report:  Typically, the general public views television programming through  broadcast or subscription video service. Broadcast television provides free  over-the-air programming to the public through local television stations.  By contrast, consumers pay fees for subscription video service to video  providers, including cable operators, satellite providers, or  telecommunications companies. Programming for broadcast and  subscription video service differs, as illustrated in figure 1.
Broadcast television consists mainly of four major broadcast networks  (ABC, CBS, Fox, and NBC) and several smaller networks, such as the CW  Television Network, MyNetworkTV, and ION Television. Each of the four  major broadcasters owns and operates some local television stations;  other stations can be affiliated with one of the major broadcasters or, as is  the case with public television, unaffiliated with the major broadcasters.  The four major broadcasters provide scripted and nonscripted  programming to the local television stations that is produced either by the  major broadcasters’ affiliated production companies or by independent  producers. The development process of scripted programs (i.e., drama and  comedy series) for prime time programming involves steps that allow  major broadcasters to periodically assess the program as it develops, as  described in figure 2.
In contrast, the development process for nonscripted programs, such as  reality programs and game shows, does not involve most of the steps  shown in figure 2. Scripts and pilots do not need to be developed for  nonscripted programs, making them less expensive to produce than  scripted programs.
For subscription video service, video providers obtain a variety of  programming from both broadcasters (which can include major networks  and local stations) and cable networks. Video providers must negotiate  with broadcasters and cable networks to air and distribute their  programming. Negotiations include the price, terms, and conditions for  distribution on the video providers’ systems. Video providers have the  discretion to select which cable networks will be available and, subject to  negotiation, how they will be packaged and marketed to subscribers.
According to a recent FCC report, more than 500 cable networks exist,  including national cable networks (such as CNN, Discovery Channel,  ESPN, and Fox News) as well as regional cable networks (such as the  California Channel, Comcast SportsNet Chicago, and the YES Network).  Cable networks can provide niche programming—that is, programming  that targets specific demographics. For instance, Lifetime Network offers  programming that specifically targets women, while MTV Network targets  programming for the 18-to-34 age demographic.
The general public receives radio programming through commercial and  public radio stations. Over the last 5 years, the number of full-power radio  stations has increased from 13,590 in 2005 to over 14,600 in 2009, with the  vast majority of these stations being commercial (78 percent, or 11,430  stations) and the remainder being public (22 percent, or 3,198 stations).  Following passage of the Telecommunications Act of 1996, concentration  in radio station ownership increased significantly because of the act’s  relaxation of national and local multiple radio ownership limits. For  example, in 1996, the two largest radio station owners held fewer than 65  radio stations each. By contrast, as of 2009, Clear Channel  Communications Inc. owned over 800 radio stations (down from 1,135 in  2007), and the second largest group owner, Cumulus Broadcasting LLC,  owned about 300 radio stations (see table 2). In 2009, the top 10 radio  station owners owned 20 percent of all commercial radio stations. In  addition, each radio station has a primary programming format  designation that describes the programming content on that station. For  example, in 2009, radio station KQSD in Lowry, South Dakota’s, primary  format was Classical, its secondary format was News, and its tertiary  format was Jazz. As such, the station primarily plays Classical music, but it  also provides some news and plays some Jazz.
FCC awards licenses to television and radio stations to use the airwaves  expressly on the condition that licenses serve the public interest and  licensees are responsive to the needs of its local community. Toward this  end, FCC has long identified localism, competition, and diversity as its  three core goals of media policy. Within this framework, FCC has  considered the public interest best served by promoting free expression of  diverse views and has promoted program diversity by limiting the number  of broadcast outlets any one entity may own. As such, individual radio and  television stations generally have discretion to select programming and to  determine how best to serve the local community audience.
Since the mid-1990s, FCC has amended or repealed a number of rules and  regulations affecting the media industry. In 1995, FCC repealed the  Financial Interest and Syndication Rules (Fin-Syn rules) so that a major  broadcaster can own programming that it airs during prime time hours, as  well as own syndication rights to programs purchased from independent  producers. Following the repeal of the Fin-Syn rules, each of the four  major broadcasters merged with, or acquired an ownership interest in, at  least one major production studio. For instance, the Walt Disney Company  acquired ABC and developed ABC Television Studio; CBS became  affiliated with the studio Paramount Television; and NBC merged with  Universal Pictures. In addition, News Corporation—which launched the  Fox Broadcasting Network in 1986—owns several production studios,  including 20th Century Fox. FCC is required to review media ownership  rules every 4 years and determine whether those rules are necessary in the  public interest.
Although FCC regulates television primarily through ownership rules and  station licensing, some of its other rules also affect aspects of television  programming. Some of the key rules that affect programming and carriage  were adopted in 1992 and are summarized below.
