Opinion ID: 776590
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 5 In the Telecommunications Act of 1996 the Congress set in motion a process to deregulate the structure of the broadcast and cable television industries. The Act itself repealed the statutes prohibiting telephone/cable and cable/broadcast cross-ownership, 1996 Act §§ 302(b)(1), 202(i), and overrode the few remaining regulatory limits upon cable/network cross-ownership, id. § 202(f)(1). In radio it eliminated the national and relaxed the local restrictions upon ownership, id. § 202(a), (b), and eased the dual network rule, id. § 202(e). In addition, the Act directed the Commission to eliminate the cap upon the number of television stations any one entity may own, id. § 202(c)(1)(A), and to increase to 35 from 25 the maximum percentage of American households a single broadcaster may reach, id. § 202(c)(1)(B). 6 Finally, and most important to this case, in § 202(h) of the Act, the Congress instructed the Commission, in order to continue the process of deregulation, to review each of the Commission's ownership rules every two years: 7 The Commission shall review its rules adopted pursuant to this section and all of its ownership rules biennially as part of its regulatory reform review under section 11 of the Communications Act of 1934 and shall determine whether any of such rules are necessary in the public interest as the result of competition. The Commission shall repeal or modify any regulation it determines to be no longer in the public interest. 8 The Commission first undertook a review of its ownership rules pursuant to this mandate in 1998. This case arises out of the resulting decision not to repeal or to modify two Commission rules: the national television station ownership rule and the cable/broadcast cross-ownership rule. 9
10 The NTSO Rule prohibits any entity from controlling television stations the combined potential audience reach of which exceeds 35% of the television households in the United States.  As originally promulgated in the early 1940s, the Rule prohibited common ownership of more than three television stations; that number was later increased to seven. Amendment of Multiple Ownership Rules, Report & Order, 100 F.C.C.2d 17, ¶¶ 14, 16, 1984 WL 251222 (1984) ( 1984 Report ). The stated purpose of the seven-station rule was to promote diversification of ownership in order to maximize diversification of program and service viewpoints and to prevent any undue concentration of economic power. Id. ¶ 17. 11 In 1984 the Commission considered the effects of technological changes in the mass media, id. ¶ 4, and repealed the NTSO Rule subject to a six-year transition period during which the ownership limit was raised to 12 stations. Id. ¶¶ 108-112. The Commission determined that repeal of the NTSO Rule would not adversely affect either the diversity of viewpoints available on the airwaves or competition among broadcasters. It concluded that diversity should be a concern only at the local level, as to which the NTSO Rule was irrelevant, id. ¶¶ 31-32, and that [l]ooking at the national level [the Rule was unnecessary because] the U.S. enjoys an abundance of independently owned mass media outlets, id. ¶ 43. The Commission also concluded that group owners were not likely to impose upon their stations a monolithic point of view. Id. ¶¶ 52-54, 61. With respect to economic competition, the Commission considered the markets for national and for local spot advertising and concluded that neither would be made less competitive by repeal of the NTSO Rule. Id. ¶¶ 66-71. 12 Implementation of the 1984 Report was subsequently blocked by the Congress. See Second Supplemental Appropriations Act, Pub.L. No. 98-396, § 304, 98 Stat. 1369, 1423 (1984). The Commission thereupon reconsidered the matter and prohibited common ownership (1) of stations that in the aggregate reached more than 25% of the national television audience, and (2) of more than 12 stations regardless of their combined audience reach. Amendment of Multiple Ownership Rules, Mem. Op. & Order, 100 F.C.C.2d 74, ¶¶ 36-40, 1985 WL 260060 (1984). These limitations remained in place until 1996, when the Congress (in § 202(c)(1) of the Act) directed the Commission to eliminate the 12-station rule and to raise to 35% the cap upon audience reach, both of which actions the Commission promptly took. Implementation of Sections 202(c)(1) and 202(e) of the Telecommunications Act of 1996 (National Broadcast Television Ownership and Dual Network Operations), 61 Fed.Reg. 10,691 (Mar. 15, 1996). 13
14 The CBCO Rule prohibits a cable television system from carrying the signal of any television broadcast station if the system owns a broadcast station in the same local market.  In conjunction with certain must-carry requirements, 47 U.S.C. §§ 534-535; 47 C.F.R. § 76.55 et seq., to which cable operators are subject, see Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 630-32, 114 S.Ct. 2445, 2452-54, 129 L.Ed.2d 497 (1994) ( Turner I ), the Rule has the effect of prohibiting common ownership of a broadcast station and a cable television system in the same local market. 15 The Commission first promulgated the CBCO Rule in 1970 along with a rule banning network ownership of cable systems. Amendment of Part 74, Subpart K, of the Commission's Rules and Regulations Relative to Community Antenna Television Systems, Second Report & Order, 23 F.C.C.2d 816, ¶¶ 11, 15, 1970 WL 17616 (1970). In 1984 the Congress codified the CBCO Rule but not the network ownership ban. Cable Communications Policy Act of 1984, Pub.L. No. 98-549, § 2, 98 Stat. 2779. 16 In 1992 the Commission repealed the rule prohibiting network ownership of cable systems. Amendment of Part 76, Subpart J, Section 76.501 of the Commission's Rules and Regulations, Report & Order, 7 F.C.C.R. 6156, ¶ 10, 1992 WL 690505 (1992) ( 1992 Report ). The Commission also revisited the CBCO Rule and concluded that the rationale for an absolute prohibition on broadcast-cable cross-ownership is no longer valid in light of the ongoing changes in the video marketplace. Id. ¶ 17. Because the Congress had imposed a similar prohibition by statute, however, the Commission did not repeal the Rule; instead, the Commission recommended that the Congress repeal the statutory prohibition. Id. In the 1996 Act the Congress did just that without, however, requiring the Commission to repeal the CBCO Rule. 1996 Act § 202(i).
