Opinion ID: 532957
Heading Depth: 1
Heading Rank: 2

Heading: arbitrariness and caprice

Text: 10 The Commission's decision to reinstate syndex rests on its finding that syndex rules will promote diversity in syndicated programming. In the report accompanying the rules, the Commission found that unrestricted importation of distant signals (i.e., no syndex protection) leads to duplication of programming in local broadcasting areas; this duplication lessens the value of syndicated programs to broadcast stations; that loss of value in turn lowers the price syndicated program suppliers will receive for their programs; and all of this ultimately reduces the incentive for syndicated program suppliers to produce programs, which translates into a reduction in the diversity of programming available to the public. See 3 F.C.C.Rcd at 5305-07. On the basis of this scenario, the Commission concluded that syndex rules should be reinstated in order to promote diversity of programming. 11 The petitioners challenge the FCC's rule as arbitrary and capricious, for want of support in the rulemaking record. Our review on such a claim is narrow: the court must not substitute its judgment for that of the agency, but it must ensure that the agency has examined the relevant data and articulated a satisfactory explanation for its action, including a rational connection between the facts found and the choice made. Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983); ALLTEL Corp. v. FCC, 838 F.2d 551, 556 (D.C.Cir.1988). Since this action represents a change in agency policy, the court must also ensure that the agency supplied a reasoned analysis indicating that its prior policies and standards are being deliberately changed, not casually ignored. Action for Children's Television v. FCC, 821 F.2d 741, 745 (D.C.Cir.1987). We will examine each of the links in the Commission's alleged causal chain.
12 The petitioners do not challenge the Commission's finding that unrestricted importation of distant signals leads to duplication of programming between broadcast and cable channels. Petitioner Tribune, for instance, itself submitted a study to the FCC showing that the lack of syndex rules leads to substantial duplication. See Brief for Petitioner CATA at 26 n. 55. The Commission's report cites several studies that show duplication, and notes that the comments received basically agree on the fact of substantial duplication. 3 F.C.C.Rcd at 5305. This point therefore seems amply supported by the rulemaking record. 13
14 The petitioners hotly contest the Commission's finding that program duplication lessens the value of syndicated programs purchased by local broadcast stations. However, the Commission's report cites substantial evidence from which it could reasonably draw this conclusion. The Commission discusses two related ways in which duplication lessens the value of syndicated programs: audience diversion and the loss of exclusivity as a competitive tool. 15 The Commission found that duplication of programming diverts a substantial portion of the broadcast audience to cable. The evidence was strongest regarding diversion caused by a cable station's simultaneous transmission of a program being aired by a broadcast channel, for such diversion can be gauged by ratings information. Numerous stations reported a substantial number of viewers that chose to watch a duplicated program on the cable rather than the broadcast channel. Although the Commission correctly observed that not every viewer who watched the program on cable would watch it on the broadcast channel if that were the only way to watch it, and that these numbers therefore did not provide a mathematically precise measure of audience diversion, 3 F.C.C.Rcd at 5305, the Commission was surely justified in concluding that significant diversion was occurring. 16 The Commission reasonably inferred that diversion lessened the value of the programming by lowering advertising revenues. The petitioners contest this finding, claiming it is based on a single study, which they attack as faulty. However, the report makes clear that the Commission relied on the study for only a rough approximation of the decrease in advertising revenue. More important was the hardly controversial conclusion that the amount advertisers will pay depends on the size of the audience that a program attracts. 3 F.C.C.Rcd at 5306; 4 F.C.C. Rcd at 2716. This statement needs no detailed study to support it. 17 The Commission addressed some allegedly contrary evidence, including the submission, by the National Cable Television Association (NCTA), of a study showing that local ratings for syndicated programs are higher for those programs that are duplicated than for those that are not. Although the NCTA claimed that this study shows that duplication does not lessen broadcast channels' viewership, the Commission quite reasonably concluded that the data simply show that the more popular a syndicated program is, the more likely it is that a cable station will choose to duplicate it. 3 F.C.C.Rcd at 5305-06. The study certainly does not make arbitrary the Commission's belief that the broadcast channel's ratings would be even higher in the absence of duplication. 18 The Commission's report does not specify quite so clearly how it reached the conclusion that nonsimultaneous transmission of duplicative programming (including transmission of different episodes of the same program) also causes audience diversion. The one sentence explicitly devoted to this question in the report says that the quantity of non-simultaneous duplication documented in the record in this proceeding, taken as a whole, presents compelling evidence that substantial diversion is taking place. Id. at 5306. This sentence suggests that the Commission has simply assumed diversion from the conceded fact of nonsimultaneous duplication. The Commission points to no specific empirical support for this statement in the record. 