[Federal Register Volume 67, Number 208 (Monday, October 28, 2002)]
[Proposed Rules]
[Pages 65751-65776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27311]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MB Docket No. 02-277; FCC 02-249]
RIN 4207


2002 Biennial Regulatory Review--Review of the Commission's 
Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 
202 of the Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document the Commission initiates its third biennial 
review of its broadcast ownership rules pursuant to section 202 of the 
Telecommunications Act of 1996. The Commission invites comment on the 
national television multiple ownership rule, the local television 
multiple ownership rule, the radio-television cross-ownership rule, and 
the dual network rule. The first two rules have been reviewed and 
remanded to the Commission by the U.S. Court of Appeals for the 
District of Columbia Circuit, and the issues on remand are incorporated 
into the proceeding. In addition, comments filed in previously opened 
proceedings on the local radio ownership rule and the newspaper/
broadcast cross-ownership rule are incorporated into this proceeding. 
The Commission's Media Ownership Working Group also separately released 
a series of studies on the media marketplace, and evidence in those 
studies, as well as the comments, will be used to support decisions in 
this proceeding.

DATES: Comments are due on or before December 2, 2002; reply comments 
are due on or before January 2, 2003.

FOR FURTHER INFORMATION CONTACT: Paul Gallant, (202) 418-2380, and 
Debra Sabourin, (202) 418-2330. Press inquiries should be directed to 
Michelle Russo at (202) 418-2358 (voice), (202) 418-7365 (TTY) or (888) 
835-5322 (TTY).

SUPPLEMENTARY INFORMATION: This is a summary of the Media Bureau's 
Notice of Proposed Rulemaking (``NPRM'') MB 02-277; FCC 02-249, adopted 
September 12, 2002 and released September 23, 2002. The complete texts 
of this NPRM is available for inspection and copying during normal 
business hours in the FCC Reference Center, Room CY-A257, 445 12th 
Street, SW., Washington, DC and may also be purchased from the 
Commission's copy contractor, Qualex International, Portals II, 445 
12th Street SW., Room CY-B-402, Washington, DC 20554, telephone (202) 
863-2893, facsimile (202) 863-2898, or via email [email protected]. 
Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415 and 1.419 comments may be filed using the Commission's 
Electronic Comment Filing System (ECFS) or by filing paper copies. See 
Electronic Filing of Documents in Rulemaking Proceedings (63 FR 24121, 
May 1, 1998). This document is available in alternative formats 
(computer diskette, large print, audio record, and Braille). Persons 
with disabilities who need documents in these formats may contact Brian 
Millin at (202) 418-7426 (voice), (202) 418-7365 (TTY), or via email at 
[email protected]. Parties may submit their comments using the 
Commission's Electronic Comment Filing System (``ECFS'') or by filing 
paper copies. Comments may be filed as an electronic file via the 
Internet at http://www.fcc.gov/e-file/ecfs.html. Generally, only one 
copy of an electronic submission must be filed. If multiple docket or 
rulemaking numbers appear in the caption of this proceeding, however, 
commenters must transmit one electronic copy of the comments to each 
docket or rulemaking number referenced in the caption. In completing 
the transmittal screen, commenters should include their full name, 
Postal Service mailing address, and the applicable docket or rulemaking 
number. Parties may also submit an electronic comment by Internet e-
mail. To obtain filing instructions for e-mail comments, commenters 
should send an e-mail to [email protected], and should include the following 
words in the body of the message: ``get form .'' A sample form and directions will be sent in 
reply. Additional information on ECFS is available at http://www.fcc.gov/e-file/ecfs.html.
    Filings may also be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). Parties who choose to file by 
paper must file an original and four copies of each filing. If more 
than one docket or rulemaking number appear in the caption of this 
proceeding, commenters must submit two additional copies for each 
additional docket or rulemaking number. The Commission's contractor, 
Vistronix, Inc., will receive hand-delivered or messenger-delivered

[[Page 65752]]

paper filings for the Commission's Secretary at 236 Massachusetts 
Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this 
location are 8 a.m. to 7 p.m. All hand deliveries must be held together 
with rubber bands or fasteners. Any envelopes must be disposed of 
before entering the building. Commercial overnight mail (other than 
U.S. Postal Service Express Mail and Priority Mail) must be sent to 
9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service 
first-class mail, Express Mail, and Priority Mail should be addressed 
to 445 12th Street, SW., Washington, DC 20554. All filings must be 
addressed to the Commission's Secretary, Office of the Secretary, 
Federal Communications Commission.

Synopsis of the Notice of Proposed Rulemaking

I. Introduction

    1. This NPRM initiates a comprehensive review of the Commission's 
media ownership rules. The law governing our media ownership policies 
and the media market has undergone substantial changes since our 
ownership rules were adopted. As a result, this proceeding will include 
a careful analysis of our policy goals and the development and 
implementation of a regulatory framework that best serves to achieve 
those goals.
    2. The Commission has long regulated media ownership as a means of 
promoting diversity, competition, and localism in the media without 
regulating the content of broadcast speech. The Commission has adopted 
these regulations pursuant to sections 307, 308, 309(a), and 310(d) of 
the Communications Act, which authorize the Commission to grant and 
renew broadcast station licenses in the public interest. The existing 
rules were adopted largely on a rule-by-rule basis and evolved 
incrementally over the years. During these evolutions, courts generally 
approved our rules as long as they were rationally related to achieving 
their stated purpose and our decisions complied with administrative 
procedure requirements.
    3. The Telecommunications Act of 1996 (``the Act''), Public Law No. 
104-104, fundamentally changed broadcast ownership law. Section 202(h) 
of the 1996 Act directs the Commission to re-examine its broadcast 
ownership rules every two years and repeal or modify any regulation it 
determines to be no longer in the public interest. Recent court 
decisions have held that section 202(h) changes the way the Commission 
must evaluate its broadcast ownership rules. The courts have stated 
that section 202(h) carries with it a presumption in favor of repealing 
or modifying the ownership rules. The court decisions interpreting 
section 202(h) require a Commission decision to retain or modify its 
media ownership regulations, in its biennial review, to be based on a 
solid factual record and a consistent analytical framework.
    4. The regulatory structure best suited to promote the public 
interest is not static. Thus, the Commission's media ownership rules 
must be reassessed on an ongoing basis to ensure that they are grounded 
in the current realities of the media marketplace. It is only through 
this reevaluation that the Commission can be assured that its media 
ownership rules actually advance, rather than undermine, our policy 
goals. In this regard, we recognize that the marketplace has changed 
dramatically over the last few decades, with both greater competition 
and diversity, and increasing consolidation.
    5. In conducting this reassessment of our broadcast ownership 
regulatory framework, we must clearly define our objectives as we 
strive to promote the public interest. The Commission's ownership 
policies traditionally have focused on advancing three broadly defined 
goals: (1) Diversity, (2) competition, and (3) localism. This 
proceeding will review these policy objectives in light of the current 
media marketplace and determine whether Commission intervention is 
necessary to achieve these objectives. In addition, we will consider 
whether there are additional objectives that the Commission should 
strive to achieve through our media ownership rules. One such goal may 
be increased innovation of media platforms and services. In defining 
these objectives, this proceeding will consider whether the Commission 
should prioritize these policy objectives and, if so, how. By 
determining the relative weight of each objective, the Commission will 
be well positioned to address those instances in which there is tension 
between our policy goals.
    6. This NPRM initiates review of four ownership rules: the national 
television multiple ownership rule, Sec.  73.3555(e); the local 
television multiple ownership rule, Sec.  73.3555(b); the radio-
television cross-ownership rule, Sec.  73.3555(c); and the dual network 
rule, Sec.  73.658(g). The first two rules have been reviewed and 
remanded to the Commission by the U.S. Court of Appeals for the 
District of Columbia Circuit. We address the issues on remand in this 
proceeding. Fox Television Stations, Inc. v. FCC (``Fox Television''); 
Sinclair Broadcast Group, Inc. v. FCC (``Sinclair'').
    7. The Commission previously has initiated proceedings on the local 
radio ownership rule, MM Docket No. 01-317, Definition of Radio 
Markets, NPRM/FNPRM (66 FR 63986, December 11, 2001), and the 
newspaper/broadcast cross-ownership rule, Cross-Ownership of Broadcast 
Stations and Newspapers, MM Docket No. 01-235, Newspaper/Radio Cross-
Ownership Waiver Policy, MM Docket No. 96-197, Order and NPRM (66 FR 
50991, October 5, 2001). The local radio ownership rule sets forth the 
number of radio stations that an entity may own in a single radio 
market, Sec.  73.3555(a). The local radio ownership proceeding examines 
the effects of market consolidation, the proper definition of a radio 
market, and possible changes to our local radio ownership rules and 
policies to reflect the current radio marketplace. The newspaper/
broadcast cross-ownership rule, which prohibits the common ownership of 
a daily newspaper and a broadcast station in the same market, Sec.  
73.3555(d), is currently under review in the newspaper/broadcast cross-
ownership proceeding. Comments filed in those proceedings will be 
incorporated in this proceeding. We seek additional comment on those 
rules to the extent necessary to address issues raised for the first 
time in this NPRM. We do not contemplate a change in the broadcast 
attribution rules, except to the extent that the single majority 
shareholder exemption is under consideration in the cable proceeding. 
Implementation of Section 11 of the Cable Television Consumer 
Protection and Competition Act of 1992; Implementation of Cable Act 
Reform Provisions of the Telecommunications Act of 1996, CS Docket No. 
98-82, FNPRM (66 FR 51905, October 11, 2001). We note in this regard 
that the attribution rules do not themselves prohibit or restrict 
ownership of interests in any entity, but rather determine what 
interests are cognizable under those ownership rules. Furthermore, the 
focus of the biennial review process is whether the ownership rules 
``are necessary in the public interest as the result of competition.'' 
The media attribution limits are set at the level the Commission 
believes conveys influence over the affairs of the company in which the 
interest is held. This level is not related to any changes in 
competitive forces, and hence the limits are not reviewed on a biennial 
basis.
    8. Our local ownership rules, which include the newspaper/broadcast 
cross-ownership rule, the local TV ownership rule, the radio/TV cross-
ownership rule,

[[Page 65753]]

and local radio ownership rule, are interrelated. Each is intended to 
foster competition and diversity in the local media marketplace. As a 
result, it is appropriate for the Commission to consider these rules 
collectively, as any change to one rule may affect the need for other 
rules to be retained, modified, or eliminated. In addition, by 
evaluating our local ownership rules collectively, we facilitate 
consistent analysis of policy questions that are common to multiple 
rules. We are better able to analyze and apply our findings in areas 
such as these by considering the rules collectively rather than 
separately. Assessing these rules collectively also avoids the problem 
in sequential decision making whereby early decisions can inadvertently 
predetermine--or preclude certain approaches in--later decisions.

II. Legal Framework for Biennial Ownership Review

    9. Section 202(h) of the 1996 Act provides: 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. 
Section 11 further requires that the Commission ``shall repeal or 
modify any regulation it determines to be no longer necessary in the 
public interest.'' 47 U.S.C. 161.
    10. The 1996 Act repealed the prohibition on common ownership of 
cable and telephone systems, overrode the few remaining regulatory 
limits upon cable/network cross-ownership, eliminated the national and 
relaxed the local restrictions upon radio ownership, eased the ``dual 
network'' rule for television, and directed the Commission to eliminate 
the cap upon the number of television stations any one entity may own 
and to increase to 35 from 25 the maximum percentage of American 
households a single TV broadcaster may reach. According to the court in 
Fox Television, these enactments, together with section 202(h), ``set 
in motion a process to deregulate the structure of the broadcast and 
cable television industries'' as both competition and diversity among 
media voices increase.
    11. This is our third biennial review. As a result of the 1998 
biennial review proceeding, the first review, the Commission relaxed 
the dual network rule, eliminated the experimental broadcast station 
multiple ownership rule, and initiated a proceeding with respect to the 
newspaper/broadcast cross-ownership rule. The Commission decided to 
retain the local radio ownership rule, the national TV ownership rule 
(including the UHF discount), and the cable/broadcast cross-ownership 
rule. Prior to completing the 1998 biennial review, the Commission had 
substantially relaxed the local TV ownership and radio/TV cross-
ownership rules in the separate local television ownership proceeding, 
(MM 91-221, Report and Order (``R&O''), 64 FR 50651, September 17, 
1999). In the 2000 biennial review proceeding, a Commission-wide 
comprehensive proceeding, the Commission endorsed the results of the 
1998 biennial review of its broadcast ownership rules. 1998 Biennial 
Regulatory Review--Review of the Commission's Broadcast Ownership Rules 
and Other Rules Adopted Pursuant to section 202 of the 
Telecommunications Act of 1996 (65 FR 43333, July 13, 2000); 2000 
Biennial Regulatory Review, CC Docket No. 00-175, Report, 16 FCC Record 
1207 (2001).
    12. Court Decisions Reviewing 1998 Biennial Review. The 
Commission's decisions in the 1998 Biennial Report relating to the 
cable/broadcast cross-ownership rule and the national TV ownership rule 
were challenged in the United States Court of Appeals for the District 
of Columbia Circuit. In Fox Television, the court vacated the cable/
broadcast cross-ownership rule, and remanded the decision to retain the 
national TV ownership rule, holding that the Commission's decision to 
retain these rules was arbitrary and capricious and contrary to section 
202(h) of the 1996 Act. The court stated that the Commission had ``no 
valid reason to think the [national TV ownership rule] is necessary to 
safeguard competition'' or ``to advance diversity'' and had given no 
reason to depart from the conclusion the Commission had reached in 1984 
that the rule was no longer necessary. The court observed that the 
Commission had provided no analysis of the state of competition in the 
television industry to justify its decision to retain the national TV 
ownership rule. In addition, the court faulted the Commission's 
decision to retain the national TV ownership rule while it observed the 
effects of changes in the local TV ownership rule. The court concluded 
that this ``wait-and-see'' approach could not be squared with section 
202(h), which ``carries with it a presumption in favor of repeal or 
modification of ownership rules.''
    13. In retaining the national TV ownership rule, the Commission, in 
part, reasoned that the rule was necessary to strengthen the bargaining 
power of the network affiliates, thereby promoting localism and 
diversity. Although the court in Fox Television rejected the networks' 
argument that this justification was inconsistent with the requirements 
of section 202(h), the court determined that the Commission's reliance 
on this justification was invalid because it did not have sufficient 
record support. In particular, the court held that the Commission had 
failed to justify its departure from the 1984 Multiple Ownership Order, 
where the Commission said it ``had no evidence indicating that stations 
which are not group-owned better respond to community needs, or expend 
proportionately more of their revenues on local programming.'' 
Nonetheless, the court held that the Commission could conceivably 
distinguish--as incorrect or inapplicable because of changed 
circumstances--its views in the 1984 Multiple Ownership Order. The 
court also noted that the Commission did advert to possible competitive 
problems in the national markets for advertising and program 
production, and that the intervenors, including the National 
Association of Broadcasters and National Affiliated Stations Alliance, 
made a plausible argument that the national television ownership rule 
furthers competition in the national television advertising market.
    14. Based on these findings, the court remanded for further 
consideration the issue of whether to repeal or modify the national TV 
ownership rule, holding that ``the probability that the Commission will 
be able to justify retaining the Rule is sufficiently high that vacatur 
of the Rule is not appropriate.'' The court also held that the 
Commission's decision to retain the national TV ownership rule did not 
violate the First Amendment, reaffirming that the review of broadcast 
regulations under First Amendment jurisprudence is more deferential 
than review of cable or print media regulations. The court also 
rejected the networks' claim that section 202(h) does not allow the 
Commission to regulate broadcast ownership in the interest of diversity 
alone. The court held that in the context of broadcast regulation, the 
public interest has historically embraced both diversity and localism, 
that protecting diversity is a permissible policy for the agency to 
seek to advance, and that nothing in section 202(h) indicated that 
Congress had departed from that approach. The court then held that 
whatever the virtues may be of a free market in television stations, 
``Congress may, in the regulation of