Retransmission consent and must carry rules. Under these rules,  every 3 years local commercial television stations (including those owned  and operated by the major broadcasters) must decide whether to negotiate  individual retransmission consent agreements with each cable operator in  its designated market area for compensation in exchange for the cable  operator’s right to carry the broadcast signal. In lieu of negotiation,  stations may elect to require each cable operator in its designated market  area to carry its signal (i.e., must carry), without receiving compensation  for such carriage.
Program carriage rule. This rule prevents a video provider from  requiring a financial interest in programming or coercing a programmer  (i.e., cable network) to grant exclusive rights as a condition for carriage,  or from discriminating against an independent cable network in a way that  unreasonably restrains the ability of the network to compete.
Commercial leased access rule. Under this rule, cable operators are  required to set aside a certain number of channels, depending on the size  of the cable system, that can be leased out to independent cable networks  for access on its distribution system. Congress has required FCC to (1)  determine the maximum reasonable rates that a cable operator may  establish for commercial use of the designated channels; (2) establish  reasonable terms and conditions for such use, including those for billing  and collections; and (3) establish procedures for the expedited resolution  of disputes concerning rates or carriage.
section_title: Sources of Broadcast and Cable Television Programming Have Changed Little in the Last Decade
subsections: section_title: Major Broadcasters and Their Affiliated Studios Have Produced the Majority of Broadcast Prime Time Programming
paragraphs: Major broadcasters and their affiliated studios have produced the majority  of broadcast prime time programming in each of the selected years that we  analyzed. In particular, major broadcaster-affiliated studios produced from  76 to 84 percent of broadcast prime time programming hours, with the  remaining hours coming from independent producers. As shown in figure  3, in most of the years that we reviewed, the share of major broadcaster- produced prime time programs did not change significantly. However in  2008, the prime time programming from independent producers increased  slightly compared with such programming in 2005.
For the fall 2009 broadcast prime time schedule, the top five program  producers as measured in prime time program hours were studios  affiliated with ABC, CBS, Fox, NBC, and Warner Bros. These producers  provided approximately 76 total programs, amounting to about 82 percent,  in the fall prime time schedule. We identified 11 prime time programs that  fell into the independent producer category for the fall 2009 prime time  schedule. Of those, Sony Pictures Television Studio produced 3 programs,  and eight other independent producers each supplied a program. Although  most of the programs produced during the years we reviewed were  affiliated with major broadcasters, a previous FCC-commissioned study  indicated that the number and affiliation of prime time programming  producers has changed significantly since the repeal of the Fin-Syn rules in  1995.  The study found that in 1995, the top five program producers  provided about 54 percent of prime time programming, with three  producers affiliated with a major broadcaster.
section_title: Numerous Companies Own Cable Networks, but Major Broadcasters and Their Affiliated Companies Have Continued to Own about Half of the Most Widely Distributed Cable Networks
paragraphs: Since basic cable networks are also a source of television programming,  we analyzed the ownership of those networks as an indicator of which  entities control the television programming on the networks. On the basis  of our analysis of ownership interests over the last decade, we found that a  number of companies have ownership interests in a basic cable network  (cable network), but a much smaller group of companies have ownership  interests in 5 or more such networks. From 1998 to 2008, 94 companies  on average have owned an interest in at least 1 cable network. The number  of companies has declined somewhat over time, however, from a high of  106 companies in 1998 to a low of 81 companies in 2008. Cable network  owners include owners of major broadcasters, such as News Corporation,  which owns Fox, and Walt Disney Company, which owns ABC; cable  operators, such as Comcast and Cablevision; owners of major publications  and television stations, such as Tribune Company and Hearst Corporation;  and other media companies, such as Liberty Media Corporation and  Scripps Networks Interactive. On the basis of our analysis of all the  companies with cable network ownership interests from 1998 to 2008, we  found a range of 11 to 13 companies that owned an interest in 5 or more  networks in at least 1 year. Of these companies, we found a range of 5 to 7  companies that owned at least 12 cable networks over the decade. As  shown in figure 4, the number of basic cable networks owned by these top  5 companies has not changed significantly over the last 11 years.
Viacom and Walt Disney Company had ownership interests in the most  cable networks over the last decade, with each owning more than 20  networks in each year. None of the top five owners has increased the  number of cable networks owned since 2001. In 2008, these top five  companies owned about half of basic cable networks.
We analyzed ownership of the 20 most widely distributed basic cable  networks, as measured by the number of subscribers for each year from  1998 to 2008 (referred to as top 20 cable networks). On the basis of our  analysis, we found major broadcasters and companies affiliated with both  major broadcasters and cable operators combined owned 50 percent or  more of the top 20 networks. As shown in figure 5, the number of major  broadcaster-owned top 20 cable networks ranged from 6 in 1998 to a high  of 12 in 2004 before declining to 8 cable networks in 2008. The number of  top 20 cable networks owned by companies affiliated with both major  broadcasters and cable operators remained relatively steady during the  decade at 3 to 4. Cable operators without a broadcast company affiliation  owned 5 of the top 20 cable networks in 1998, but this number declined  over time and was zero in 2007 and 2008.