19 While it is intuitively reasonable to assume that simultaneous duplication causes diversion, the question of nonsimultaneous duplication seems more varied and complex. A cable company's transmission of a feature film, for example, might reduce the audience for a broadcast of that film for weeks afterwards. But if a broadcast channel airs an old episode of MASH at 6:00 p.m., will a substantial number of viewers be diverted because a cable channel is offering a different old episode at 11:00 p.m.? The Commission's report offers no way to tell, and it is possible that the 6:00 p.m. and 11:00 p.m. time slots attract quite diverse audiences. If the Commission had relied solely on its assumption of audience diversion as evidence that nonsimultaneous duplication lessens the value of programs to broadcast stations, we might well have felt obliged to require some supplementation or further explanation of its reasoning. 20 However, the Commission relies on more solid evidence that duplication makes programming less valuable. The evidence is that all stations, broadcast and cable, want exclusivity. Many broadcasters, in their comments supporting the syndex rules, identify exclusivity as the key to programming success. E.g., Comments of Tulsa 23, Ltd et al., Joint Appendix (J.A.) 293. Even more telling, cable companies themselves regularly take advantage of their ability to obtain exclusive rights in programming. See 3 F.C.C.Rcd at 5308, 5336 n. 122. The reason, as the FCC notes in its report, is that exclusivity gives stations the opportunity to promote themselves as the only presenter of a certain program. If a broadcaster spends money promoting a duplicated program, some of the value of the expenditure will be captured by the cable company that is importing the same program. Syndex will give the local broadcaster a competitive tool that it can use both to call attention to the particular pro gram and to alert viewers to the general attractiveness of the broadcaster's whole range of programming. 3 F.C.C.Rcd at 5309. 2 The strong desire of all stations for complete exclusivity is evidence that even nonsimultaneous duplication lessens the value of programming, whether because of audience diversion or for other reasons. 21 While the Commission's report may leave something to be desired in its detail on the dangers of nonsimultaneous duplication, we do not think its conclusion that even this type of duplication lessens the value of programming for broadcast stations can be called arbitrary or capricious. The record as a whole shows that both broadcast and cable companies want complete exclusivity; the Commission did not act without reason in concluding that exclusivity must be a valuable commodity, and conversely that lack of exclusivity diminishes the value of a program.
22 The weakest link in the FCC's causal chain is its claim that reinstating syndex protection will affect the supply of syndicated programming. And indeed, throughout the rulemaking proceeding, the Commission has always conceded that there is no direct, empirical evidence that syndex will actually increase program diversity, explaining that such evidence would be particularly difficult to obtain empirically. 3 F.C.C.Rcd at 5307; 4 F.C.C.Rcd at 2715; Brief for Respondent at 49. 23 We do not think that the absence of empirical evidence is fatal to the Commission's claim. Courts reviewing an agency's selection of means to accomplish policy goals are not entitled to insist on empirical data for every proposition on which the selection depends. Associated Gas Distributors v. FERC, 824 F.2d 981, 1008 (D.C.Cir.1987). In Century Communications Corp. v. FCC, 835 F.2d 292 (D.C.Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 2014, 100 L.Ed.2d 602 (1988), which struck down the FCC's must-carry regulations, this court noted that an agency contention may be so obvious or commonsensical that it needs no empirical support to stand up. Id. at 302. 24 We think the Commission's conclusion about the link between lack of program diversity and lowered broadcast revenues due to lack of exclusivity is sufficiently in accord with accepted economic theory that it can stand without empirical support, particularly since we agree with the Commission that it would be very difficult for it to show the degree to which programs are currently not being produced because of the lack of syndex protection. We said in Associated Gas Distributors that no experiment was required before an agency could predict that competition would normally lead to lower prices. 824 F.2d at 1008-09. This case is similar: the FCC has assumed only that increasing the value of programs to broadcast companies will increase the amount paid for them, and that these higher prices will improve product supply. The Commission explains that [p]rogram suppliers, like other business people, respond to incentives.... Incentives to develop new programs are greatest when program suppliers are able to sell their programs wherever there are viewers (or advertisers) willing to pay for them. 3 F.C.C.Rcd at 5309. These claims, unlike the ones made by the FCC in Century Communications, 3 do not beg[ ] incredulity, 835 F.2d at 302; rather, they are reasonable. 25 The petitioners argue in response that despite the lack of syndex protection, syndicated programming and broadcast television are thriving. Absent any actual evidence that syndex would increase program supply, they claim that the current robust health of the market shows that syndicators and broadcast stations are suffering no harm that requires FCC correction. Brief for Petitioner CATA at 24-26, 35. However, the Commission properly rejected this argument as irrelevant. 