[[Page 65754]]

broadcasting, constitutionally pursue values other than efficiency--
including in particular diversity in programming, for which diversity 
of ownership is perhaps an aspirational but surely not an irrational 
proxy.''
    15. The court also, in Fox Television, vacated the cable/broadcast 
cross-ownership rule, finding that the Commission had failed to justify 
its retention of the rule as necessary to safeguard competition. In the 
1998 Biennial Report, the Commission attempted to justify the retention 
of the rule by arguing that a cable operator that also owns a broadcast 
station has the incentive to discriminate against other broadcasters 
by: (1) Offering joint advertising sales and promotions, and (2) not 
carrying, or carrying on undesirable channels, broadcast signals of 
competing stations. The court found that the Commission had not shown a 
substantial enough probability of discrimination to deem reasonable a 
broad cross-ownership rule, especially in light of: (1) Existing 
conduct rules, such as must-carry, ensuring access to cable systems, 
and (2) competition from DBS providers, which would make discrimination 
against competing broadcasters unprofitable. Further, the court found 
that the Commission had failed to justify its departure from a 1992 
Report and Order in which it had concluded that the rule was not 
necessary to prevent carriage discrimination. The court also found that 
the Commission had failed to justify the rule based on its diversity 
concerns. Based on its assessment that there was little chance that the 
Commission would be able to justify retaining the cable/broadcast-
cross-ownership rule, and that the disruption caused by vacatur would 
be insubstantial, the court vacated the rule.
    16. With respect to the standard of review generally under section 
202(h), the court noted, in the context of discussing the cable/
broadcast cross-ownership rule, that the Commission had applied too lax 
a standard and that ``[t]he statute is clear that a regulation should 
be retained only insofar as it is necessary in, not merely consonant 
with, the public interest.'' The Commission petitioned for rehearing as 
to this issue, arguing that the court's interpretation of the statutory 
language would impose a higher standard in deciding whether to retain a 
rule than that which applied to the adoption of the rule in the first 
place. On rehearing, the court deleted the paragraph in its earlier 
opinion holding the Commission to a higher ``necessary'' standard in 
biennial review proceedings, finding that the cable/broadcast cross-
ownership rule could not pass muster even under the more relaxed 
``consonance'' standard and that determining the applicability of a 
stricter standard of review therefore was not necessary. The court 
decided to leave ``unresolved precisely what section 202(h) means when 
it instructs the Commission first to determine whether a rule is 
`necessary in the public interest' but then to `repeal or modify' the 
rule if it is simply `no longer in the public interest.' ''
    17. In Sinclair Broadcast Group, Inc. v. FCC, the court reviewed 
the Commission's decision relaxing the local TV ownership rule. That 
rule allows the combination of two television stations in the same 
market if: (1) The Grade B contours of the stations do not overlap, or 
(2) (a) one of the stations is not among the four highest-ranked 
stations in the market, and (b) at least eight independently owned and 
operating full power commercial and non-commercial television stations, 
or ``voices,'' would remain in that market after the combination. Under 
the rule, voices are defined to include only broadcast television 
stations in the market. In Sinclair, the court held that the Commission 
``adequately explained how the [local TV ownership rule] furthers 
diversity at the local level and is necessary in the `public interest' 
under section 202(h) of the 1996 Act.'' The court also upheld the local 
TV ownership rule against a First Amendment challenge, applying the 
``rational-basis'' standard of review. The court held that there was a 
rational relationship between the Local TV Ownership Report and Order 
and our diversity and competition goals. The court noted that choosing 
the number eight and defining voices ``are quintessentially matters of 
line drawing invoking the Commission's expertise in projecting market 
results,'' and did not decide the issue of whether eight is the 
appropriate numerical limit. The court invalidated, however, the 
Commission's definition of voices under the rule because it did not 
adequately explain its decision to include only broadcast television 
stations as voices. The court pointed out that the definition was 
inconsistent with the definition of voices for the radio/TV cross-
ownership rule, which also considers major newspapers and cable 
television to be voices. The court observed that ``[o]n remand, the 
Commission conceivably may determine to adjust not only the definition 
of `voices' but also the numerical limit.''
    18. We seek comment on the statutory language of section 202(h) of 
the 1996 Act and the court's interpretations of that language in Fox 
Television and Sinclair. We specifically invite comment on the standard 
we should apply in determining whether to modify, repeal, or retain our 
rules under section 202(h) of the 1996 Act. For example, does the 
phrase, ``necessary in the public interest,'' mean we must repeal a 
rule unless we find it to be indispensable? Or does the phrase mean 
that we can retain a rule if we would be justified under the current 
circumstances in adopting it in the first instance because the record 
shows that it serves the public interest? Or is the standard somewhere 
in between? The Commission argued in its rehearing petition in Fox 
Television that ``necessary in the public interest,'' when viewed in 
the context of the rest of the 1934 and 1996 Acts, means ``in the 
public interest,'' or useful or appropriate. The very next sentence of 
the statute uses the term ``no longer in the public interest,'' thus 
appearing to equate a rule's being ``necessary in the public interest'' 
with its being ``in the public interest.'' The Commission argued that 
other provisions of the Communications Act contain similar language 
using the terms, ``necessary,'' ``required,'' and ``necessity,'' but 
those provisions have been construed to require the Commission to 
demonstrate that the rules we adopt advance legitimate regulatory 
objectives, not that they are necessary in the sense of being 
indispensable. Others might argue, however, that ``necessary in the 
public interest'' connotes that a rule must be essential or 
indispensable in order for us to retain it. What light do the statutory 
context and other case law cast on the meaning of the term? We invite 
comment on any other factors we should consider with respect to the 
meaning of the statutory term ``necessary in the public interest'' as 
it bears on our review of the ownership rules at issue in this 
proceeding.
    19. In both Fox Television and Sinclair, the court, noting that 
``section 202(h) carries with it a presumption in favor of repealing or 
modifying the ownership rules,'' faulted the Commission's justification 
of its rules as lacking supporting factual evidence. Accordingly, with 
respect to the rules under consideration, we strongly encourage 
commenters to provide empirical evidence to buttress their assertions. 
Our Media Ownership Working Group is engaged in a number of studies 
that are intended to inform the 2002 biennial review. These studies, 
which will be released separately for comment, concern the following 
subjects: (1) Inter-media substitutability

[[Page 65755]]

among local media outlets from the perspective of local advertisers; 
(2) the effect of broadcast media concentration on the level of non-
advertising content produced and consumed; (3) the status of broadcast 
television in the multichannel marketplace; (4) a comparison of local 
news quantity and quality on network-owned stations and network 
affiliates; (5) past consumer substitution patterns across various 
media; (6) the effect of common ownership of same-market newspapers and 
television stations on news coverage; (7) a survey of American 
consumers regarding outlets used for news and current affairs; (8) an 
examination of program diversity on prime time network television 
between 1966 and 2002; (9) a survey of changes in the availability of 
media outlets over time in ten select cities; and (10) the effect of 
local radio market concentration on program diversity and advertising 
prices. Given the importance of this data to the proceeding, and in 
order to streamline the review process, comments will be due 60 days 
after Commission release of the studies; reply comments will be due 90 
days after release of the studies. We intend to use the evidence 
collected in the studies, as well as the comments, to guide and support 
our decisions in this proceeding.
    20. The First Amendment. Any media ownership rules we ultimately 
adopt in this proceeding must be consistent not only with the legal 
standard of section 202(h), but also with the First Amendment rights of 
the affected media companies and of consumers. The Fox Television and 
Sinclair cases recently applied the rational-basis standard to 
broadcast ownership rules. The court held in Fox Television that the 
Commission's decision to retain the national TV ownership rule did not 
violate the First Amendment, and it held in Sinclair that the local TV 
ownership rule complies with the First Amendment. The court reaffirmed 
in both cases that the rational-basis standard of First Amendment 
scrutiny is applicable to broadcast television rather than the higher 
intermediate scrutiny applicable to cable operators or the strict 
scrutiny applicable to print media. As the court noted in Sinclair, 
there is no unabridgeable First Amendment right to hold a broadcast 
license when a would-be broadcaster does not satisfy the public 
interest by meeting the Commission criteria for licensing, including 
ownership limitations.
    21. In general, ownership limits on cable operators have been 
subject to the O'Brien, or intermediate scrutiny, test. Under this 
standard, government regulation of speech will be upheld only if: (1) 
It furthers an important or substantial governmental interest; (2) the 
government interest is unrelated to the suppression of free expression; 
and (3) the incidental restriction on alleged First Amendment freedoms 
is no greater than is essential to the furtherance of that interest. 
The Supreme Court has determined that ``promoting the widespread 
dissemination of information from a multiplicity of sources'' is a 
government interest that is not only important, but is of the ``highest 
order'' and is unrelated to the suppression of free speech.
    22. Courts have consistently applied the rational-basis test when 
faced with First Amendment challenges to Commission ownership 
restrictions on broadcast media. This is true even when the ownership 
regulation effectively limits what a non-broadcast media firm, such as 
a newspaper or a cable company, can own. In other words, when the rule 
prevents a newspaper from owning an in-market radio station, the courts 
do not apply the strict scrutiny test applicable to newspapers as 
newspapers, but rather the rational-basis test used for evaluating 
broadcast regulations. We will explore a variety of options for a new 
media ownership framework. We seek comment on the standard of review 
that would apply to these options.

III. The Modern Media Marketplace

    23. Section 202(h) requires the Commission to consider whether any 
of its ownership rules are ``necessary in the public interest as a 
result of competition.'' As noted, the Fox Television court faulted the 
Commission for failing to provide any analysis of the state of 
competition in the television industry to justify its retention of the 
national TV ownership rule. Therefore, our evaluation of the broadcast 
ownership rules must take into account the current status of 
competition in the media marketplace. Throughout this proceeding, we 
seek comment on how changes and developments in the media marketplace 
affect our analysis and decision making. For example, in section IV we 
explore the definition of the product market and seek comment on 
whether the proliferation of programming outlets and services requires 
the Commission to redefine the product market to include media other 
than broadcasting. The data provides a brief overview of the number of 
outlets and potential competitors in the video, audio, and newspaper 
industries. We seek comment on the significance of this data to our 
biennial review of the ownership rules as well as any other competitive 
data that would be useful to our analysis.
    24. Video. There are currently over 106 million TV households in 
the U.S. served by a variety of video outlets. Over-the-air outlets 
include: 1,331 commercial TV stations (752 UHF, 579 VHF); 381 non-
commercial, educational TV stations (254 UHF, 127 VHF); 554 Class A TV 
stations (451 UHF, 103 VHF); and, over 2,100 other low-power TV 
stations. Over sixty percent of commercial TV stations are affiliated 
with one of the top four networks (ABC, CBS, Fox and NBC). Another 19 
percent are affiliated with the smaller national networks: United 
Paramount (UPN), Warner Brothers (WB), and Paxson Network. The 
remaining commercial stations are affiliated with other smaller 
networks or are independents.
    25. Cable TV is available to the vast majority of TV households in 
the U.S. There are 69 million households that subscribe to cable. There 
are over 230 national cable programming networks and more than 50 
regional networks. Many cable systems offer access channels for public 
affairs, educational and governmental (``PEG'') programming and a few 
offer local cable news, educational and public affairs programming. 
Direct broadcast satellite (``DBS'') is available nationwide and has 
over 18 million subscribers. In addition to the national cable 
programming networks, DBS offers regional sports networks. DBS may also 
retransmit the signals of local and network affiliate television 
stations to subscribers in their local markets. DBS is also required to 
reserve not less than 4 percent of its channel capacity exclusively for 
noncommercial programming of an educational or informational nature. 
Other Multi-channel Video Program Distributors (``MVPDs'') include: 
satellite master antenna systems (SMATV), with 1.5 million subscribers; 
home satellite dishes, which serve about 1 million homes; and 
multipoint distribution service (MDS), with about 700,000 subscribers.
    26. Audio. Over 13,260 radio stations are currently on the air 
(4,811 AM, 6,147 commercial FM and 2,303 educational FM). The average 
radio market has 23 commercial stations. Of the 285 Arbitron radio 
markets, almost one-half of the markets are served by more than 20 
stations and 90% of the markets are served by more than 10 stations. In 
addition to broadcast radio, audio music, talk, and news channels are 
provided by many cable and DBS operators. Two Digital Audio Radio 
Service (``DARS'') systems with over 140,000 subscribers offer almost 
100 audio channels nationwide using

[[Page 65756]]

satellite transmission. Even more audio channels are available through 
Internet streaming.
    27. Newspapers. In 2001, there were 1,468 daily newspapers in the 
U.S. The total circulation for those newspapers was about 56 million. 
There were also about 7,700 weekly newspapers with a combined 
circulation of about 71 million. Sunday newspaper circulation 
collectively reaches over 59 million per week. Many of these newspapers 
are available over the Internet.
    28. Internet and other media. Almost 60% of the U.S. population has 
Internet access at home. Over 40 million residential Web users have 
accessed streaming video. Also, about 90% of households have at least 
one VCR and more than one-half of those own at least two VCRs. Over 14 
million homes have DVD players. Personal Video Recorders (``PVR'') 
sales have reached 500,000 since they were introduced two years ago.

IV. Policy Goals

    29. Each of the rules under review in this proceeding seeks to 
further one or more of three important public interest goals--
diversity, competition and localism. The Commission long has embraced 
these values as the foundation of its ownership rules and policies. In 
this proceeding the Commission seeks to: (1) Define more precisely the 
Commission's policy goals; (2) determine how to best promote these 
goals in today's media market consistent with our statutory mandate; 
(3) establish the best measure for diversity, competition, and 
localism; and (4) establish a balancing test to prioritize the goals if 
tension exists between them.
    30. The courts have recognized the Commission's legitimate interest 
in promoting these policy goals through ownership limits. Media 
ownership may be limited in order to promote the First Amendment 
interests of consumers of the electronic media and to promote diversity 
and competition. The Court has upheld the Commission's predominant 
reliance on the diversity rationale to support its newspaper/broadcast 
cross-ownership policies. In Sinclair, the Court of Appeals noted that 
ownership limits encourage diversity in the ownership of broadcast 
stations, which can in turn encourage a diversity of viewpoints in the 
material presented over the airwaves. The court added that diversity of 
ownership as a means to achieving viewpoint diversity has been found to 
serve a legitimate government interest, and has, in the past, been 
upheld under rational basis review. The interests that government may 
promote through content neutral rules also include competition--both 
the promotion of competition and the prevention of anti-competitive 
practices and results.
    31. Section 202(h) requires the Commission to determine whether its 
ownership rules remain necessary in the public interest as a result of 
competition. Therefore, we must first determine whether the marketplace 
provides a sufficient level of competition to protect and advance our 
policy goals. If not, we must determine whether the existing rules or 
revisions to those rules are required to protect and advance diversity, 
competition, and localism in the media marketplace.
    32. The following paragraphs briefly discuss the Commission's 
policy goals and invite comment on each. We welcome the submission of 
any relevant empirical studies for quantifying benefits and harms, as 
well as comments based on well-established economic theory and 
empirical evidence. In that regard, we are especially interested in 
receiving comments that provide not only the theoretical justifications 
for adopting a particular regulatory framework, but also empirical data 
on the effect that competition and consolidation in the media industry 
have on our policy goals.