In 2008, the last year of our analysis of ownership of the top 20 cable  networks, we found 8 cable networks that were affiliated with major  broadcasters. For example, 2 top 20 cable networks, ABC Family Channel  and Disney Channel, are owned by Disney, a company that also owns the  ABC broadcast network. Four networks in the top 20 were affiliated with  both major broadcasters and cable operators. For example, in 2008, CNN,  TBS, and TNT were owned by Time Warner, a company affiliated with  cable operator Time Warner Cable, broadcaster CW Television Network,  and television production studio Warner Bros. In addition, 8 networks in  the top 20 fell in the “other” category for 2008, because they did not appear  to have a direct affiliation with a major broadcaster, cable operator, or  satellite provider. Some of the networks in this category, including the  Food Network and HGTV network, which are owned by Scripps Networks,  could be identified as independent networks. Other cable networks  identified as independent networks in other studies, such as the Hallmark  Channel and the NFL Network, did not fall into the top 20 cable networks  by subscribership in 2008 or in previous years, so they were not included  in our analysis.
Combining ownership in both prime time broadcast programming and  widely distributed basic cable networks, the major broadcasters have had  an interest in a significant share of television programming over the last  decade. Independent producers have been a source for a smaller share of  prime time broadcast programming. Cable operators without a major  broadcaster affiliation are not a source of prime time broadcast network  programming, and over the last decade their interest in the top 20 most  widely distributed basic cable networks has decreased. However, they  make programming decisions for the cable networks they own and  determine which cable networks will be carried on their cable distribution  systems. FCC annually reports on cable network programming variety and  ownership as part of its video competition report, but the report does not  assess the extent to which the sources of programming affect variety in  television and selection choices for the public.
section_title: Stakeholders Cited Economic Factors, Technical Issues, and Legal Conditions as Affecting the Availability of Independent Television Programming
subsections: section_title: In Broadcast Television, Economic Factors Influence the Availability of Independent Programming
paragraphs: Industry stakeholders we interviewed stated that the high cost of  developing, producing, and distributing television programs is a significant  factor that affects the availability of independent programming in  broadcast television. According to television broadcast executives and  representatives of independent producers, developing and producing  broadcast television programs is costly and financially risky. For example,  one report estimated that major broadcasters spent about $120 million for  the 1997-1998 season to develop 49 drama pilots and used 14 in their  schedules, of which 1 program returned for a second season. Moreover,  according to television broadcast executives, once programming is  developed, the costs to produce a scripted drama or comedy program  range from about $21 million to $48 million for 21 program episodes per  season, with no guarantee that a program will continue to be produced for  another season.
Producers need to sell their program ideas to major broadcasters and  secure financing to cover the costs of developing and producing scripted  television programs. Because of their large size and access to capital,  major broadcaster-affiliated studios and other large unaffiliated studios  often have the ability to finance development and production costs.  However, representatives of independent producers stressed that it is  difficult for them to obtain financing for development and production  costs, and oftentimes they must secure financing through the major  broadcaster-affiliated studios. The independent producers said since  major broadcasters have the ability to finance production costs and make  programming decisions, it results in seven or eight companies controlling  a significant portion of the program content on television.
When selecting programming for prime time, television broadcast  executives told us that they strive to air programming that will achieve  high ratings. Advertisers will generally pay more for programs that achieve  higher ratings, and since major broadcasters rely on advertising revenue, it  is in their financial interest to select programs that will accrue the high  level of audience that drives advertising revenue. Television broadcast  executives and an academic expert we contacted stated that they also  consider quality for prime time programming, and not necessarily the  source of programming (i.e., whether the program was produced by an  independent producer or an affiliated production studio). They said  quality programming will attract the largest share of viewers, which in  turn, drives advertising revenue. Further, they stated that since advertisers  spend less overall during times of economic downturn and have multiple  choices for their advertising dollars (such as on cable television and the  Internet), it is all the more essential to have quality programming to attract  the advertisers.
While television broadcast executives said that it is the quality, not the  source, of programming that influences the selection of prime time  programming, major broadcasters are, nevertheless, financially invested in  the affiliate-produced programs and stand to gain additional profits if the  affiliated programming makes it to syndication. Consequently, some  stakeholders said broadcasters might choose their own programming over  that of independent producers. In particular, according to an academic  expert and representatives of independent producers, if both major  broadcaster-affiliated studios and an independent producer offer similar  genre and programming content to a major broadcaster, the major  broadcaster will select the program from its affiliated studio over an  independent producer because of these financial interests. As we  previously noted, major broadcaster-affiliated studios (5 companies)  produced 82 percent of prime time programming in the fall 2009 prime  time schedule. While independent producers most likely would be unable  to produce and distribute programming without some financial  arrangements with major broadcasters, they said working under the major  broadcasters’ control could cause them to lose creative control of the  program’s content, with the writing of the program being directed by the  studio bearing the financial risk of production. For example, an  independent producer cited the replacement of a writer for CBS’s The  Education of Max Bickford, a drama on the major broadcaster’s 2001  prime time schedule, when creative differences arose with the major  broadcaster that owned the program.
section_title: In Cable Television, Economic Factors, Finite Capacity, and Federal Law Affect Network Carriage
paragraphs: For carriage on cable television, stakeholders cited (1) economic factors,  (2) finite capacity, and (3) federal law as affecting carriage of new  independent networks.