3 F.C.C.Rcd at 5321; 4 F.C.C.Rcd at 2716. Syndicators may be doing well, but that does not show that they would not do better if they could capture the full value of their programs. The FCC is not empowered to regulate the market only in cases where regulation is necessary to save broadcast stations or syndicators from economic peril. Increasing program diversity is a valid FCC regulatory goal, Malrite TV of New York v. FCC, 652 F.2d 1140, 1151 (2d Cir.1981), cert. denied, 454 U.S. 1143, 102 S.Ct. 1002, 71 L.Ed.2d 295 (1982), and increasing revenues for program originators a likely means of achieving it. 4 26 Having tested each link in the Commission's causal chain, we find that it used valid reasoning to conclude that syndex rules will increase the diversity of programming options available to the public. Its imposition of syndex was adequately supported by the rulemaking record. C. Change in Agency Course 27 The petitioners complain that the Commission has not adequately explained why it is reinstating syndex rules only eight years after abandoning them, and only four years after reaffirming its decision to abandon them. However, the Commission's report, which examines in great detail its 1980 decision to eliminate syndex, meets this circuit's standard that an agency changing course must supply a reasoned analysis indicating that its prior policies and standards are being deliberately changed, not casually ignored. Action for Children's Television v. FCC, 821 F.2d 741, 745 (D.C.Cir.1987). 28 The Commission's report reviews in detail the history of the regulation of cable, including, in particular, the 1980 decision to eliminate syndex rules. 3 F.C.C.Rcd at 5300-05. The report notes several ways in which the Commission now feels the 1980 decision to have been inadequate. First, the report discusses how circumstances have changed since 1980. The principal change has been the unforeseen emergence of cable television as a full competitor to broadcast television. As the report documents, cable's audience and advertising revenues have increased dramatically and unexpectedly since 1980. In 1980, cable served 19% of television households, but in 1988 it served 51%, a percentage the FCC projected would rise to 60% by 1996. 3 F.C.C.Rcd at 5304. In 1980, the Commission had predicted that cable penetration would never go beyond 48%. Id. Cable advertising revenues were $45.5 million in 1980, but they grew to over $1 billion in 1988; cable's share of total television advertising revenue climbed from less than 0.5% to more than 6%. Id. This unexpected growth, the Commission notes, substantially undermines its 1980 findings that repeal of syndex would not cause significant audience diversion or otherwise harm broadcast stations. 29 The Commission also faults its earlier studies for focusing on the effects repeal of syndex would have on individual stations, rather than its effects on the competitive process and the incentive for production of new programs. Lack of syndex protection, as discussed above, distorts the broadcaster's promotional incentives and makes it impossible for syndicators to capture the full value of their programs. A competitive process in which exclusivity contracts are enforceable will, the Commission now believes, produce the best programming for the public. Id. at 5303. 30 The Commission's report also examines the negative aspects of syndex rules. It acknowledges the costs in reimposing syndex: cable companies will need to purchase new equipment to comply, and the necessity of deleting protected programs will cause some disruption in cable service. However, the report concludes that the equipment cable companies will need is currently available and reasonably priced, and disruption will be lessened by the one-year delay between the announcement and effective date of the rules. Id. at 5312. 31 The Commission in its report also acknowledges that the absence of syndex provides consumers with the benefit of time and episode diversity. A cable station, free of syndex restraints, may import a different episode of a program than the one aired by a broadcast station, or the same episode at a different time of day. The Commission suggests, however, that this diversity must be balanced against the lack of diversity engendered by duplication, and by the reduced incentive for the production of new programs. The Commission also suggests that market forces will allow duplication where viewers value it sufficiently, since stations with exclusive rights to a program can always sell the right to duplicate it. Finally, the Commission notes that the value of cable in providing time diversity has been lessened by the significant increase in the penetration of video cassette recorders (up from 1.5% of television households in 1979 to 58.1% today), since VCRs allow viewers to provide time diversity for themselves. Id. at 5307. 32 The Commission's report in toto suggests that it undertook a thoroughgoing review of the syndex question and came to a new result with full awareness of its prior choices. The petitioners compare the Commission's action to that overturned by this court in Action for Children's Television v. FCC, 821 F.2d 741 (D.C.Cir.1987). But the comparison is not valid. In that case, the Commission had issued a general rule repealing all quantitative commercial guidelines for television broadcasting. When asked to clarify whether this rule covered children's television, for which the Commission had traditionally required extra protection against overcommercialization, the Commission issued a mere two sentences to explain its new feeling that no extra protection was needed. This court held that the Commission had crosse[d] the line from the tolerably terse to the intolerably mute. Id. at 746. In the present case, the Commission's detailed report assures us that it has given full consideration to the change it made, and explains its reasons for doing so. Accordingly, we reject the petitioners' claim that the Commission's rules are arbitrary and capricious.