A. Diversity

    33. Diversity is one of the guiding principles of the Commission's 
multiple ownership rules. It advances the values of the First 
Amendment, which, as the Supreme Court stated, ``rests on the 
assumption that the widest possible dissemination of information from 
diverse and antagonistic sources is essential to the welfare of the 
public.'' The Commission has elaborated on the Supreme Court's view, 
positing that ``the greater the diversity of ownership in a particular 
area, the less chance there is that a single person or group can have 
an inordinate effect, in a political, editorial, or similar programming 
sense, on public opinion at the regional level.''
    34. The Commission has considered four aspects of diversity: 
viewpoint diversity, outlet diversity, source diversity, and program 
diversity. Viewpoint diversity ensures that the public has access to 
``a wide range of diverse and antagonistic opinions and 
interpretations.'' It attempts to increase the diversity of viewpoints 
ultimately received by the public by providing opportunities for varied 
groups, entities and individuals to participate in the different phases 
of the broadcast industry. Outlet diversity is the control of media 
outlets by a variety of independent owners. Source diversity ensures 
that the public has access to information and programming from multiple 
content providers, while program diversity refers to a variety of 
programming formats and content. Each of these components of diversity 
is described.
    35. Viewpoint Diversity. Viewpoint diversity has been the 
touchstone of the Commission's ownership rules and policies. We remain 
fully committed to preserving citizens' access to a diversity of 
viewpoints through the media. The Supreme Court has stated that ``it 
has long been a basic tenet of national communications policy that the 
widest possible dissemination of information from diverse and 
antagonistic sources is essential to the welfare of the public.'' The 
diversity of viewpoints, by promoting an informed citizenry, is 
essential to a well-functioning democracy. The principal means by which 
the Commission has fostered diversity of viewpoints is through the 
imposition of ownership restrictions. In Sinclair, the Court of Appeals 
noted that ownership limits encourage diversity in the ownership of 
broadcast stations, which can in turn encourage a diversity of 
viewpoints in the material presented over the airwaves. The court added 
that diversity of ownership as a means to achieving viewpoint diversity 
has been found to serve a legitimate government interest, and has, in 
the past, been upheld under rational-basis review.
    36. Outlet Diversity. The control of media outlets by a variety of 
independent owners is referred to as ``outlet diversity.'' Outlet 
diversity ensures that the public has access to multiple, 
independently-owned distribution channels (e.g., radio, broadcast 
television, and newspapers) from which it can access information and 
programming. We have long assumed that diffusing ownership of outlets 
promotes a wide array of viewpoints. Thus outlet diversity was a key 
mechanism for promoting viewpoint diversity. In attempting to foster 
viewpoint diversity through structural regulation, our content-neutral 
method does not seek to evaluate the substance of any station's 
editorial decisions. Indeed, a major benefit of content-neutral 
structural regulation is that we avoid making inescapably subjective 
judgments about editorial decisions, viewpoints and content. Rather, we 
attempt only to preserve a sufficient number of independently owned 
outlets to increase the likelihood that independent viewpoints will be 
available in local markets. The Supreme Court has upheld the 
Commission's judgment that diversification of ownership enhances

[[Page 65757]]

the possibility of achieving greater diversity of viewpoints.
    37. Source Diversity. A related concept is ``source diversity,'' 
which refers to the availability of content to consumers from a variety 
of content producers. Source diversity ensures that the public has 
access to information and programming from multiple content providers 
and producers. A wide array of content producers can contribute both to 
viewpoint diversity (particularly where the content is news and public 
affairs programming) and program diversity. A number of government 
efforts, both past and present, have been aimed at promoting source 
diversity on mass media distribution platforms. Our efforts centered 
initially on broadcast television, but have broadened in scope more 
recently to focus on MVPDs such as cable operators and DBS service.
    38. Program Diversity. Program diversity refers to a variety of 
programming formats and content. Examples of program categories include 
formats such as dramas, situation comedies, reality television shows, 
and newsmagazines, as well as content, such as health, nature, foreign 
language/ethnic, and cooking. In 1960, when broadcast television was a 
more dominant mass communications medium in this country, we sought to 
promote program diversity through direct means. See, e.g., Report and 
Statement of Policy Re: Commission en banc Programming Inquiry (``1960 
Programming Policy Statement''), 44 F.C.C. 2303 (1960).
    39. More than twenty years later, the Commission has indicated that 
markets may serve Americans' demand for diverse programming more 
effectively than government regulation. In the Dual Network Order (66 
FR 32242, June 14, 2001), the Commission allowed common ownership of a 
major broadcast network and an emerging broadcast network in part 
because ``if two networks are owned by a single entity, the entity has 
an incentive to attract an array of viewers with differing interests to 
produce the largest combined audience for the overall enterprise. This 
allows for the major network to pursue programming suitable to mass 
tastes, with the smaller network programming to minority and niche 
tastes.''
    40. Diversity Issues for Comment. We seek comment on several 
aspects of diversity, including how the specific terms should be 
defined. The airing of news and public affairs programming has 
traditionally been the focus of viewpoint diversity. We seek comment on 
whether we should consider non-traditional news programming as 
contributing to viewpoint diversity. For example, do ``magazine shows'' 
such as Sixty Minutes and ``talk shows'' such as Hardball contribute to 
viewpoint diversity as much as (or less or more than) straightforward 
news broadcasts?
    41. Viewpoint diversity has been a central policy objective of the 
Commission's ownership rules. We seek comment on whether viewpoint 
diversity should continue to be a primary goal of the Commission's 
decision-making. The Commission has not viewed source and outlet 
diversity as policy goals in and of themselves, but as proxies for 
viewpoint diversity. Should the Commission continue to use source and 
outlet diversity as proxies to protect and advance viewpoint diversity? 
Or should each type of diversity be an explicit goal of the 
Commission's policymaking? Parties advocating that source and/or outlet 
diversity should be a goal of Commission ownership policies should 
address how priorities would be set among these types of diversity.
    42. Once we define our diversity goal, we must then ask whether the 
marketplace will protect and advance diversity without regulatory 
requirements. As set forth in section III, the current media 
marketplace appears robust in terms of the aggregate number of media 
outlets. Consumers generally have access to news, public affairs, and 
entertainment programming from a variety of media outlets--broadcast, 
cable, satellite, newspapers and the Internet. What has been the effect 
of this proliferation of new media outlets on the Commission's 
diversity goals? What effects, if any, do these outlets have on our 
objective of promoting diversity and the means by which we can best 
achieve those goals? How should these or other outlets be considered 
for the purposes of analyzing viewpoint diversity? Are there unique 
attributes of broadcasting that should lead us to define and measure 
diversity without reference to other media? Commenters should provide 
empirical data on consumer substitutability among the various media 
outlets or programs.
    43. In considering these questions, we are particularly interested 
in the actual experience of the media industry. Has consolidation in 
local markets led to less or greater diversity? Commenters are 
encouraged to submit empirical data and analysis demonstrating both the 
change (either decrease or increase) in diversity levels and the causal 
link, as opposed to mere correlation, between those changes and greater 
consolidation in local markets. Evidence comparing the levels of 
diversity in local communities with different levels of media 
concentration would be especially useful.
    44. If the market alone does not satisfy the Commission's goal of 
protecting and advancing viewpoint diversity, we must then consider the 
appropriate regulatory framework for achieving that goal. 
Traditionally, the Commission has focused on the number of independent 
owners on the theory that a larger number of owners would help provide 
greater viewpoint diversity. Commission policy presumes that multiple 
owners are more likely to provide ``divergent viewpoints on 
controversial issues,'' which the Commission has stated is ``essential 
to democracy.'' Rules and Policies Concerning Multiple Ownership of 
Radio Broadcast Stations in Local Markets, MM 01-317, NPRM, (66 FR 
63986, December 11, 2001).'' We invite comment as to this policy. 
Although courts have affirmed the Commission's ability to limit 
ownership in pursuit of a diversity of viewpoints, they recently have 
required that we demonstrate a close connection between the ownership 
rules and diversity. Therefore, we must examine whether ownership 
limits are in fact necessary to promote diversity in the media. If we 
are to maintain ownership limits predicated on preserving diversity, we 
must inquire into whether our traditional theory of diffused ownership 
policy is in fact more likely to preserve diversity than a policy that 
relies on market forces or other measures to foster diversity.
    45. If the Commission continues to rely on an independent voice 
test as a measure for ensuring the appropriate level of diversity, what 
media outlets or programming services should be included in the 
independent voice test? For example, should we include cable or DBS? 
Should commonly-owned media outlets be considered a single media 
``voice'' in evaluating diversity? Should cable television count as one 
voice because the cable operator exercises editorial control over the 
content that is distributed over that platform? Or should the 
Commission look to the number of independent programming entities as 
separate and distinct voices?
    46. What other measures of diversity, quantitative or qualitative, 
should we consider, and what tools do we have to measure diversity with 
a reasonable degree of accuracy? Are audience demographics an 
appropriate measure of diversity? Is competition an appropriate proxy 
for diversity, such that the presence of a competitive local market 
will assuage our concerns about diversity? Should we take ratings 
figures or other measures of consumer usage

[[Page 65758]]

into account in measuring diversity, and if so, how? In considering the 
various potential ways to measure diversity, we seek comment on how 
their use comports with the values and principles embodied in the First 
Amendment.
    47. We also must consider the appropriate geographic area over 
which to measure diversity. Although radio ownership restrictions are 
limited to the local market, television ownership is restricted both on 
the local level and nationally. Does the appropriate geographic area 
for measuring diversity differ based on whether the programming is 
local or national in nature? Should the appropriate geographic area for 
measuring diversity be the same as the relevant geographic market for 
competition purposes?
    48. We also seek comment on whether the level of diversity that the 
public enjoys varies among different demographic or income groups. 
Although access to broadcasting services is available to all 
individuals in a community with the appropriate receiving equipment, 
access to other forms of media typically requires the user to incur a 
recurring charge, generally in the form of a subscription fee. Does 
this or any other differences between broadcasting and other media 
reduce the level of diversity that certain demographic or income groups 
enjoy? Does the fact that 86% of American households pay for television 
impact this analysis? What is the extent of any disparity in access to 
diversity, and how should we factor in that disparity in our diversity 
analysis?
    49. Would one or more kinds of diversity be better promoted by 
alternatives to structural regulation, such as behavioral requirements? 
We invite comment on whether we should promulgate behavioral 
regulations. What, if any, behavioral requirements should be imposed 
and how should they be administered? How is diversity served, if at 
all, by existing behavioral rules such as those that require 
broadcasters to provide political candidates access to their facilities 
under certain conditions, or those that require cable systems to set 
aside channel capacity for certain uses (e.g., PEG, leased access)? 
What kind of programs and content contribute to viewpoint diversity?
    50. In addition to seeking to foster the policy goals discussed, 
the Commission has historically used the ownership rules to foster 
ownership by diverse groups, such as minorities, women and small 
businesses. In the context of this comprehensive review of our 
ownership rules, we invite comment on whether we should consider such 
diverse ownership as a goal in this proceeding. If so, how should we 
accommodate or seek to foster that goal? In addition, we invite comment 
as to our legal authority to adopt measures to foster that goal.

B. Competition

    51. Competition is the second principle underlying the Commission's 
local ownership rules and policies. In this proceeding, we seek to: (1) 
Define the Commission's competition policy goal; (2) determine whether 
the market alone can achieve that goal; and if not, (3) establish the 
appropriate regulatory framework to protect and advance a competitive 
media market.
    52. We must first consider the Commission's underlying policy 
objectives in examining competition. The Commission has relied on the 
principle that competitive markets best serve the public because such 
markets generally result in lower prices, higher output, more choices 
for buyers, and more technological progress than markets that are less 
competitive. In general, the intensity of competition in a given market 
is directly related to the number of independent firms that compete for 
the patronage of consumers. We seek comment on how the Commission 
should define our competition policy goal. In addition to the diversity 
component of our public interest analysis, should the Commission 
specifically analyze the competitive nature of the market? Or should we 
rely on the diversity component of our analysis such that a certain 
level of diversity would alleviate our competition concerns? 
Additionally, as discussed, we seek comment on the various types of 
competition (i.e., competition for viewers/listeners or advertisers) 
and the appropriate standards and measures to be used.
    53. Once we define our competition policy goal, we must then 
determine whether the market will protect and advance competition 
without regulatory requirements. As set forth in section III, the 
current media market appears robust in terms of the aggregate number of 
outlets. Today, broadcasters operate in an increasingly crowded and 
dynamic media market. During the past twenty years, the broadcast 
television industry has faced increasing competition both from 
additional television stations and from other video delivery systems. 
The number of full-power television stations has increased 68% since 
1980, from 1,000 to almost 1,700, and the number of broadcast networks 
has grown from three to seven. During that same period, there has been 
an enormous increase in the supply of non-broadcast video programming 
available to Americans. Cable television and DBS carry dozens, and 
often hundreds, of channels and have taken significant market share 
from broadcast TV stations. Furthermore, Americans have demonstrated an 
increased willingness to pay for information and programming. Cable 
television and other MVPDs, including DBS, have reached an 86.4% 
penetration rate in American homes.
    54. What has been the effect of this proliferation of new media 
outlets on the Commission's competition goals? What effects, if any, do 
these outlets have on our objective to promote competition and the 
means by which we can best achieve this goal? How should these and 
other outlets be considered for the purposes of analyzing competition? 
Are there unique attributes of broadcasting that should lead us to 
define and measure competition without reference to other media?
    55. If the market alone does not satisfy the Commission's goal of 
protecting and advancing competition, we must then consider the 
appropriate regulatory framework for achieving that goal. The 
Commission has traditionally relied on structural ownership rules, 
which focus on the number of independent owners, on the theory that a 
larger number of owners would enhance competition. While our local 
ownership rules were based largely on preserving viewpoint diversity, 
the Commission also found that these rules would serve the public 
interest by preventing broadcasters from ``dominat[ing] television and 
radio markets and wielding power to the detriment of small owners, 
advertisers, and the public interest.'' Are structural ownership limits 
the best means to promote competition in the media? If we are to 
maintain ownership limits predicated on preserving competition, is our 
traditional theory of diffused ownership policy more likely to preserve 
competition than a policy that relies on market forces or other 
measures to foster competition?
    56. If we determine that a competition analysis is necessary, we 
must define the relevant product and geographic markets in which 
broadcast TV and radio stations compete, as well as the market share of 
the participants within the relevant market, and then weigh the 
benefits of consolidation against the harms to consumers. For example, 
although ownership consolidation can produce efficiencies that result 
in stronger stations and improved services to the public, excessive 
concentration may reduce competition for viewers/listeners and lessen 
incentives to innovate and improve services to the public.