17 As mentioned above, the 1996 Act, in addition to raising the national ownership cap to 35% and repealing the statutory ban upon cable/broadcast cross-ownership, required the Commission biennially to review all its ownership rules in order to determine whether they remain necessary in the public interest. To begin the first review thus called for in § 202(h), the Commission, on March 13, 1998, issued a Notice of Inquiry seeking comments on all ownership rules, including specifically both the NTSO and the CBCO Rules. 1998 Biennial Regulatory Review, Notice of Inquiry, 13 F.C.C.R. 11276, ¶¶ 14, 43, 1998 WL 110187 (1998). The Commission described as follows the approach it intended to take: 18 We solicit comment on our broadcast ownership rules to determine whether these rules are no longer in the public interest as we have traditionally defined it in terms of our competition and diversity goals. Once this phase is completed, we will review the comments and issue a report. In the event we conclude there is good reason to believe that any of the rules within the scope of the review, or portions thereof, should be repealed or modified, we will issue the appropriate Notice(s) of Proposed Rule Making. 19 Id. ¶ 3. 20 Reply comments were filed in June, 1998 but as of the fall of 1999 the Commission had not yet completed its review. Therefore, in November, 1999 the Congress directed that: Within 180 days ... [the] Commission shall complete the first biennial review required by section 202(h) of the Telecommunications Act of 1996. Consolidated Appropriations Act, 2000, Pub. L. No. 106-113, § 5003, 113 Stat. 1501, 1501A-593 (1999). The accompanying Conference Report instructed: [I]f the Commission concludes that it should retain any of these rules under the review unchanged the Commission shall issue a report that includes a full justification of the basis for so finding. H.R. CONF. REP. No. 106-464, at 148 (1999). 21 On May 26, 2000 the Commission announced its decision (by a 3-2 vote) to retain the NTSO and CBCO Rules, among others, and to repeal or to modify certain other of its ownership rules. A few weeks later the Commission issued a written report in which it explained its actions. 1998 Biennial Regulatory Review, Biennial Review Report, 15 F.C.C.R. 11058, 2000 WL 791562 (2000) ( 1998 Report ).
22 The Commission gave three primary reasons for retaining the NTSO Rule: (1) to observe the effects of recent changes to the rules governing local ownership of television stations; (2) to observe the effects of the increase in the national ownership cap to 35%; and (3) to preserve the power of affiliates in bargaining with their networks and thereby allow the affiliates to serve their local communities better. Id. ¶¶ 25-30. The Commission also stated that it believed repealing the rule would increase concentration in the national advertising market — presumably to the detriment of competition — and enlarge the potential for monopsony power in the program production market — presumably to the detriment of both competition and diversity. Id. ¶ 26 n. 78. Commissioners Furchtgott-Roth and Powell dissented. Id. at 74; id. at 94. 23 The effect upon petitioners Fox and Viacom of the Commission's decision to retain the NTSO Rule was direct and immediate. Viacom's acquisition of CBS brought its audience reach to 41%; only a stay issued by this court has enabled Viacom to avoid divesting itself of enough stations to come within the 35% cap. Fox Television Stations, Inc. v. FCC, No. 00-1222 at 2 (April 6, 2001). Similarly, the Rule is preventing Fox from going forward with its purchase of Chris-Craft Industries, which purchase would enable Fox to reach more than 40% of the national audience.
24 In the 1998 Report the Commission decided that retaining the CBCO Rule was necessary to prevent cable operators from favoring their own stations and from discriminating against stations owned by others. 1998 Report ¶ 104 (current carriage and channel position rules prevent some of the discrimination problems, but not all of them). The Commission also determined that the CBCO Rule was necessary to further [the] goal of diversity at the local level. Id. ¶ 106. The Rule, according to the Commission, contributes to the diversity of viewpoints in local markets by preserving the voices of independent broadcast stations, which provide local news and public affairs programming. Id. ¶¶ 106-108. Commissioners Furchtgott-Roth and Powell dissented from the retention of this Rule as well. Id. at 74; id. at 100. 25 The effect upon Time Warner of the Commission's decision to retain the CBCO Rule was significant. Although Time Warner has not identified any specific transaction it would have consummated but for the CBCO Rule, the Rule is preventing it from acquiring television stations in markets, such as New York City, where it owns a cable system. Time Warner asserts that obvious procompetitive efficiencies would result from combining a television station in that area with its all-local-news cable programming service, NY1. Time Warner also argues that the CBCO Rule hinders its WB network from competing with networks that own stations in major television markets.