Economic factors. Representatives of independent networks and some  video providers said economic factors affect carriage of new independent  networks and their programming. According to video providers, it is  difficult to determine the cost and value of new independent networks and  how many subscribers will be gained based on concepts and business  plans of unproven independent networks. Representatives of independent  networks we contacted and a study we reviewed indicated that a new  network usually faces considerable uncertainty as to whether it will be  distributed by a sufficient number of video providers to make its  operations viable. Similarly, an academic study indicates that for new  networks, there is a high cost to sustaining operations while attracting a  sufficient number of video providers and their subscribers.  For instance,  one report stated that cable network Fox News Network had invested over  $150 million by the time it launched in 1996, but it was expected to lose up  to $400 million in the next 5 years. Representatives of independent  networks told us that it is difficult to obtain financing for a new cable  network because commercial banks want a network to secure carriage  with a major cable company, such as Comcast, before extending financing  to it.
By contrast, cable networks developed by cable operators, major  broadcasters, or other media companies are generally more able to finance  the development of affiliated networks over new independent networks.  As our analysis indicated, major broadcasters and their affiliated  companies owned at least half of the most widely distributed cable  networks. Basic cable networks that are affiliated with cable operators,  major broadcasters, or other media companies can negotiate carriage of  an affiliated cable network as part of an agreement for carriage of an  established affiliated network. For example, the Walt Disney Company  owns ESPN, SoapNet, and ABC Family cable networks, along with ABC.  According to representatives of small cable operators, during the course of  negotiating for carriage for ESPN, they must also carry ESPN’s spin-off  cable networks, including ESPN2 and ESPNEWS. In another example, a  new cable network—Wedding Central—that is affiliated with cable  operator Cablevision was launched in August 2009 on its distribution  system.
Finite capacity. Stakeholders also cited finite capacity in cable system  infrastructure of some video providers as a technical issue that affects  selection and availability of independent programming. Representatives of  video providers we contacted commented that although their overall  capacity to carry television programs has expanded with advanced  technology, it remains finite. Because cable operators and  telecommunications companies offer a wide array of services over their  broadband networks, they must determine how to allocate their systems’  capacity among these multiple services. Representatives of cable  operators and television broadcast executives told us that adding another  cable network—independently produced or otherwise—when more than  75 already exist in basic cable, might not be considered the most efficient  use of cable operators’ resources and capacity. For example, given the  demand for high-speed Internet services, cable operators told us they want  to ensure they are using the finite capacity of their systems efficiently to  be able to meet that demand.
Despite the constraints on capacity in the cable system infrastructure,  representatives of video providers and television broadcast executives we  spoke with noted that alternative distribution platforms, such as online  video streams, have provided more outlets and opportunities for  independent programming. For instance, in 2007, two independent  producers produced a television drama called Quarterlife, which was  aired on the social network Web site MySpace.com. On the other hand,  television broadcast executives and representatives of independent  producers we contacted commented that although the Internet provides  the opportunity for distribution of independent programming, it does not  translate to success with regard to attracting the number of viewers that  television offers.
Federal law. Stakeholders cited, and studies have reported, that FCC rules  and regulations implementing certain federal statutes can also influence  programming decisions.
Retransmission issues. As we previously mentioned, representatives of  some video providers stated that the business practice of bundling   networks—meaning that certain networks are sold as a package with  broadcast networks rather than being sold individually—which may occur  during negotiations between broadcasters (which can include major  networks and local stations) and video providers for retransmission rights.  Such bundling influences video providers’ carriage decisions and limits  their ability to select independent programming. In 2004, we reported that  because the terms of retransmission agreements often include the carriage  of major broadcaster-owned cable networks, cable operators sometimes  carry cable networks they otherwise might not have carried.  Representatives of some video providers told us recently that this practice  also fills their systems’ capacity, leaving less capacity for independent  cable networks and making it difficult for independent cable networks to  gain carriage. Television broadcast executives, on the other hand,  commented that negotiations in lieu of invoking the retransmission rule  may be necessary for them to be fully compensated for their content.
As part of its annual report on the status of competition in the delivery of  video programming, FCC is currently seeking data and analysis on  implementation of the retransmission consent rules. FCC also has a  separate proceeding specifically looking at revisions to the retransmission  consent rules and whether it would be appropriate to preclude the  practice of programmers tying desired programming with undesired  programming, such as tying carriage of a major broadcaster-owned cable  network to retransmission conditions for a broadcast signal. The  comment period for the notice closed in December 2007, and FCC officials  are currently reviewing comments.