[[Page 65759]]

    57. We must first determine the relevant product markets. 
Generally, broadcast stations compete to attract viewers/listeners and 
advertising dollars, and they compete as buyers of programming. In past 
examinations of our ownership rules, we have focused on the program 
delivery market, the advertising market, and the program production 
market. These individual product markets vary in significance depending 
upon the particular rule under examination. In addition, these product 
markets are interrelated, since advertising revenue is often used to 
finance program acquisition, which in turn helps to attract viewers/
listeners, which then enables media owners to charge advertisers. We 
have not, however, resolved the issue of the relative weights we should 
accord each of these product markets for purposes of our competition 
analysis. We seek comment on whether our competition analysis should 
focus on competition for advertising revenue, competition for viewers/
listeners, a combination of the two, competition for programming, or 
some other factor.
    58. We first address the delivered programming market. Viewers/
listeners seeking delivered programming may choose among various 
providers, including broadcasters, cable systems, DBS, and DARS. 
Viewers/listeners, however, may also obtain programming from videos, 
DVDs, CDs, and the Internet. Viewers/listeners may also attend movie 
theaters, stage theaters, and music concerts. While the Commission 
previously concluded that delivered video programming could be a 
relevant market, we seek comment on whether the relevant market should 
be broader. The answer depends on the degree of substitutability 
between delivered programming and these other options. Do viewers/
listeners consider these other options to be good substitutes for 
delivered programming? Commenters are encouraged to produce studies and 
empirical data to support their views regarding the relevant product 
market. If delivered programming is the relevant product market, should 
we measure market concentration by using the number of separately owned 
outlets, or some other metric? If the relevant product market is 
broader than delivered programming, how should we measure market 
concentration?
    59. Next, we address the advertising market. As the steward of the 
Communications Act, the Commission is charged with evaluating the 
potential benefits and harms to the viewing and listening public, not 
to advertisers. We first seek comment on whether our authority under 
the Communications Act justifies our basing broadcast ownership 
regulation on the level of competition in the advertising market. We 
also seek comment on whether, as a policy matter, the Commission should 
be concerned with advertising rates, or whether competition concerns in 
advertising markets are more appropriately governed by the antitrust 
agencies. What precisely are the harms viewers and listeners would 
suffer if advertising prices were to rise as a result of more 
concentrated media markets, and what empirical evidence of these harms 
is available?
    60. The vast majority of American households now pay for 
information and programming by subscribing to cable television or 
satellite services. Does this change in consumer viewing habits suggest 
that the advertising market may not be the best product market to 
analyze because we do not capture this factor as part of the 
competitive analysis? For instance, people who subscribe to DBS often 
watch non-broadcast channels. By reducing viewership of local broadcast 
channels, non-broadcast channels may reduce advertising revenues 
flowing to local television stations. How can we capture the impact of 
a rule change on viewers if we are using a product definition (e.g. 
advertising) that does not account for these viewers/listeners. A 
recent study indicated that Internet users spend approximately 25% less 
time watching television stations than non-Internet users. This 
phenomenon suggests that the Internet may compete with television for 
viewers, which could reduce advertising revenues for both broadcast and 
non-broadcast channels. Competitive developments such as these are not 
reflected in past Commission evaluations of the advertising market, yet 
they may have a meaningful effect on broadcasters' ability to compete 
in today's media market. We seek comment on how trends such as these 
should impact our analysis. In light of market developments, would a 
direct analysis of competition for viewers/listeners be a more 
appropriate means for advancing our competition goal? If so, how should 
we measure entities' market power? Commenters are encouraged to produce 
studies and empirical data to support or refute claims.
    61. If the Commission determines that competition in advertising 
markets is an important component of our competitive analysis, we must 
then determine the relevant advertising product market. Historically, 
the Commission has focused only on broadcast advertising. We seek 
comment on whether, in today's marketplace, we should broaden the 
relevant advertising product market to include other media advertising.
    62. To what extent do non-broadcast media compete with broadcasters 
for advertising dollars? For example, the cable television industry has 
undergone consolidation at both the national and local level. In 
addition to competing for audience share, cable television now appears 
to be a more formidable competitor to broadcasters for national and 
local advertising. In 1980, broadcast TV captured virtually all of the 
national and local TV ad market (over 99%), whereas cable had less than 
one percent. In 2000, broadcast TV share declined to 70% of national TV 
ad revenue and about 80% of local TV ad revenue, and cable increased to 
30% and 20%, respectively. How do these and other developments in the 
media advertising market affect our decision-making? Parties are asked 
to provide empirical data on the substitutability for advertisers among 
all media outlets and to comment on how this data should impact how we 
would define the relevant advertising product markets. How should the 
differences between local, regional, and national advertising markets 
factor into our analysis?
    63. We also seek comment on the extent, if any, to which our 
competition analysis should consider the programming purchasing market. 
Broadcasters, broadcast networks, cable networks, cable operators, DBS 
networks, and DBS operators create, purchase, or barter for 
programming. Would relaxation or elimination of the broadcast ownership 
rules enable broadcasters to exercise monopsony power in the purchase 
of programming, or is there sufficient competition from other program 
buyers (e.g., cable and DBS) or from other distribution streams (e.g., 
Internet or international) to prevent the exercise of such power?
    64. Our competition analysis must also define the geographic market 
for delivered programming and advertising. The geographic extent of the 
market, the area where buyers can purchase a particular product or 
service from sellers, is sometimes difficult to determine, since 
different media outlets serve different geographic areas. What are the 
implications of these different geographic market definitions for our 
competition analysis? Would the appropriate geographic market be 
different if we focused on viewership/listenership rather than 
advertising?
    65. Innovation. Change permeates virtually every aspect of the 
organization of media markets and the operation of media companies. In 
both

[[Page 65760]]

broadcast and cable industries, analog transmission technologies are 
giving way to digital transmission technologies that will greatly 
increase operators' ability to offer new, more and better services. In 
addition to broadcast and cable, consumers also have access to multi-
channel video and audio programming from DBS and the Internet and 
multi-channel audio programming from DARS. Each of these distribution 
technologies are expanding the number of program choices and developing 
program content for increasingly specialized audiences. All of these 
changes reflect innovation, i.e., the development of new products or 
services or new, less costly ways of producing or delivering existing 
services.
    66. Innovation reflects developments in technology that affect the 
modern media marketplace. Innovation brings significant benefits to 
consumers through the creation of new media products and services, but 
it can destabilize established business practices and customer 
relationships. Markets in which innovation is a prominent attribute 
differ from traditional markets, largely because the focal point of 
competitive rivalry is shifted more toward innovation, which may 
fundamentally alter the behavior of firms competing in the market. In 
traditional markets (where product differentiation is not extensive), 
firms compete for customers primarily based on price and terms of sale 
of an existing (substitutable) product or service. By contrast, 
competitors in markets where innovation is an important force face a 
more dynamic and uncertain market. Innovation competition involves 
intense ``competition for the market'' such that a successful 
innovation may result in the sudden economic obsolescence of an 
existing product or technology (and sometimes the demise of the firms 
that produce it). Innovation competition tends to produce market 
leaders that dominate a market for a period of time until supplanted by 
another innovation introduced by the market leader or a competitor.
    67. We seek comment on this analysis. To what extent does 
innovation competition characterize rivalry in contemporary delivered 
programming, broadcast advertising, and program production markets? In 
which media markets does price competition seem to predominate over 
innovation competition? If innovation competition is pervasive in media 
markets today, how should our ownership rules be modified to encourage 
rivalry focused on innovation?
    68. Congress has directed the Commission to make the introduction 
of new technologies and services a priority. We seek comment on whether 
innovation is a valid policy goal in the consideration of the 
competitive effects of our ownership rules. In this regard, we invite 
comment on how our media ownership policies and rules affect the 
incentives to innovate among broadcasters and other media market 
competitors. For example, how do our broadcast ownership rules affect 
innovation in the form of digital television, digital cable, Internet 
access, and other new technologies? Do our ownership rules hinder 
continued innovation? Should the Commission actively seek to promote 
innovation through its ownership rules, or merely avoid interfering 
with firms' ability to innovate? If the former, what changes to the 
ownership rules, if any, would promote innovation?

C. Localism

    69. The Commission has historically pursued policies aimed at 
encouraging localism. One statutory basis of the Commission's promotion 
of localism in broadcasting is section 307 of the 1934 Act, which dates 
from the Radio Act of 1927 and, in its present form, states: ``In 
considering applications for licenses, and modifications and renewals 
thereof, when and insofar as there is demand for the same, the 
Commission shall make such distribution of licenses, frequencies, hours 
of operation, and of power among the several States and communities as 
to provide a fair, efficient, and equitable distribution of radio 
service to each of the same.'' Another is the Congressional Findings 
and Policy in connection with the Cable Television Consumer Protection 
and Competition Act of 1992, which include the finding that ``[a] 
primary objective and benefit of our nation's system of regulation of 
broadcast television is the local origination of programming.'' We 
invite comment on the goal of localism as we have defined it and 
whether we should define it more narrowly or more broadly.
    70. From the earliest days of broadcasting, federal regulation has 
sought to foster the provision of programming that meets local 
communities' needs and interests. Thus, the Commission has licensed 
stations to serve local communities, pursuant to section 307(b) of the 
1934 Act, and it has obligated them to serve the needs and interests of 
their communities. Stations may fulfill this obligation by presenting 
local news and public affairs programming and by selecting programming 
based on the particular needs and interests of the station's community. 
As the Fox Television court recognized, one of the Commission's 
purposes in retaining the national TV ownership rule was ``to preserve 
the power of affiliates in bargaining with their networks and thereby 
allow the affiliates to serve their local communities better.''
    71. Localism remains an important attribute of the broadcast media 
industry. We request comment whether, and to what extent, it is related 
to ownership limits. For example, do ownership limits tend to ensure an 
adequate supply of local information intended to meet local needs and 
interests? Is such news, public affairs, and other programming likely 
to be available in the current marketplace without ownership limits? To 
what extent do consumers' access to local news and information on non-
broadcast media (e.g., newspapers, cable television, DBS, and the 
Internet) impact this analysis? How much local news and information is 
available on a typical cable system and on the Internet, other than 
news that originates on broadcast stations? Would some combination of 
market mechanisms and ownership limits, rather than one or the other, 
best promote localism? Are consolidation and efficiency innovations 
likely to reduce the level of local programming or reduce the amount of 
programming that is locally produced?

V. Local Ownership Rules

    72. In this section, we discuss and invite comment on possible 
changes to our multiple ownership rules concerning local broadcasting 
(the local TV multiple ownership rule and the radio/TV cross-ownership 
rule). We also invite suggestions of how we could achieve our goals of 
diversity, competition, and localism by means other than broadcast 
ownership rules. The options include case-by-case determinations of 
multiple ownership and a single ownership rule that would apply to all 
media outlets. We invite comment on how best to define a ``voice'' or 
other measurement of viewpoint diversity in our local rules. In this 
latter regard we focus especially on relatively new media such as DBS 
and the Internet, which have become powerful forces in recent years but 
are not reflected in our current rules.

A. Local TV Multiple Ownership Rule

    73. The local TV ownership rule allows an entity to own two 
television stations in the same DMA, provided: (1) the Grade B contours 
of the stations do not overlap; or (2) (a) at least one of the

[[Page 65761]]

stations is not ranked among the four highest-ranked stations in the 
DMA, and (b) at least eight independently owned and operating 
commercial or non-commercial full-power broadcast television stations 
would remain in the DMA after the proposed combination (``top four 
ranked/eight voices test''). In counting the number of independently 
owned and operating full-power stations that count as voices under the 
rule, only those stations whose Grade B signal contours overlap with 
the Grade B contour of at least one of the stations in the proposed 
combination are counted.
    74. The Commission adopted a rule prohibiting common ownership of 
two TV stations with intersecting Grade B contours in 1964. The rule 
was based in part on the Commission's earlier ``diversification of 
service'' rationale, which suggests that the Commission believed its 
diversity concerns were better promoted by a greater number rather than 
a lesser number of separately owned outlets. In 1996, Congress directed 
the Commission to ``conduct a rulemaking proceeding to determine 
whether to retain, modify, or eliminate its limitations on the number 
of television stations that a person or entity may own, operate, or 
control, or have a cognizable interest in, within the same television 
market.'' The Commission revised the rule to its current form in 1999, 
citing as reasons growth in the number and variety of local media 
outlets and the efficiencies and public service benefits that can be 
obtained from joint ownership. Additionally, the Commission sought to 
``facilitate further development of competition in the video 
marketplace and to strengthen the potential of broadcasters to serve 
the public interest.'' The Commission made relatively minor changes to 
the rule on reconsideration. In its remand of the Commission's 1999 
Order, the court found the Commission's explanation of its decision to 
include only broadcast television stations as voices insufficient, 
although it concluded that the Commission had adequately explained how 
the local TV ownership rule ``furthers diversity at the local level and 
is necessary in the `public interest' under section 202(h) of the 1996 
Act.''
    75. We ask for comment whether the local TV ownership rule is 
necessary in the public interest as the result of competition. Does it 
continue to serve its original purposes of furthering diversity and 
facilitating competition in the marketplace? Does the rule promote the 
other goals we set forth, including all the various forms of diversity, 
competition, and localism? If the rule serves some of our purposes and 
disserves others, does the balance of its effects argue for keeping, 
revising, or abolishing the rule? In the following paragraphs, we 
explore these questions in more detail.
1. The Sinclair Decision
    76. The voice test that applies to the current local TV ownership 
rule includes only TV stations. As discussed in Sinclair, the court 
invalidated the definition of voices because the Commission had not 
adequately explained its decision to exclude other media. The court 
noted that the Commission's decision was inconsistent with the 
definition of voices for the radio/TV cross-ownership rule, which also 
considers daily newspapers, radio stations, and incumbent cable 
operators to be voices. The court noted that, having found for purposes 
of TV/radio cross-ownership that counting other media voices more 
accurately reflects the actual level of diversity and competition in 
the market, the Commission had not explained why such diversity and 
competition should not also be reflected in its definition of voices 
for the local TV ownership rule. The court noted that on remand, the 
Commission may adjust not only the definition of voices, but also the 
numerical limit, given that there is a relationship between the 
definition of voices and the choice of a numerical limit.
    77. We invite comment on how to apply a voice test for a local TV 
ownership rule, if we decide to apply one. Should we continue to count 
only independently owned and operating full power commercial and non-
commercial television stations, or should we expand the media included 
in the definition of a voice? For example, should we include radio 
stations, daily newspapers, cable systems, DBS and DARS, the Internet, 
and perhaps other media? To what extent do consumers view these other 
media as sources of local news and information? In addition, we invite 
comment as to what numerical or other limit we should set for the 
number of voices. In current marketplace conditions, what number of 
voices would preserve our competition and diversity goals? Finally, we 
invite comment as to whether any definition of ``voices'' we adopt for 
the local TV ownership rule should be used in other rules, or whether 
there is adequate justification for distinguishing between voices 
relevant to one rule and those relevant to another.
2. Diversity
    78. The rule barring ownership of two TV stations in the same 
market was intended to preserve viewpoint diversity and promote 
competition in local markets. With respect to viewpoint diversity, the 
prohibition against common ownership of two top-four-ranked stations in 
the same market was intended to avoid combinations of two stations 
offering separate local newscasts. The Commission's analysis indicated 
that the top-four-ranked stations in each market generally had a local 
newscast, while lower-ranked stations frequently did not. The 
Commission reasoned that permitting combinations between these two 
categories of stations, but not among the top four-ranked stations, 
would better preserve the possibility for different viewpoints in local 
news presentation, ``which is at the heart of our diversity goal.''
a. Nature of Viewpoints on Local Television
    79. We seek evidence on the extent to which local television 
stations express viewpoints in local newscasts and, if so, whether, and 
to what extent, those newscasts provide diverse points of view. What 
are a station's incentives regarding the expression of a viewpoint, 
both explicitly through editorializing and implicitly through decisions 
on whether and how to cover particular events? It is our understanding 
that TV stations have largely abandoned editorials because they fear 
that viewers who disagree with the viewpoint expressed will temporarily 
or permanently elect to watch another channel. Is this accurate? If so, 
what is the effect of this change? News organizations argue that they 
have a strong economic incentive to keep their news coverage and 
reporting as balanced and unbiased as possible. On the other hand, it 
appears that news periodicals and other print media may have defined 
and distinct viewpoints. If so, are different viewpoints explained or 
represented in their news reporting? What effects have national, 
regional, and local cable news had on the expression of viewpoints in 
local markets? We seek comment on these issues, including whether local 
TV ownership regulations are necessary to foster viewpoint diversity.
    80. We have already suggested that market incentives may preserve 
program diversity as effectively as more diffused ownership structures. 
We seek comment on whether owners of broadcast stations have similar 
incentives with respect to diverse viewpoints. Our understanding is 
that, when both television stations in a duopoly carry local news, the 
newscast typically is produced by a single set of personnel using one 
set of

[[Page 65762]]

facilities. Are there different economic incentives among stand-alone 
stations, duopolies, or ``triopolies'' to produce, in a single 
newscast, a diversity of viewpoints? What other evidence or economic 
theories would shed light on the ``viewpoint'' incentives of commonly-
owned local broadcast outlets? Are different viewpoints produced by one 
editor the equivalent for diversity purposes of different viewpoints 
produced by multiple editors?
b. Connection Between Ownership and Viewpoint
    81. In the 1984 Multiple Ownership Order, the Commission cited 
evidence that at least some TV station owners allowed local management 
to make news reporting decisions. In addition, according to testimony 
before Congress by the President and Chief Operating Officer of Viacom, 
Inc., CBS' TV stations determine locally how much news to air, what 
stories are run, and when they are aired. To what extent are station 
owners or the local news departments responsible for those viewpoints 
expressed through local newscasts? What evidence is available on this 
point? Do station owners have formal or informal policies that 
determine the involvement of station owners in news coverage and 
reporting decisions? Commenters are requested to provide information 
bearing on the connection between editorial judgment or news selection 
and station ownership. If the record indicates a lack of connection 
between ownership and viewpoint expressed via local news programming, 
we seek comment on the weight that finding should be accorded in our 
determination of whether the local TV ownership rule continues to be 
supportable in its present form.
c. Program Diversity
    82. The Commission previously has noted that a single owner of 
multiple outlets may have stronger incentives to provide diverse 
entertainment formats, programs, and content on its multiple outlets 
than would separate station owners. An entity that owns multiple 
stations in a market may have the incentive to target its programming 
to appeal to a variety of interests in an effort to maximize audiences, 
rather than program its multiple outlets with the same format or 
programming, thereby competing with itself. While acknowledging this 
viewpoint in the TV Ownership FNPRM (60 FR 06490, February 2, 1995), 
the Commission questioned whether this model would promote a variety of 
viewpoints with regard to news and public affairs programming, but 
sought comment on whether it may indeed promote diversity of 
entertainment formats and programs. We invite comment on whether, and 
if so how, common ownership leads to provision of more diverse 
programming with respect to both entertainment and news and public 
affairs programming in order to maximize audience share. If common 
ownership of multiple stations promotes program diversity, how does 
this affect the need for the current local TV ownership rule? Absent a 
rule, would market forces alone lead to increased program diversity on 
commonly-owned stations?
    83. A second, more fundamental, issue regarding program diversity 
is raised by the dramatic advances in video delivery technology in the 
past quarter century. Cable television systems and DBS providers offer 
dozens, and often hundreds, of channels to subscribers. Entire channels 
are devoted to particular formats or specialized subjects. The increase 
in the variety of programming available to many American consumers 
today suggests that limits on TV station ownership may no longer be 
needed to promote program diversity in the video market. We seek 
comment on this analysis in connection with the local TV multiple 
ownership rule.
3. Competition
    84. In the TV Ownership FNPRM, the Commission identified three 
product markets in which television broadcasters operate: the market 
for delivered programming; the advertising market; and the program 
production market. Further, the Commission segmented the advertising 
market into national, national spot, and local markets, based on the 
nature of the geographic area advertisers wish to reach. The Commission 
tentatively concluded that cable television directly competes with 
broadcast television stations in each of these markets, and that 
broadcast radio and newspapers compete with television in the local 
advertising market. The Commission sought comment on whether other 
suppliers of video programming (e.g., multichannel multipoint 
distribution service and DBS compete with broadcast television 
stations. The Commission stated that it may not be appropriate to 
include them because their market penetration was so low that they were 
not relevant substitutes to a majority of Americans. The record 
compiled in the 1998 Biennial Report suggested that this situation may 
have changed. We encourage comment on which types of firms compete in 
these markets today. Are there media outlets other than those discussed 
here, e.g., the Internet, that should be considered to be competitors 
in these product markets? We seek information on the local market share 
of DBS and multichannel multipoint distribution service, as we 
generally only have aggregate national subscription data for these 
services. If broadcast TV competes with cable and other media, do our 
local broadcast ownership rules affect broadcasters' ability to 
effectively compete?
    85. The Commission tentatively concluded in the TV Ownership FNPRM 
that the geographic market for delivered programming was local; the 
geographic markets for advertising were both national and local; and 
the geographic market for program production was national/international 
in scope. Local geographic markets are particularly difficult to define 
because the local footprint of a broadcast outlet is likely to be 
different than the geographic area covered by other media outlets, such 
as cable systems. We seek comment on how we should define the local 
geographic media market. Commenters are encouraged to submit data that 
we could use to identify relevant competitors within geographic 
markets.
a. Advertising Market
    86. For our competitive analysis of the local TV ownership rule, we 
seek comment on advertising markets. Advertising markets are both 
national and local in scope because of the differing geographic areas 
advertisers wish to reach. Certain advertisers wish to reach the entire 
nation at once with their advertisements and therefore seek out media 
outlets with a national footprint. The sources of media with a national 
footprint include broadcast television networks, program syndicators, 
cable television networks, DBS and possibly cable multiple system 
operators (``MSOs''). Other advertisers are only interested in paying 
for advertisements that reach viewers in a specific, local area. These 
advertisers seek out media with a local footprint. These local media 
include individual broadcast television stations, individual cable 
system operators, individual broadcast radio stations, and local 
newspapers. The ``national spot market'' is a subset of the local 
advertising market. In this market, national advertisers buy 
advertising time on certain specific local media outlets in order to 
bring a specialized advertising message to only some regions of the 
country. Generally, the national advertisers work with national 
advertising representative firms to place these advertisements. With 
newer

[[Page 65763]]

technology, however, the television networks are able to place national 
spot advertisements into their own feeds. We ask for comment on this 
analysis of advertising markets, and on the policy implications of this 
or other analyses for our ownership rules. Our goal is to ascertain 
whether the local TV ownership rule, as currently formulated, continues 
to be needed to promote competition in these advertising markets.
    87. Broadcast television stations compete most directly in the 
local advertising market. We seek to identify the relevant competitors 
in this market. Has the consolidation of cable systems into local and 
regional clusters improved the ability of cable operators to compete 
with television broadcasters in the local advertising market? At a 
minimum, we expect that local cable operators that can offer an 
advertising product comparable to that of local television stations 
should be included in our analysis. If we conclude that cable operators 
do compete in the local television advertising market, that would 
suggest that the rule as currently structured may not be necessary to 
promote competition in local television advertising markets and that a 
more relaxed ownership limit may be appropriate. If we conclude that 
cable operators and television stations constitute the relevant market 
participants, we propose counting each outlet equally for purposes of 
assessing local advertising competition. We seek comment on this 
analysis, including whether a metric other than outlet counting is more 
appropriate in this area, and on the maximum level of concentration 
among these outlets that would ensure competition in local television 
advertising markets. We encourage commenters to submit empirical 
analyses of whether advertisers view different advertising media as 
substitutes for local television. Such data might include advertiser 
spending patterns or information from firms that purchase advertising 
for clients.
    88. It is also possible that radio stations, daily newspapers, and/
or direct mail may, for some advertisers, exert competitive pressure on 
local television advertising rates. If one or more of such media are 
substitutes for some advertisers but not for others, we seek comment on 
whether to include such other competing outlets in our advertising 
competition analysis. Conversely, the exclusion of daily local 
newspapers from our analysis could result in a local television 
ownership rule that is unduly restrictive from a competitive 
perspective. We strongly encourage commenters to address this issue of 
how our local media ownership rules should account for this issue of 
partial substitutability.
b. Delivered Video Market
    89. For our competitive analysis of the local TV ownership rule, we 
also seek comment on the market for delivered video programming. In the 
TV Ownership FNPRM, the Commission observed that the time Americans 
spent viewing television remained steady between 1970 and 1988. The 
Commission concluded from this stability of television viewing over 
time that ``delivered video programming'' could be a relevant market. 
If such data shows comparable levels of television viewing from 1988 to 
the present, should we continue to define delivered video market 
programming as a relevant market? If delivered video programming is a 
relevant market, we must determine how to measure market concentration. 
The Commission has traditionally used the number of separately owned 
stations or outlets serving a market. We seek comment, however, on 
other potential measures of concentration, such as audience share.
    90. Consumers have entertainment alternatives to watching 
television (i.e., delivered video programming from broadcast TV, cable 
TV, and DBS). These options include video programming from VCRs/DVDs, 
movie theaters and the Internet, as well as non-video entertainment 
such as listening to audio programming, reading, and virtually any 
other activity that a large number of people find entertaining. To what 
extent do consumers find these entertainment alternatives to be good 
substitutes for television viewing? If there is substantial 
substitution between these alternatives and television viewing, this 
may suggest that the relevant market is broader than delivered video 
programming. How should this affect our analysis of the need for a 
local TV ownership rule or how such a rule should be drawn?
    91. Assuming that the delivered video market is a relevant product 
market for our competition analysis, the Commission has tentatively 
included commercial broadcast television operators, public broadcast 
television station operators, and cable system operators to be 
economically relevant alternative suppliers of delivered video 
programming. The rapid growth of DBS since 1995 requires us to include 
DBS as a strong participant in the delivered video market. We seek 
comment on other media that should be included in the delivered video 
market. For example, in our Eighth Annual MVPD Competition Report, we 
detailed the status of additional potential competitors, including: 
wireless cable systems, SMATV systems, local exchange carriers, open 
video systems, Internet video, home video sales and rentals, electric 
utilities, and broadband service providers. Some of these media are not 
available in many markets and, thus, may not be relevant substitutes to 
a majority of Americans. Should a level of market penetration be deemed 
at which a non-broadcast video delivery media directly competes with 
broadcast television stations? How does the fact that there are no 
consumer fees for broadcast TV affect our analysis?
    92. While some video delivery media may be considered good 
substitutes for entertainment programming, are the same media good 
substitutes for local news and public affairs programming? What 
measures should we use to determine whether consumers view different 
media as substitutes for entertainment programming or news programming? 
Although cable systems carry local broadcast stations and therefore may 
be considered good substitutes for both entertainment programming and 
local news and public affairs programming, DBS systems and other media 
may carry less local news and public affairs programming. To what 
extent, if any, should our analysis of competition in the market for 
delivered programming differ from our analysis of viewpoint and program 
diversity?
c. Video Program Production Market
    93. Television stations, along with TV networks, cable networks, 
cable operators, DBS networks and DBS operators purchase or barter for 
video programming. The program production market could be affected if 
relaxation of the local TV ownership rule permits a broadcaster to 
exercise significant market power in the purchase of video programming. 
The result might be that suppliers of video programming would be forced 
to sell their product at below competitive market prices in order to 
gain access to the local market controlled by one or a few local group 
owners. The potential for the exercise of such market power, however, 
depends critically on the absence of a sufficient number of 
competitors. The ever-increasing number of alternative providers of 
delivered video programming in virtually every major market may 
mitigate the potential for distorting the prices of video programming 
by providing program producers with additional outlets for their 
product. We solicit comment on this point and evidence on the potential

[[Page 65764]]

market power in the purchase of video programming if we were to relax 
the local ownership rule.
d. Innovation
    94. We seek comment on the impact that the local TV ownership 
limits may have on innovation in the media marketplace. Does our 
current rule promote innovation? Would relaxation of the local TV 
ownership rule increase incentives or resources to provide innovative 
broadcast programming or new broadcast-based technologies or services? 
What effect, if any, would a relaxed local ownership rule have on the 
transition to digital television, or the provision of other services by 
a local TV station?
4. Localism
    95. We seek comment on whether and if so, how the local TV 
ownership rule affects localism. Does the local TV ownership rule 
affect either the quantity or quality of local news and other 
programming of local interest produced and aired by local stations? 
Does it affect the local selection of news content that is aired? We 
request that commenters provide data on the impact that TV duopolies 
and Local Marketing Agreements (``LMAs'') have had on the production of 
local programming by stations involved in such combinations or 
arrangements. According to testimony before Congress by the President 
and Chief Operating Officer of Viacom, Inc., after CBS' combination 
with Viacom, which resulted in six duopoly markets, CBS had, or planned 
to have, half-hour news spots or hourly updates on stations, in five 
different markets, that had not run such programming before. We invite 
comment on whether these assertions reflect industry-wide trends. We 
ask commenters to provide empirical data that demonstrates increased or 
decreased levels of local programming as a result of consolidation.
    96. In the 1984 Multiple Ownership Order, the Commission cited 
awards received by TV stations ``from leading professional 
organizations and community organizations'' as one relevant indicator 
of local news quality. If such awards are a reasonable barometer of 
news ``quality,'' we request empirical analyses of whether these awards 
tend to be earned systematically more or less often by TV duopolies 
and/or LMAs.
    97. Local TV newscasts and local public affairs shows are an 
important service provided by local television stations. The cost of 
producing those programs may represent a significant portion of a 
station's budget, particularly in small markets where the fixed costs 
of production are spread over a relatively small customer base. We seek 
comment on whether the current local TV ownership rule affects the 
viability of existing local newscasts and/or potential newscasts, 
particularly for small stations. Commenters asserting that a relaxation 
of the local TV ownership rule will result in more local news are 
requested to specifically address whether such greater output outweighs 
the potential loss of diverse voices among stations that previously had 
separate newscasts. Are there other factors or policy goals we should 
consider in determining whether to retain, modify or eliminate the 
local TV ownership rule?