Program carriage rule. Representatives of independent cable networks  and public interest groups stated that although the program carriage rule  is needed to promote independent programming, FCC criteria for  determining discrimination on the basis of affiliation are unclear. They  told us more precise standards for proving discriminatory or exclusionary  conduct by cable operators as well as the establishment of a time frame  for FCC to determine whether the complaining independent cable  networks have sufficient evidence to proceed to a hearing would make the  rule more effective. According to independent cable network  representatives, some independent cable networks have waited over a  year before FCC determined whether it would conduct a hearing. Because  the independent cable network is not being carried by the defendant cable  operator in the interim, some independent cable networks can go out of  business before a decision is made. Representatives of cable operators,  on the other hand, stated that the rule is not necessary because a cable  operator’s decision to reject a network could be based on the program  quality and similarity of content and not on the ownership of a network.
Leased access rule. In the case of the leased access rule, a public  interest group official indicated that this rule has not achieved what it was  intended to do because the prices for leased access were set too high.  Representatives of cable operators explained that the rule forces cable  operators to carry programming even if they believe the channel does not  bring much value to the subscribers. Representatives of cable operators  cited home shopping channels as an example of programming that relies  on leased access to gain carriage. The rule also affects the cable operators’  ability to carry other programming because the set-aside channels  consume capacity that could be used for other programming. Cable  operators also noted that the rule does not apply to satellite providers and  their systems.
section_title: Stakeholders Cited Various Factors as Influencing Programming Decisions, Including Format and Playlist Selection, in Commercial and Public Radio
subsections: section_title: Commercial Radio Stations Largely Make Programming Decisions Based on Economic Factors
paragraphs: In selecting radio station formats and music playlists, stakeholders we  interviewed stated that (1) advertisement revenue, (2) cost of  programming, and (3) market competition are key economic factors that  influence programming decisions in commercial radio.
Advertisement revenue. Commercial radio stations are primarily funded  by advertisement revenue obtained from selling radio time to companies  seeking to reach specific demographic segments. Radio station owners  and experts told us that when making decisions about format and playlist  selection, program directors will consider the number of listeners that  programming will likely attract, and, in turn, the advertisement revenue  they may earn. The rates that a station obtains for advertising time  depend on the station’s ability to attract listeners within the advertisement  companies’ target demographic segment, the length of the advertisement  spot, and the size of the market, with larger markets typically receiving  higher rates than smaller markets. Radio stations compete for listeners  and advertising revenue with other stations within their respective local  markets. Consequently, radio stations continuously examine their  programming content to try to attract an audience that is highly desirable  to advertisers. In particular, a radio station’s format enables it to target  specific segments of listeners sharing demographics that appeal to  advertisers. According to a radio industry expert, if the advertising market  is not interested in reaching the specific target audience of a music format,  the station will not be able to survive economically because it will not be  able to gain enough ad revenue. Moreover, radio station owners with  stations in different markets but of the same format can be more effective  at attracting revenue from advertisers who want to reach a similar  demographic in multiple markets.
Cost of programming. Another economic factor that influences  programming decisions is the cost to produce radio content. For example,  radio station owners and experts told us that increased costs and  decreased advertisement revenue over the past decade have led to an  increase in the use of voice tracking and syndicated programming.  According to radio station owners and experts, voice tracking is less  costly than producing shows for individual markets, and to save  programming costs, some stations choose to import programming from  another market during peak listener times rather than hire their own radio  personalities. In addition, radio industry experts pointed out that  historically, stations in small markets have generally relied on nationally  syndicated programming to bring in marketable talent that will allow them  to compete with other stations in the market. Some stakeholders have  expressed concern that voice tracking and syndicated programming are  replacing local programming and therefore the needs and interests of the  local community are not being reflected by the voice-tracked or  syndicated programming. However, representatives of radio station  owners have stated that there is no evidence that voice tracking or  syndicated programming diminishes localism. For example, one station  owner pointed out that the value of programming is determined by how  strongly it resonates with listeners, regardless of where it originates.
Market competition. Marketplace factors, such as the extent of  competition in a given market, also affect programming decisions. For  example, radio station owners stated that when radio station program  directors are trying to determine a station’s format, they will consider  what formats are currently available in the local market and what formats  are missing. If there are already stations programmed with a popular  format in a given market, a radio station will likely look to competitively  differentiate itself by selecting a format targeted toward a demographic  that is not currently being served. In doing so, a station may also better  compete for audiences and advertising revenues with other media.