B. Radio/TV Cross-Ownership Rule

    98. The radio/TV cross-ownership rule limits the number of 
commercial radio and television stations one entity may own in a 
market. The rule allows common ownership of at least one television 
station and one radio station in a market. In larger markets, a single 
entity may own additional radio stations depending on the number of 
other voices in the market. In larger markets, a single entity may own 
additional radio stations depending on the number of other voices in 
the market. 47 CFR 73.3555(c). The radio/TV cross-ownership rule 
generally allows common ownership of one or two TV stations and up to 
six radio stations in any market where at least twenty independent 
``voices'' would remain post-combination; two TV stations and up to 
four radio stations in a market where at least ten independent 
``voices'' would remain post-combination; and one TV and one radio 
station notwithstanding the number of independent ``voices'' in the 
market. If permitted under the local radio ownership rules, where an 
entity may own two commercial TV stations and six commercial radio 
stations, it may own one commercial TV station and seven commercial 
radio stations. For this rule, a ``voice'' includes independently owned 
and operating same-market, commercial and noncommercial broadcast TV, 
radio stations, independently owned daily newspapers of a certain 
circulation, and cable systems providing generally available service to 
television households in a DMA, provided that all cable systems within 
the DMA are counted as a single voice (Local TV Ownership R&O).
    99. The original rule, which prohibited radio/TV cross-ownership, 
was adopted in 1970. In adopting the rule, the Commission stated 
explicitly that ``the principal purpose of the proposed rules is to 
promote diversity of viewpoints in the same area * * * [W]e think it 
clear that promoting diversity of ownership also promotes 
competition.'' The Commission adopted a presumptive waiver policy to 
permit certain radio/TV combinations in 1989, and relaxed the rule to 
its current form in 1999. The Commission relaxed the radio/TV cross-
ownership rule to balance its traditional diversity and competition 
concerns with its desire to permit broadcasters and the public to 
realize the benefits of radio-television common ownership. The 
modifications were intended to ease administrative burdens and provide 
predictability to broadcasters in structuring their business 
transactions. In the 1998 Biennial Report, the Commission concluded 
that no further changes were warranted because the radio/TV cross-
ownership rule had been so recently relaxed, but it committed to 
monitor the market effects of our deregulatory actions to determine 
whether further changes are warranted.
    100. We ask parties to comment on whether the radio/TV cross-
ownership rule is necessary in the public interest as the result of 
competition. Does it continue to serve its original purposes of 
promoting economic competition and diversity, particularly viewpoint 
diversity? Does the rule promote the other goals we set forth, 
including the various forms of diversity and localism? If the rule 
serves some of our purposes and disserves others, does the balance of 
its effects argue for keeping, revising, or abolishing the rule?
    101. Some of the issues and requests for data contained in the 
preceding section on the local TV ownership rule overlap with our 
analysis of the radio/TV cross-ownership rule. For example, our request 
for comment on consumers' sources for news and information is directly 
relevant to both the local TV ownership rule and radio/TV cross-
ownership rule. Issues of viewpoint diversity and localism, and issues 
of competition in the advertising market and innovation, are also 
relevant to both the local TV ownership rule and the radio/TV cross-
ownership rule. Where appropriate, we will apply data and analysis from 
that section to our analysis of the radio/TV cross-ownership rule.
1. Viewpoint Diversity
    102. The current radio/TV cross-ownership rule counts as a media 
voice each independently owned and operating same-market full-power 
commercial and noncommercial broadcast television and radio station. It 
also counts certain types of daily

[[Page 65765]]

newspapers and cable systems because ``such media are an important 
source of news and information on issues of local concern and compete 
with radio and television, at least to some extent, as advertising 
outlets.'' Thus, the current rule implies that only these particular 
types of media contribute to viewpoint diversity. The rule does not 
account for news available on Internet Web sites, DBS, cable 
overbuilds, magazines or weekly newspapers. In our 1984 review of the 
national TV ownership rule, however, we concluded that, with respect to 
viewpoint diversity, the market includes a wide variety of media types 
engaged in the dissemination of ideas, including not only television 
and radio outlets, but also ``cable, other video media, and numerous 
print media as well.'' Should those media be counted in a new voice 
test for radio/TV cross-ownership, and if so, to what extent? Should we 
count each independently owned cable network carried by a cable system 
in a market as one voice? Does competition among these media render the 
current restriction unnecessary? Finally, we seek comment on any 
alternatives to a voice test.
2. Localism
    103. In 1989, the Commission concluded that the cost savings and 
aggregated resources of combined radio-television operations appeared 
to contribute to more news, public affairs and other non-entertainment 
programming. Based in part on that finding, the Commission adopted a 
new presumptive waiver policy allowing increased radio-television 
ownership in the top-25 television markets and in certain situations 
involving the acquisition of ``failed'' stations. It anticipated that 
this policy would lead to a limited number of additional radio-
television combinations that would enable the Commission to obtain 
additional evidence regarding the advantages and disadvantages of 
maintaining the cross-ownership rule. We seek comment on the quantities 
of local news and public affairs programming provided by TV-radio 
combinations and stand-alone TV and radio stations in those same 
markets. Are combinations and stand-alone stations providing comparable 
quantities of such programming? If TV-radio combinations produce a 
greater quantity of news programming than non-combined stations, does 
that suggest that greater cross-ownership among TV and radio stations 
would produce more news and/or public affairs programming? If the 
quantity of news and public affairs is the same or less on cross-owned 
stations, does it suggest the opposite?
3. Competition
    104. In analyzing the relationship of the radio/TV cross-ownership 
rule and our goal of competition, the key issue under our traditional 
competition framework is the extent to which radio and television 
stations compete with each other to attract advertising revenue. The 
stronger the competition between these two outlets, the more relevant a 
cross-ownership limit may be. Relaxation or elimination of the rule may 
not harm competition if the record shows that there is weak 
substitution between radio and television advertising. We welcome 
comment, as well as any empirical studies, on the substitution between 
radio and television advertising. We also wish to consider what bearing 
advertising substitution between radio, television, and other outlets, 
such as newspapers, magazines, and Internet Web sites, may have on this 
rule. Any empirical work demonstrating such advertising substitution is 
strongly encouraged.
    105. We are also concerned with the impact that radio/TV cross-
ownership limits may have on innovation in the media marketplace. Does 
our current rule promote innovation? Would relaxation of the radio/TV 
cross-ownership rule increase incentives to provide innovative 
broadcast programming or new broadcast-based technologies or services? 
Are there other factors or policy goals we should consider in 
determining whether to retain, modify, or eliminate the radio/TV cross-
ownership rule?

C. Alternative Means To Achieve Goals

    106. If the record demonstrates that the current ownership rules 
are no longer necessary to actually serve the stated goals and the 
public interest, we seek comment on the most appropriate means to 
achieve the stated goals. We see, at a minimum, three alternatives: (1) 
A case-by-case approach; (2) outlet specific rules; and (3) a single 
local media ownership rule covering all outlets. Often, bright line 
structural regulations have the effect of being both over-inclusive and 
under-inclusive. That is, a prophylactic structural rule may prohibit a 
combination that poses little competitive or consumer harm, or entails 
substantial consumer benefits. Or, such a limit may allow anti-
competitive combinations that nevertheless satisfy the rule. We ask 
whether our structural regulations should be replaced with a case-by-
case review of transactions so that a fact-specific analysis of the 
impact on our policy goals can be conducted. In the alternative, or in 
conjunction with a case-by-case review, should the Commission rely 
solely on the unfettered marketplace to achieve its stated policy 
goals? If we decide to retain structural rules, should the Commission 
retain a set of outlet specific rules similar in form to our current 
rules?
    107. We recognize that a pure case-by-case approach could create an 
unnecessary level of uncertainty among media firms. Such uncertainty 
could be mitigated by one or more ``soft'' ownership caps. A soft cap 
would identify a certain level of ownership concentration below which a 
transaction would be presumed lawful, and above which the transaction 
would be unlikely to be permitted, but would be reviewed by the 
Commission on a case-by-case basis. If we adopted one or more soft 
caps, we anticipate identifying the factors we would consider in 
evaluating proposed transactions. We seek comment on these matters.
    108. If we decide to retain structural rules, should the Commission 
retain a set of outlet specific rules similar in form to our current 
rules? This type of ownership rule structure may permit the Commission 
to limit specific harms and promote specific benefits in a more 
targeted fashion than would case-by-case review. For example, if we 
found that two outlet types were both the undisputed leaders in 
contributing to viewpoint diversity and were the only two competitors 
in a particular advertising market, we would explore whether a cross-
ownership limitation was necessary to preserve viewpoint diversity and 
economic competition.
    109. As suggested by this hypothetical such an outlet specific 
method could require persuasive evidence that particular outlets are 
sufficiently unique that they merit treatment separate from other 
outlets. The Sinclair court held that we failed to justify applying 
disparate voice tests to broadcast television stations in the local TV 
multiple ownership and the radio/TV cross-ownership rules. For this 
reason, should the Commission adopt a local single media ownership rule 
that is applicable to all or some media outlets and dependent on the 
number of independent ``voices'' in any particular market? This single 
rule option is intended to address only those instances in which the 
ownership of multiple media outlets included a broadcast station. A 
single rule applicable to all media might help avoid the type of 
inconsistency criticized by the Sinclair court. The goal of a single 
rule would be to replace outlet specific rules that no

[[Page 65766]]

longer may be justified by themselves but which, viewed collectively, 
may continue to be necessary in some form to promote competition, 
diversity and localism. We seek comment on these proposals.
    110. A key factor in whether we pursue a single framework or more 
outlet specific policies, or other options, is the feasibility of 
synthesizing the results of our various inquiries. We have identified 
the promotion of diversity, competition, and localism as potential 
guiding principles in setting ownership policies. It is conceivable 
that certain media outlets are substitutes for diversity purposes, but 
are not substitutes from the perspective of advertisers or program 
producers. In that situation, one option might be to: (1) maintain 
same-outlet restrictions (e.g., a limit on the number of commonly-owned 
radio stations per market), perhaps based on market size, in order to 
preserve economic competition among those outlets that directly compete 
with each other; and (2) eliminate the cross-ownership rules based on 
clear evidence that Americans today rely on a far wider array of media 
outlets than they did decades ago, when the cross-ownership rules were 
first adopted. Or, if the evidence supported a finding that certain 
different types of outlets were particularly important news sources, we 
might replace the cross-ownership limits with an overall per-market cap 
on media outlets. We seek comment on whether this type of ownership 
framework would be an appropriate response to a record that showed that 
the markets for advertising and viewpoint diversity are not 
coterminous. If we adopt such a framework, should we adopt 
grandfathering provisions, and if so, what limits should we set?
    111. Another approach to setting a single ownership rule would be 
to focus on promoting viewpoint diversity. Such a rule might be 
appropriate if evidence in the record were to show that certain media 
constitute an ``essential class'' of news outlets for Americans today. 
If the evidence before us were to show, for example, that local 
television stations, local cable operators, and daily newspapers were a 
distinct group of influential news outlets, we might consider a local 
media ownership rule that permitted one entity to own up to a certain 
percentage of such outlets in a local market. Such a rule could limit 
the common ownership of cable systems and broadcast stations in a 
market. We seek comment on the implications of such a result. In 
setting the appropriate percentage cap, we would rely partly on the 
extent to which the evidence indicated that all other media--such as 
radio, the Internet, weekly newspapers, magazines, cable and DBS--were 
significant (though not ``essential'') outlets for Americans to obtain 
news and information. We seek comment on this option and, in 
particular, on whether such a rule aimed at promoting viewpoint 
diversity would effectively promote competition in local media markets 
as well. By limiting application of this rule to only those instances 
in which the ownership of multiple media outlets includes a broadcast 
station, would we impair broadcasters' ability to compete in today's 
media marketplace?

D. ``Voice'' or Other Test

    112. We next address three subjects related to a so-called ``voice 
test'' to assure competition and diversity in a given market: (1) how 
to reformulate our mechanism for measuring diversity and competition in 
a market; (2) how to accord different weights to different media types 
to the extent that they are relied on by consumers differently; and (3) 
how to account for diversity and competition via MVPDs and the Internet 
in a revised voice test.
1. Creating a New Metric
    113. In this section, we explore how to reformulate our mechanism 
for measuring diversity and competition in a given market. All four of 
our existing local broadcast ownership rules are aimed at preserving 
diversity and competition. The radio/TV cross-ownership rule employs a 
voice test that allows varying levels of broadcast ownership based on 
the number of broadcast stations, major newspapers and cable systems in 
the market. Such market-specific mechanisms, properly implemented, 
represent an effective mechanism for addressing media ownership limits 
in widely divergent market conditions.
    114. Thus, we initially explore whether to continue to use a voice 
test to guarantee a minimum level of diversity and competition in a 
given market. The two current voice tests collectively include 
television stations, cable systems, radio stations, and daily 
newspapers as ``voices.'' Other media that we could consider include 
Internet web sites (including video services and online radio 
stations), DARS, magazines, DBS operators, weekly newspapers, and 
national newspapers. We request comment, including empirical evidence, 
on whether each of these additional outlets should be counted in a 
revised voice test.
2. Weighting the Voices
    115. If data show that consumers rely to varying degrees on 
different types of outlets for news and public affairs, we seek comment 
on how we might design a test that accords different weights to 
different outlet types. For example, it may be appropriate to consider 
using weights based on such factors as audience reach, ownership 
structure, the percent of programming or print content devoted to local 
news, and/or consumer use patterns. Such an approach could be a more 
accurate measure of diversity and competition than the binary ``voice'' 
model (i.e., an outlet either is or is not a voice), but may be 
difficult to design and administer over time as industry conditions 
change. This raises the question of how to account for such changes in 
a manner that does not undermine certainty and predictability.
    116. If we pursue a weighted approach to measuring diversity and 
competition in a given market, we would need a way to quantify the 
relative contributions of each type of outlet. We are uncertain whether 
traditional all-news programming should continue to be the only measure 
of an outlet's role in the market, or whether other types of 
information that people obtain from the media should count as well. 
Such quasi-news sources might include cable and DBS channels covering 
business or sports, and websites devoted to those subjects. In 
addition, some non-news programming on broadcast television, such as 
``60 Minutes,'' may be similar to news programming in certain respects. 
We seek comment on the relevance of these sources of news and 
information to a weighting system for various media outlets.
    117. We also seek comment on the relevance of current MVPD and 
Internet penetration levels in considering the contributions of MVPDs 
and the Internet to diversity and competition. Broadcast television and 
radio are available to virtually all Americans who purchase a 
television or radio, but the Internet, DBS, and cable require monthly 
subscriptions. Does this fact support a difference in the treatment of 
these media, such as a rule that counts only broadcast television and 
radio? Or is the fact that some media are ``free'' and others require 
subscriptions immaterial to their impact on the American people? In the 
past decade, non-broadcast media have become widely available and have 
been subscribed to by the majority of American homes. Are they now 
ubiquitous? Do the Americans who still consume only broadcast 
television and

[[Page 65767]]

radio have any distinguishing features, such as location or level of 
income or education?
    118. Traditional voice tests do not consider the entire range of 
news sources available to the public. A vast majority of people may 
choose to receive news and information from a single source (e.g., a 
local television broadcast). This fact does not necessarily imply that 
the public has limited access to many other sources of news and 
information (including the Internet, for example). In other words, a 
lack of diversity in the outlets that consumers typically view or 
listen to does not necessarily imply that consumers have limited access 
to diverse viewpoints or to multiple sources of news and information. 
We seek recommendations on how to accurately capture the vibrancy and 
variety of today's media market in a framework that is predictable, 
adaptable to future marketplace changes, and judicially sustainable.
3. Accounting for Diversity and Competition Via MVPDs and the Internet
    119. MVPDs and the Internet have posed unique challenges under past 
formulations of the voice test. Unlike TV and radio stations, MVPDs and 
the Internet are single outlets furnishing access to multiple news 
sources. In analyzing whether and how MVPDs, such as cable systems, 
should be counted as voices, we must examine not only how much content 
is available, but also who controls viewers' access to it. We decided 
in 1999, in the context of the radio/TV cross-ownership rule, to count 
a cable system as one voice because ``most programming is either 
originated or selected by the cable system operator, who thereby 
ultimately controls the content of such programming.'' However, cable 
systems also give viewers access to much information on matters of 
public concern. For example, it appears that a typical household that 
subscribed to cable (or DBS) service could find--on CNN, CNBC, MSNBC, 
Fox News, and C-SPAN--at least as many sources of information about 
national issues as it would find on multiple broadcast TV and radio 
stations. It also appears, however, that most MVPDs carry largely the 
same all-news channels and other channels with specialized news and 
information such as business, sports, and weather. Under one possible 
approach, we could choose to count CNN as one voice even if it were 
carried in a community by the largest cable operator, an overbuilder, 
and two or more DBS providers.
    120. Another approach would be to count each independent owner as a 
voice, so that if one entity owned a broadcast station, a cable system 
and several channels on it, an Internet access service, and a web page 
in the same area, it would count as one voice instead of many. Although 
we have listed many sources of media programming and distribution, 
industry consolidation and the reduction in the number of owners could 
diminish diversity and competition across these outlets.
    121. We invite comment on DBS's contribution to diversity and 
competition, and whether DBS should be considered a voice in any rule 
we adopt. At a minimum, DBS contributes to viewpoint diversity through 
its editorial control over channel selection. In addition, DBS systems 
are, like cable systems, platforms and outlets for far more channels 
and programs than can be presented by broadcasters. In the past we have 
not counted DBS as a voice because it did not then provide local 
programming. We invite comment as to whether that rationale is still 
valid today. Should we consider DBS a voice because of the range of 
programs and channels it provides? Do these systems contribute to 
diversity and competition regardless of the extent to which DBS 
provides local programming?
    122. In addition, DBS operators' transmission of local broadcast 
channels has greatly increased since the enactment of the Satellite 
Home Viewer Improvement Act of 1999 (``SHVIA''), which permitted DBS 
operators to retransmit local broadcast signals into local markets. We 
ask whether, in light of SHVIA, DBS can fairly be classified as an 
outlet for the purpose of any new voice test. Does the local 
programming available on DBS merely reproduce the information 
obtainable via over-the-air television and cable? Does DBS provide a 
source of diversity and competition to consumers in rural areas that 
are not served by local TV stations or cable?
    123. We request comment on whether the foregoing analysis of cable 
and DBS is correct. Based on that analysis, should we count these media 
as voices, and if so, how? For example, where there are two cable 
systems serving the same area, should we count each as a voice? Or, 
should we count, as independent voices, each independently owned source 
of news and public affairs programming that is made available to cable 
and DBS subscribers? When the same programming is made available in a 
community by more than one MVPD, e.g., if each one provides CNN, should 
that count as one voice or more? How, if at all, should the same 
question be answered for broadcast stations in the same area that carry 
programs from the same source, such as a single news broadcast? On an 
AOL Time Warner cable system, for example, should CNN count as a voice 
independent of AOL Time Warner? Should we count each independently 
owned network carried by a cable system or DBS provider in a market as 
one voice? On cable television, do PEG channels carry enough 
information and viewpoints to count as one or more voices? How common 
are locally or regionally oriented cable offerings such as New England 
Cable News, the borough-specific cable channels in New York City, and 
NorthWest Cable News that serves Seattle and the Pacific Northwest? 
Finally, we seek comment on the ability of cable operators and DBS 
providers to act as content gatekeepers by choosing which programming 
is selected to fill the available channel capacity. Should their status 
as gatekeepers affect whether or how we count them as voices?
    124. Like cable and DBS, the Internet also presents unique 
challenges in the context of diversity and competition. In 1999, we 
decided not to count the Internet as a voice, in part because ``many 
still do not have access to this new medium.'' Is the Internet now so 
widely accessible that it should count as a voice? Are there 
characteristics of the acquisition of information on the Internet, such 
as the need to click a hyperlink or key in a website's Internet 
address, that make it different from broadcasting such that we should 
not count it? Or, should these characteristics of the Internet affect 
the significance we give the Internet? If so, should it count as one 
voice or many? On the Internet, how much news and how many viewpoints 
are original; that is, not merely re-purposed content that also is 
available from local and national media outlets, such as TV stations, 
networks, and newspapers? We assume that the Internet permits the user 
to access any news source having a presence on the World Wide Web. Is 
there any instance of an Internet service provider (``ISP'') or other 
entity acting as an ``Internet gatekeeper'' by denying a subscriber 
access to a news source on the World Wide Web? Is the role of a 
gatekeeper different between the Internet and cable or DBS? We also 
assume that, unlike cable or DBS, the Internet has unlimited capacity 
such that there is no limit on the number of news sources that a user 
can reach. We seek comment on these assumptions and their relevance to 
our analysis of diversity and competition.

[[Page 65768]]

VI. National Ownership Rules

    125. In this section we consider whether the national TV ownership 
rule and the dual network rule continue to meet the statutory standard. 
Unlike the local TV ownership rule and the radio/TV cross-ownership 
rule, these two rules do not directly limit local media ownership, 
although they may indirectly affect viewpoint diversity in a given 
local market by limiting network ownership across markets. As such, 
they appear to play a less direct role in our core policy concern of 
viewpoint diversity, although we invite comment on this issue.

A. National TV Ownership Rule

    126. The national TV ownership rule prohibits an entity from owning 
television stations that collectively would reach more than 35% of U.S. 
television households. Reach is defined as the number of television 
households in the TV DMA to which each owned station is assigned. 47 
CFR 73.3555(e)(1). In the 1999 National Television Ownership R&O (64 FR 
50647, September 17, 1999) the Commission clarified that no market will 
be counted more than once when calculating the 35% cap. DMAs, rather 
than Arbitron's Areas of Dominant Influence, are used to define a 
station's market for the purpose of calculating national audience 
reach. Broadcast Television National Ownership Rules, Review of the 
Commission's Regulations Governing Television Broadcasting, Television 
Satellite Stations Review of Policy and Rules. VHF stations are 
attributed with all TV households in the DMA; UHF stations are 
attributable with 50% of the DMA households (the ``UHF discount''). VHF 
stations are attributed with all TV households in the DMA; UHF stations 
are attributable with 50% of the DMA households (the ``UHF discount'').
    127. The Commission first adopted national ownership restrictions 
for television broadcast stations in 1941 by imposing numerical caps on 
the number of stations that could be commonly-owned. The rule was 
amended a number of times thereafter to increase the cap on the number 
of television stations. In 1985, the station cap was raised from 7 to 
12 and an audience reach limit of 25% was added. The stated purposes of 
these early national TV ownership limits were, in general, to balance 
several goals. On the one hand, the Commission wanted to promote 
competition and ``diversification of program and service viewpoints.'' 
On the other hand, common ownership of stations in different areas 
allows efficiencies to be realized, and the Commission raised numerical 
limits as the number of television stations increased.
    128. In the 1996 Act, Congress directed the Commission to eliminate 
the station cap and raise the national reach limit from 25% to 35%. In 
the 1998 Biennial Report, the Commission addressed the issue of whether 
or not to modify or eliminate the 35% national audience reach limit. 
The Commission determined that the changes made in 1999 to the local 
television ownership rule should be observed and assessed before making 
any further changes to the national limit. It also found that many 
group owners had acquired large numbers of stations nationwide, and 
that this trend needed further observation. The Commission stated that 
consolidation of ownership of television stations in the hands of a few 
national networks would not serve the public interest. The Commission 
reasoned that national networks have a strong economic interest in 
having their affiliates clear (that is, decide to broadcast) all 
network programming, and independently owned affiliates play a valuable 
counterbalancing role because they have the right to decide whether to 
clear network programming or to air instead programming from other 
sources that they believe better serves the needs and interests of the 
local communities to which they are licensed. It also said that 
independent ownership of stations increases the diversity of 
programming by providing an outlet for non-network programming. The 
Commission referred to possible competitive problems in the national 
markets for advertising and program production. The court in Fox 
Television has remanded the Commission's decision in the 1998 Biennial 
Review not to consider further changes in the national TV ownership 
rule. In this section, we invite comment on whether to retain, 
eliminate, or modify the national TV ownership rule.
    129. We ask for comment about whether the current national TV 
ownership rule is necessary in the public interest as the result of 
competition. Does it continue to serve its original purposes of 
promoting competition and viewpoint and programming diversity? Does the 
rule promote the other goals in described section IV, including 
localism and the various other forms of diversity and competition? If 
the rule serves some of our purposes and disserves others, does the 
balance of its effects argue for keeping, revising, or abolishing the 
rule?
    130. We invite comment on the relevance and continued efficacy of 
the UHF discount. The UHF discount is intended to recognize the 
deficiencies in over-the-air UHF reception in comparison to VHF 
reception. The Commission retained the 50% UHF discount in the 1998 
Biennial Report, concluding that the signal disparity between UHF and 
VHF had not yet been eliminated. Noting that the signal disparity 
should be rectified to some extent by digital television, however, the 
Commission stated in the 1998 Biennial Report that when the transition 
to digital television is near completion, we would issue a NPRM 
proposing a phased-in elimination of the discount.
    131. We ask the parties to comment on the extent of the UHF 
``handicap'' in today's marketplace. In particular, over 86% of 
consumers receive video programming from MVPDs where UHF signal quality 
is largely equalized with that of VHF channels. In addition, cable has 
must carry obligations with respect to UHF stations and DBS operators 
carry UHF stations in any local market where they elect to carry at 
least one local broadcast signal. We seek comment on whether the UHF 
discount continues to be necessary in light of the effect of MVPDs on 
UHF signal issues.
1. Diversity
    132. In 1984, the Commission concluded that the relevant geographic 
market for considering viewpoint diversity is local, not national. 
Thus, in the 1984 Multiple Ownership Order, the Commission relaxed the 
national ownership restrictions. It raised the station cap from seven 
stations to twelve stations and said that the entire rule would be 
eliminated (or sunset) in six years. The Commission reasoned that the 
area from which consumers can select the relevant mass media 
alternatives is generally the local community in which they work and 
live, where radio and TV signals are available in discrete local 
markets, and other local media outlets are abundantly available. It 
determined that the lack of relevance of the rule to local viewpoint 
diversity ``persuades us that elimination of the national ownership 
rule is unlikely to have an adverse impact on the number of independent 
viewpoints available to consumers.'' It also determined that 
elimination of the national TV ownership rule posed no threat to the 
diversity of independent viewpoints in the information and 
entertainment markets, because a wide range of media outlets existed 
and because the rule did not affect the number of viewpoints in the 
relevant local markets.
    133. On reconsideration, the Commission added a 25% audience

[[Page 65769]]

reach limit to the 12 station cap and eliminated the sunset provision 
adopted in the 1984 Multiple Ownership Order, concluding that ``the 
complete and abrupt elimination of our national multiple ownership 
rules might engender a precipitous and potentially disruptive 
restructuring of the broadcast industry.'' The Commission reiterated 
that diversity of viewpoint was determined at the local level. The 
Commission also affirmed that the 1984 decision: balanced the need for 
a presumptive rule equating ownership diversity at the national level 
with viewpoint diversity against the demonstrable benefits of group 
ownership. In the context of this balancing process, we found that 
national ownership diversity is not of primary relevance in promoting 
viewpoint diversity. In this regard we noted that the most important 
idea markets are local . . . [N]ational broadcast ownership limits, as 
opposed to local ownership limits, ordinarily are not pertinent to 
assuring a diversity of views to the constituent elements of the 
American public.
    134. In the 1998 Biennial Report, the Commission reconsidered its 
views regarding the relationship between the national TV ownership rule 
and viewpoint diversity. It asserted that independently-owned 
affiliates play a valuable role by ``counterbalancing'' the networks' 
strong economic incentive in clearing all network programming ``because 
they have the right . . . to air instead'' programming more responsive 
to local concerns. In determining not to modify or eliminate the rule, 
it noted that the ``competitive concerns'' of opponents of relaxing or 
eliminating the [national TV ownership rule], including the concern 
that the number of viewpoints expressed nationally would be reduced, 
were more convincing than the comments in support of relaxation or 
elimination.
    135. In Fox Television, the DC Circuit remanded the decision in the 
1998 Biennial Report to retain the national TV ownership rule, holding 
that the decision to retain it was arbitrary and capricious. The court 
took note of the Commission's 1984 Multiple Ownership Order, which 
concluded that the rule should be repealed because it focuses on 
national, rather than local, markets and thus has an insignificant 
effect on viewpoint diversity. It also took note of the Commission's 
1984 assertion that it had no evidence suggesting that stations which 
are not group-owned better respond to community needs, or spend more of 
their revenues on local programming. When the Commission changed course 
by retaining the limit in the 1998 Biennial Report, it failed to 
explain why it no longer considered the reasoning in its 1984 Multiple 
Ownership Order to be persuasive. According to the court, the 
Commission's failure to explain this significant deviation from its 
earlier conclusions rendered its 1998 decision arbitrary and 
capricious.
    136. It appears that the national TV ownership rule is not directly 
relevant, and perhaps not relevant at all, to the goal of promoting 
viewpoint diversity. Consumers generally do not travel to other cities 
to obtain viewpoints. Instead, they rely on outlets for news sources, 
such as TV, radio, newspapers, Internet, cable, DBS, and magazines that 
are available in their own cities. As a result, the expression of 
viewpoints by television stations in one city does not appear to affect 
in any meaningful way the viewpoints available to people located in 
other cities. We seek comment on this analysis as well as on the 
general question whether our national TV ownership rule is relevant to 
our goal of promoting viewpoint diversity on a local level. Is there a 
relationship between the national ownership rule and the dual network 
rule with regard to viewpoint diversity? For example, could we safely 
repeal the national ownership rule as long as we maintain the dual 
network rule because the latter renders more likely the preservation of 
at least four different newscasts in each market? Does, as the 
Commission concluded in the 1998 Biennial Report, independent ownership 
of stations increase diversity of programming by providing outlets for 
non-network programming? Do commenters believe that the broadcast of 
non-network programming promotes our goal of source diversity?
    137. We seek comment on the role of independently owned and 
operated stations. In deciding not to relax the national ownership rule 
in the 1998 Biennial Report, the Commission said: We do not believe 
that consolidation of ownership of all or most of the television 
stations in the country in the hands of a few national networks would 
serve the public interest. The national networks have a strong economic 
interest in clearing all network programs, and we believe that 
independently owned affiliates play a valuable counterbalancing role 
because they have the right to decide whether to clear network 
programming or to air instead programming from other sources that they 
believe better serves the needs and interest of the local communities 
to which they are licensed. Independent ownership of stations also 
increases the diversity of programming by providing an outlet for non-
network programming. In Fox Television, the court found our explanation 
to be a plausible justification for the national ownership rule and 
consistent with the requirements in section 202(h). The court stated, 
however, that the Commission's conclusion was not adequately supported 
by the record: Although we do not agree with the networks that this 
reason is unresponsive to section 202(h) * * * we must agree that the 
Commission's failure to address itself to the contrary views it 
expressed in the 1984 Report effectively undermines its rationale. * * 
* The [1998 Biennial Report] does not indicate the Commission has since 
received such evidence or otherwise found reason to repudiate its prior 
decision. We seek comment on whether independently owned, network-
affiliated stations offer more diverse programming and/or programming 
from more diverse sources than affiliated stations that are owned and 
operated by their network. We ask parties to provide evidence 
supporting their comments on this issue. Are there other factors or 
policy goals we should consider in determining whether to retain, 
modify, or eliminate the national TV ownership rule?
2. Competition
    138. We seek comment on how the national TV ownership rule affects 
the ability of TV station group owners to compete against other video 
providers. We are interested in the impact this rule may have on the 
program production market and the advertising market. We also ask 
whether examination of advertising competition is, or should be, 
relevant to this analysis. Commenters are asked to analyze the impact 
of the transaction costs and uncertainties associated with network-
affiliate relationships as well as any pro-competitive benefits of the 
current national television ownership rule. We also seek comment on 
whether the national television ownership rule artificially constrains 
the largest group owners from employing their skills in additional 
markets, and whether and how this operates to the detriment of 
consumers in those markets.
a. Program Production Market
    139. Broadcast television stations organize a schedule of video 
programming which they either produce themselves or purchase from 
others in a national market. The TV Ownership FNPRM expressed a 
competitive concern about the ability of large purchasers of video 
programming to exercise monopsony power and