Experts and representatives of independent producers told us that radio  station formats have become more specific in recent years in an attempt to  enable stations to target a specific demographic and attract advertisers,  and as a result, radio station formats have changed over time. According to  radio station owners, the number of radio station formats has increased.  Representatives of radio station owners conducted a study examining  radio station formats, and found that from 2001 to 2005, the number of  radio station formats increased by 7.5 percent. Station owners have  characterized this increase in the number of formats as an increase in  variety in radio programming. However, some experts and representatives  of independent producers have noted that formats with different names  often have similar playlists, diminishing real variety among those formats.  For example, one expert noted that it is very difficult to discern  differences in playlists between radio formats such as Rock and Light  Rock.
section_title: Local Interests Also Affect Programming Decisions in Both Commercial and Public Radio Stations
paragraphs: Stakeholders stated that in both commercial and public radio,  programming decisions such as selection of format and music playlists are  based on the interests of listeners in a given market. Radio station owners  in both commercial and public radio reported that program directors will  conduct research related to the demographics and preferences of the  listeners in their markets to ensure they are meeting the needs of their  community. In commercial radio, understanding the interests of listeners  in a given market is important for the station to attract a large audience  and, as previously noted, attract advertising revenue. According to radio  station owners, program directors are expected to be familiar with music  interests in their markets and make programming decisions that will be  successful in reaching an audience within their market. A stakeholder also  noted that even among similarly formatted radio stations, the playlist will  vary to meet the needs of the local market. For example, the type of  country music that is popular in Tucson, Arizona, can be very different  from popular country music in New York City.
According to our analysis, in 2009, the 10 most common formats across all  national radio stations included Country, News, Christian, Adult  Contemporary, Oldies, Sports, Christian Contemporary, Variety, Classic  Rock, and Talk, as shown in figure 6.
We found that within selected individual markets, the top radio formats  differ from the top radio formats nationally, indicating that programming  decisions are locally based on the preferences and interests of listeners  within a given market. For example, the most popular radio station  formats in New York City (the largest Arbitron market) include 5 formats  not reflected in the top 10 national radio formats (Alternative, Spanish,  Contemporary Hit Radio, Ethnic, and Adult Album Alternative). In  addition, we found 19 percent of all stations in the New York market were  designated as Ethnic and Spanish formats compared with 7 percent  nationwide, suggesting that programming decisions among radio stations  in this market reflect the demographics and interests in the market. By  comparison, in Chicago, Illinois (the third-largest Arbitron market), we  found that 11 percent of stations in this market were designated as Ethnic  and Spanish formats. Furthermore, formats that were among the most  popular in Chicago but not in New York included Christian, Talk, and  Rock (see fig. 7).
As is the case in commercial radio, representatives of public radio  reported that programming decisions are locally based on the preferences  and interests of listeners within a given market; however, they said their  community service orientation also influences programming decisions.  Representatives of public radio explained that local public stations select  their own formats and determine their own audience strategies based on  their understanding of local community needs, and their role in serving  those needs. They also said the cost of programming is a final  consideration for public radio stations after quality- and mission-related  factors are considered. In addition, representatives of public radio noted  that public stations generally play music from artists that are signed to  small, independent labels. Independent labels generally seek out a station  if the station’s format includes music similar to that of the labels, and will  then establish relationships with such stations. On the basis of our review  of 2009 format data for commercial and public radio stations, we found  that the top 10 formats in public radio differ from the top 10 formats in  commercial radio (see fig. 8). Only two formats (News and Spanish) were  among the top 10 formats in both commercial and public radio.
section_title: Opinions Vary on How Consolidation in the Radio Industry Has Affected Programming Decisions
paragraphs: Stakeholders that we interviewed generally agreed that since 1996, the  number of stations owned by a single radio station owner has increased;  however, viewpoints varied about the extent to which consolidation has  affected programming decisions. Experts and representatives of  independent producers we contacted stated that the elimination of the  radio ownership limits in 1996 resulted in an increase in the number of  stations owned by a single station owner nationally and in local markets.  Independent producers have reported that the radio station holdings of the  10 largest radio station owners have increased significantly. On the basis  of our analysis, we found that the share of commercial stations owned by  the top 10 station owners did increase, from 4 percent in 1996 to 20  percent in 2009. However, throughout that period, the top 10 radio station  owners did not own more than 21 percent of all commercial stations, as  shown in figure 9.
In addition, we analyzed data for the top 10 national radio station owners  in 2009 and found that for most owners (7 out of the 10 owners), stations’  formats were differentiated within individual markets. For example, Clear  Channel—the largest radio station owner—owns multiple radio stations in  148 Arbitron markets. We found that in most of those markets (72  percent), Clear Channel programmed its stations with different formats,  while in 28 percent of those markets some stations were programmed with  the same format. As illustrated in table 3, among the station owners that  we reviewed, those with the highest percentage of overlap among radio  stations in the same market included American Family Association (78  percent), Cox Radio (56 percent), and Educational Media (56 percent). We  also found that 75 percent of the markets where format overlap did exist  included large markets with 30 or more radio stations.
Radio station owners and representatives of independent producers  offered different perspectives on how consolidation in the radio industry  has affected programming decisions nationally and in individual markets.  On one side, radio station owners and experts told us that to remain  financially viable, stations have had to eliminate duplicative operating and  overhead expenses and establish a business model where one program  director is responsible for programming decisions for multiple stations.  Some station owners added that program directors overseeing  programming decisions for stations in multiple markets make decisions  based on the interests of listeners within the individual markets. Further,  radio station owners and experts have reported that common ownership  of multiple stations in a single market benefits the audience in that market,  as the station owner will choose to diversify formats among its stations to  attract a large share of the listening audience in the market.
Another viewpoint expressed by representatives of independent producers  and experts is that the increased consolidation has changed the stations’  decision-making structure, resulting in homogenized programming  decisions across markets and resulting in large companies using  centralized methods to make programming decisions. According to this  view, as jobs are consolidated when one entity owns multiple stations, one  program director may make similar programming decisions across  multiple stations in different markets. The independent producers said  that as a result, playlists of radio stations owned by the same owner will  overlap. Studies conducted by representatives of independent producers  and academic experts examined playlists of radio stations owned by the  same owner across all markets and found overlap in playlists of stations  with the same format. For example, a December 2006 study published by  the Future of Music Coalition found examples of overlap among playlists  of individual stations owned by the same company in different markets— such as an overlap for the playlists of two country stations located in  different markets (WQRB-FM in Eau Claire, Wisconsin, and WRWD-FM in  Poughkeepsie, New York). However, the study did not examine overlap  and differences among playlists of owners’ radio stations in the same  market. A January 2006 study conducted by an academic expert also  examined playlist data for each owner’s radio stations and found that the  playlists of radio stations in different markets overlapped, but that the  playlists of radio stations in the same market were different.
section_title: Agency Comments
paragraphs: We provided a draft of this report to FCC for official review and comment.  FCC provided technical comments that we incorporated where  appropriate. FCC’s written comments appear in appendix III.
We will send copies of this report to the Chairman of the Federal  Communications Commission and appropriate congressional committees.  In addition, the report is available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me on (202) 512-2834 or wised@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To obtain information on the extent to which sources of programming in  television have changed over last decade, we analyzed available data on two  major sources of television programming—companies producing prime  time broadcast television programs and companies with cable channel  ownership interests during the last decade. We focused on programs  broadcasted during prime time because that is the block of time on  television with generally the most viewers and in turn generates the most  advertisement revenue for networks. To determine which companies  produced prime time broadcast television programming, we used a previous  Federal Communications Commission (FCC) study and the International  Television & Video Almanac to classify prime time programs into two  categories: (1) programs produced by major broadcasters, and (2) programs  produced by independent production companies not affiliated with a major  broadcaster (independent producers). We analyzed the fall prime time  schedules in 2002, 2005, 2008, and 2009 and classified them in the two  categories. We selected these years because annual data that tracked  production information in the two categories were limited; FCC’s previous  study contained data in the two categories for 2002. We then conducted our  analysis for every third year (2005 and 2008) using the Almanac’s  production company information for each television program in that year’s  debut fall broadcast prime time schedule and classified the programs into  the two categories. We also analyzed the Almanac for the 2009 fall prime  time schedule to provide the most current data available. Additionally, since  basic cable networks are also a source of television programming, we  analyzed the ownership of those networks as an indicator of which entities  control the television programming on the networks. To determine cable  network ownership over the last decade, we used data from SNL Kagan,  which show companies having an ownership interest in each of the basic  cable networks from 1998 to 2008. We analyzed these data to determine the  types and the number of companies that have had an ownership interest in  basic cable networks and the companies that owned the largest number of  networks during this period. To analyze cable network ownership for the  most widely distributed networks, we used the 20 basic cable networks with  the most subscribers (the top 20 networks) from 1998 to 2008 and classified  the networks into one of four categories: (1) networks owned by major  broadcasters, (2) networks owned by video providers, (3) networks owned  by both major broadcasters and video providers, and (4) networks owned  by other types of companies. We also examined the top 20 networks in 2008  for any independent cable networks; that is, any network that did not have  an affiliation with a major broadcaster or video provider, or an affiliation  with a major holding company with media interests.
To determine the factors and conditions that stakeholders identified as  affecting the availability of independent programming in television and  factors that influence radio programming decisions, we interviewed or  obtained written comments from a variety of experts and industry  stakeholders, including academics, industry representatives, media  companies, and public interest groups (as shown in table 4) to obtain their  views on the factors that affect the availability of independent  programming in television and radio.
We selected the experts and stakeholders based on relevant published  literature, including FCC filings and reports, stakeholders’ recognition and  affiliation with a segment of the media industry (i.e., cable operators,  satellite providers, broadcasters, radio station owners, independent radio  advocacy groups, and so forth), and other stakeholders’ recommendations.  In our selection of experts and stakeholders, we intended to obtain  balanced and diverse views; we did not weight experts’ and stakeholders’  views but grouped similar stakeholders that represent a segment of the  media industry. We conducted semistructured interviews and analyzed the  responses to determine patterns and the extent to which the experts and  stakeholders agreed on the key factors affecting independent  programming and radio programming decisions. We also spoke with FCC  officials and reviewed the relevant laws, regulations, literature, comments  filed by stakeholders in various FCC proceedings, FCC studies, and FCC- sponsored research on television and radio programming.
In addition, for radio, we examined radio station formats, indicating the  genre and types of programming, such as Adult Contemporary, Country,  News, Sports, and Talk, a station might play. We obtained historical data  on the distribution of radio stations by their primary formats nationwide  and in local markets from 1999 to 2003 and format data from the  Broadcast Investment Analyst Financial Network’s (BIAfn) Media Access  Pro Database, containing station-level data for commercial and public  radio stations in the United States from 2004 to 2009. Although the BIAfn  format data provide a general overview of the genre of programming aired  on a given radio station, they do not identify specific programming content  that is played on the station. We did not look at independently produced  programming on radio because national playlist data identifying record  label affiliation are not available. We analyzed the data to determine  programming variety and distribution of radio stations by their format  nationwide and in local markets in 2009. To highlight programming variety  in local markets, we selected two radio station markets-New York and  Chicago-and analyzed the format data of radio stations in those markets  and compared them with national radio station format data in 2009. We  selected New York and Chicago because these two markets are similar in  size, (New York is the largest market, and Chicago is the third-largest  market) but have different demographic populations. In addition, each  market contains both commercial and public stations, FM and AM  stations, and contains multiple radio station owners in the market. To  highlight similarities and differences in programming variety among  commercial and public stations, we examined 2009 format data for  commercial and public radio stations and identified the top 10 most  popular formats (based on the number of stations with the particular  formats available) for each group nationwide. Finally, to examine  programming variety for each owner’s radio stations and consolidation in  the radio industry, we selected the top 10 radio station owners—that is,  owners who own the most radio stations nationwide—and reviewed  format data of stations owned by the top 10 owners. To identify the top 10  radio station owners in 1996-1998, 2000-2002, 2007, and 2009, we used data  from FCC reports and the BIAfn database. The top 10 radio station  ownership data were not available in 2003-2006 and 2008. Collectively, in  2009, the top 10 owners owned a total of 2,262 commercial radio stations,  or 20 percent of all U.S. commercial radio stations. In addition, the top 10  owners owned stations that reach a 44 percent share of total Arbitron  listeners in the United States and collect 52 percent of the radio industry’s  revenue. For each station owner, we then examined similarities and  differences in formats among commonly owned radio stations in the same  market. We also reviewed studies on radio programming for information  on radio station playlists and the extent to which playlists for commonly  owned radio stations overlap in the same market.
To assess the reliability of the basic cable network data obtained from SNL  Kagan, and radio data obtained from BIAfn used in our analysis, we (1)  obtained information from the system owners on their data reliability  procedures, (2) reviewed systems documentation, (3) reviewed data to  identify obvious errors in accuracy and completeness, and (4) compared  the data with information we obtained from other sources, including FCC  studies. After reviewing the data sources, we determined that the data  were sufficiently reliable for the purposes for which we have used them in  this report.
We conducted our work from May 2009 to March 2010 in accordance with  all sections of GAO’s Quality Assurance Framework that are relevant to  our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and discuss any limitations in our work. We believe that  the information and data obtained, and the analysis conducted, provide a  reasonable basis for any findings and conclusions in this product.
section_title: Appendix II: Registered Marks Used in the Report
paragraphs: Twentieth Century Fox Film Corporation  American Broadcasting Companies Inc.
American Broadcasting Companies Inc.
Arbitron Inc.
AT&T Intellectual Property II L.P.
CBS Broadcasting Inc.
CBS Broadcasting Inc.
Clear Channel Communications Inc.
Comcast Sports Management Services LLC  Consumers Union of United States Inc.
Cox Communications Inc.
Cox Radio Inc.
Directv Inc.
Edison Media Research Inc.
Entertainment Communications Inc.
ESPN Inc.
Twentieth Century Fox Film Corporation  Twentieth Century Fox Film Corporation  Hallmark Licensing Inc.
Home Box Office Inc.
Scripps Networks Inc.
Independent Film & Television Alliance Corporation  ION Media Networks Inc.
Lifetime Entertainment Services LLC  Viacom International Inc.
MynetworkTV Inc.
National Public Radio, Inc.
NBC Universal, Inc.
News Holdings Pty Ltd.
Saga Communications Inc.
Showtime Network Inc.
Disney Enterprises Inc.
Superstation Inc.
Television Food Network, G.P. , et Al.
Time Warner Inc.
section_title: Appendix III: Comments from the Federal Communications Commission
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact above, Sally Moino, Assistant Director; Amy  Abramowitz; Brad Dubbs; Alana Finley; Bert Japikse; Delwen Jones;  Jennifer Kim; Maria Mercado; and Andrew Stavisky made key  contributions to this report.