[[Page 65770]]

artificially restrict the price paid for programming. The market for 
program production appears to consist of firms that produce niche and 
general entertainment programming for sale to program packagers. 
Program packagers include cable networks, broadcast television 
networks, program syndicators, and individual owners of television 
stations (regardless of whether the station also carries network 
programming).
    140. We seek comment on whether the national TV ownership rule 
promotes or hinders competition in the program production market. We 
ask commenters to address whether raising the national ownership cap 
would facilitate monopsony power. Our answer to this question depends 
significantly on the identification of market participants.
    141. Regulatory changes have occurred in the past six years that 
may have affected the program production market. Prior to the 1996 
increase in the national TV ownership cap, the Commission eliminated 
the financial interest and syndication rules (``fin-syn'') and the 
prime time access rule (``PTAR''). Can the effects of the 1996 change 
in the national ownership cap be separated from the effects of the 
repeal of the fin-syn and PTAR rules? If so, we ask commenters to 
identify those effects and to address whether the 35% cap continues to 
be necessary to promote a robust and diverse program production market.
b. Advertising Markets
    142. We have considered national television advertising as a 
relevant market based on the different nature of advertisers seeking a 
national audience rather than ones purchasing time for local markets. 
More recently, we identified a strategic group among the programming 
networks that consisted of ABC, NBC, CBS, and Fox. This assessment was 
based on findings that: (1) the relatively few local stations available 
with which to affiliate constituted a meaningful entry barrier into the 
strategic group; and (2) prime time viewership ratings were 
significantly higher for the strategic group networks than for other 
broadcast television networks. If our prior identification of this 
strategic group continues to be accurate today, the existence of this 
group likely restrains competition for national advertising among the 
broadcasters.
    143. We seek comment on whether this analysis continues to be an 
accurate characterization of the national advertising market and the 
participants in the market. First, we request comment on whether the 
key participants in the national television advertising market should 
be defined more broadly to include broadcast TV networks outside the 
strategic group. If so, what are the factors that should be considered 
in identifying the members of the strategic group? Should the 
participants in the national television advertising market also include 
other outlets such as non-broadcast television networks (ESPN, CNN, 
etc.)? Cable networks and the other broadcast networks such as The WB 
and UPN have national coverage and carry national advertising, which 
may suggest they serve as substitutes from the perspective of at least 
some advertisers.
    144. Second, regardless of whether we also include non-broadcast 
networks in the national television advertising market, we seek 
information on the extent to which national spot advertisements and/or 
syndicated programming are fungible with network television advertising 
from the perspective of advertisers. If group owners compete in the 
national advertising market, it would appear that increasing the 35% 
ownership cap could diminish competition by allowing broadcast networks 
to acquire additional stations, thereby reducing the effectiveness of 
non-network group owners in the national advertising market. We request 
market share data and analysis on this important point. Technology 
changes in advertising delivery may also allow the broadcast television 
networks to effectively provide national spot advertising. That is, a 
national network may deliver different advertisements targeted to 
different regions of the country simultaneously. We seek comment on 
this development and its relevance, if any, to competition in the 
national advertising market. Third, a recent study suggests that the 
national advertisers do not readily substitute between alternative 
media. We seek comment on this analysis.
    145. The national TV ownership rule does not appear to have a 
direct effect on the number of competitors in the local advertising 
market. The rule affects primarily the total number of national 
households one group owner can reach, not the number within a single 
market. Of course, we recognize that the 35% limit could inhibit the 
participation of a group owner in a particular local TV market and 
thereby affect competition in that market. In particular, we seek 
comment on whether additional scale economies could be realized by 
group owners and whether the current rule prevents especially skilled 
management from entering additional local markets. We seek comment on 
this general issue, and whether limiting the size of group owners 
nationally can have an impact on competition in the local advertising 
market.
c. Innovation
    146. We are also concerned with the impact that the national TV 
ownership rule may have on innovation in the media marketplace. Does 
our current rule promote or hinder innovation? Does a traditional 
competition analysis adequately capture the beneficial effects of 
innovation? What effect, if any, would a relaxed national TV ownership 
rule have on the ability of a broadcast network to develop innovative 
programming or services, or to effectuate the transition to digital 
television? Does the answer depend on whether the group owner plans to 
provide purely high definition television or standard definition 
television plus ancillary services? Would relaxation of the national TV 
ownership rule increase the ability and incentives of market 
participants (the large group owners in particular) to develop 
innovative technologies and/or new types of video programming?
3. Localism
    147. The Commission has said in the past that a national TV 
ownership rule strengthens localism by creating a class of non-network 
station owners that can decide whether to preempt network programming 
in favor of programming that would better serve the needs and interests 
of that station's community. In Fox Television, the court affirmed that 
localism is a potentially relevant consideration in deciding whether to 
retain, modify, or eliminate the national TV ownership rule. Given this 
statement by the court and fact that the national ownership rule may 
have the most direct impact of our rules on the attainment of localism, 
our evaluation of the continued need for this rule will rely heavily on 
our findings regarding its effectiveness in promoting localism.
    148. The production of local news and public affairs programming 
may represent one form of localism. We seek to understand whether the 
national TV ownership rule, by preserving a class of affiliates, may 
have the effect of increasing or decreasing the quantity and/or quality 
of local news and public affairs programming. We would be particularly 
interested in any clear correlation between the status of stations as 
affiliates or network-owned and the quantity of local news and public 
affairs produced by those stations. We request that commenters

[[Page 65771]]

submit evidence addressing the relative output of affiliates and 
networks in this regard and address the appropriate weight of such data 
in our evaluation of localism and the national ownership rule.
    149. The national TV ownership rule may also promote localism by 
creating economic incentives for non-network station owners regarding 
the preemption of network-delivered programs with station-selected 
programming. Networks incur costs in producing or purchasing 
programming for distribution on their networks. Since the networks 
initially bear these costs, network-owned and operated stations may 
have a stronger economic incentive than affiliates, all else being 
equal, to distribute network programming rather than replacing it on a 
station-by-station basis in response to community interests. It is also 
possible that the local programming preference in a particular instance 
may be sufficiently strong that even a network-owned station would find 
it profitable to replace its own programming with alternative 
programming. Parties commenting on this issue are asked to address 
specifically the allocation of advertising revenues between networks 
and affiliates on preempted programming. We seek comment on these 
observations and on any other economic incentives affecting the 
preemption of network programming by local stations.
    150. In addition, television stations are obligated to serve the 
needs and interests of their local communities. We ask commenters to 
address the extent to which affiliates and/or network-owned stations 
could be expected to preempt network programming when it is not in 
their economic interest to do so. According to testimony before 
Congress by the President and Chief Operating Officer of Viacom, Inc., 
CBS' owned-and-operated stations ``have complete freedom locally,'' 
even preempting primetime network programming to air, for example, an 
emergency weather newscast, a local telethon, and other events of local 
interest. If the principal category of such ``unprofitable'' preemption 
is breaking news or other emergency information, should we expect 
networks and affiliates to respond similarly with respect to such 
situations?
    151. A key aspect of the argument that the national TV ownership 
rule promotes localism is that affiliates serve local needs more 
effectively than network station owners because affiliates are more 
likely to replace network programming with programming more suited to 
local needs. There are significant portions of the American public that 
already receive broadcast programming through stations owned and 
operated by broadcast networks. Is there evidence that consumers served 
by network-owned stations have either benefited or been harmed by the 
lack of a non-network owner as a check on network-provided programming?
    152. It is also possible that localism may be furthered by the 
national TV ownership rule by preserving a sufficiently large class of 
network affiliates that collectively can influence network programming 
decisions. This may be the case where networks plan to air a particular 
program that a large percentage of its affiliates disfavor. 
Negotiations between a sufficiently large group of affiliates may cause 
the network to revise its programming decision. By contrast, if the 
national television ownership cap were raised or eliminated, a smaller 
group of affiliates raising the same concern might be less able to 
persuade the network to alter is programming plans. We ask commenters 
to address the frequency and efficacy of such discussions, to the 
extent they occur in practice, and the value of this form of localism 
compared with station-by-station preemption issues discussed.
    153. We also seek comment on whether the national TV ownership rule 
continues to be necessary to preserve affiliate bargaining power 
regarding preemption. Would increasing the cap shift bargaining power 
to the networks such that ``local'' rights would be lost as a practical 
matter?
    154. Separate from the selection of programming, our goal of 
promoting localism may be addressed through rules that promote the 
production of local news and public affairs programming. The 1984 
Multiple Ownership Order relied on news ratings as an indicator of the 
quality of local news produced by group-owned stations versus that 
produced by stand-alone stations. The Commission reasoned that higher 
ratings indicated a greater responsiveness to local needs. Should we 
compare the quality of local news produced by network owned and 
operated stations and that of affiliates using ratings as a measure of 
quality? Are there alternative measures for this comparison?
4. Audience Measurement
    155. The national TV ownership rule is calculated based on the 
number of television households a station can reach. The number of 
households reached nationwide is the sum of the number of households in 
each DMA in which a group owner owns a television station. The number 
of households in a DMA is halved for UHF stations. The national TV 
ownership rule is thus based on homes ``passed,'' not homes actually 
viewing the stations of a group owner. This ``potential audience'' 
measure is at odds with the way we calculate a national ownership 
audience reach limit for cable television. A home is attributed to a 
multi-system cable operator only if that MSO actually serves the home, 
not simply because it is available to that home. We seek comment on 
which measurement method is appropriate given the policy objectives of 
the national TV ownership rule, and the differences between cable and 
broadcast television in the ease with which the potential service can 
be accessed (switching off and on channels versus subscription and 
installation). Is the current method of measuring the broadcast 
audience appropriate because broadcast is a non-subscription service? 
Is there an alternative measurement method that would be preferable to 
either of these existing approaches?

B. Dual Network Rule

    156. The dual network rule currently provides: ``A television 
broadcast station may affiliate with a person or entity that maintains 
two or more networks of television broadcast stations unless such dual 
or multiple networks are composed of two or more persons or entities 
that, on February 8, 1996, were `networks' as defined in Sec.  
73.3613(a)(1) of the Commission's regulations (that is, ABC, CBS, Fox, 
and NBC).'' The rule in its current form permits broadcast networks to 
provide multiple program streams (program networks) simultaneously 
within local markets, and prohibits only a merger between or among 
these four networks.
    157. The dual network rule was originally adopted over sixty years 
ago and flatly prohibited any entity from maintaining more than a 
single radio network. A few years later, the rule was extended to 
television networks. The Commission believed that an entity that 
operated more than one network might preclude new networks from 
developing and affiliating with desirable stations because those 
stations might already be tied up by the more powerful network entity. 
The Commission expressed concern that dual networking could give a 
network too much market power. The rule was also intended to remove 
barriers that would inhibit the development of new networks, as well to 
serve the Commission's more general diversity and competition goals.
    158. After Congress, in the 1996 Act, directed the Commission to 
amend the rule, the Commission amended the rule for the first time 
since it was adopted to

[[Page 65772]]

permit a broadcast station to affiliate with a network organization 
that maintains more than one broadcast network unless the multiple 
network combination was created by a combination among ABC, CBS, Fox, 
or NBC, or a combination between one of these four networks and UPN or 
WB. In the Dual Network Order last year, the Commission further relaxed 
the rule to permit a ``top four'' network to merge with or acquire UPN 
or WB. The Commission found that: (1) competition in the national 
advertising market would not be harmed by this rule change; (2) greater 
vertical integration of the sort contemplated by this rule change was 
potentially an efficient, pro-competitive response to increasing 
competition in the video market; and (3) program diversity would not be 
harmed because the two combined networks would have strong economic 
incentives to diversify their program offerings. We ask for comment 
whether the relaxation of the dual network rule has had the effects 
that we foresaw in the Dual Network Order.
    159. We ask for comment about whether the present dual network rule 
is necessary in the public interest as the result of competition. Does 
it promote the goals we set forth--diversity, competition, and 
localism? If the rule serves some of our purposes and disserves others, 
does the balance of its effects argue for keeping, revising, or 
abolishing the rule?
1. Diversity
a. Program Diversity
    160. In the Dual Network Order, the Commission found that program 
diversity at the national level would not likely be harmed by the 
combination of an emerging network (i.e., UPN or WB) with one of the 
four major networks. The Commission found it likely that their common 
owner would have strong incentives to produce a diverse schedule of 
programming for each set of local TV outlets in the same market. Has 
the Commission's expectation proved correct? We also seek comment on 
the effect that consolidation between and among top four networks 
likely would have on program diversity. We seek comment on whether, and 
if so how, the increased competition that television stations face from 
cable networks and other media affects the diversity of programming on 
all national program networks.
b. Viewpoint Diversity
    161. With respect to the combination of two or more top four 
networks, we see several potential viewpoint diversity issues. The 
first is the loss of an independently owned and produced local newscast 
in cities where the two networks each own local television stations. We 
seek comment on the impact of such a development on viewpoint 
diversity. The local TV ownership rule could limit the degree to which 
one entity, including a network, could own multiple TV stations in one 
market, assuming we retain that rule. We seek comment on whether we 
should address the loss of an independent local newscast as a result of 
a combination of two or more of the four major networks in the dual 
network rule, in the local TV ownership rule, or in some alternative 
new rule.
    162. The second possible viewpoint diversity concern relating to 
the elimination of the dual network rule is the potential loss of one 
or more independent national television news operations. The primary 
focus of networks' national news operations appears to be on the 
nightly newscasts by ABC, CBS, and NBC. We ask for comment, in light of 
other sources of news and current public affairs, whether the loss of 
one or more of those nightly newscasts as an independent source of news 
would significantly reduce sources of news and current affairs and thus 
injure the public interest. Should the fact that the national broadcast 
networks alone reach virtually all households in the country affect our 
analysis? Would a reduction in the number of independently-owned 
national television networks give the remaining networks undue power 
and influence, such as during national elections?
    163. Third, in the Dual Network Order, we noted evidence in the 
record from Network Affiliated Stations Alliance (``NASA'') that 
eliminating the dual network prohibition against combinations of two of 
the top four major networks would increase the networks' economic 
leverage over their affiliates. We seek comment on how the combination 
of two top four networks would affect the balance of negotiating power 
between networks and affected affiliates. Commenters should identify 
with precision how any such leverage affects viewpoint diversity in 
terms of program selection. We also seek comment on whether 
combinations of major networks would affect the quantity or quality of 
diverse viewpoints on the merged company's owned and operated stations. 
Are there other factors or policy goals we should consider in 
determining whether to retain, modify or eliminate the dual network 
rule?
2. Competition
    164. The Dual Network Order did not resolve whether the dual 
network rule should be eliminated. Some commenters pointed to new 
broadcast and non-broadcast competitors and argued that a merger of two 
major networks would not unduly affect the level of diversity and 
competition. Other commenters argued that major networks continue to 
have market power and relaxation of the rule would have an adverse 
impact on competition. We invite updates of these arguments. We also 
seek comment on whether the dual network rule promotes or retards 
innovation.
    165. In the Dual Network Order, we found that the merger of an 
emerging network and a major network may benefit viewers and 
advertisers by lowering the risk associated with the creation of new 
network programming by giving one company a larger potential audience 
for the programming produced by the network. This spreads the fixed 
costs of program creation over a larger number of viewers, thereby 
lowering the per-viewer cost of producing the programming. If there are 
potential efficiencies of eliminating the rule for emerging networks, 
as we concluded last year, will comparable efficiencies accrue if two 
or more top four networks were permitted to merge?
    166. In the Dual Network Order, we found that the combination of an 
emerging network and one of the four major networks would not harm the 
national television advertising market because the two networks would 
compete in different strategic groups. We seek comment on the effect of 
mergers among the four major networks on the program production market. 
If the four major networks constitute a strategic group within the 
national advertising market, do they also operate as a strategic group 
within the program production market? We seek comment on how 
competition in the program production market and program diversity 
would be affected, if at all, by a merger among two or more of the four 
major networks.
    167. We are also concerned with the impact that the dual network 
rule may have on innovation in the media marketplace. Does our current 
rule promote innovation? Would relaxation of the dual network rule 
increase incentives to provide innovative broadcast programming or new 
broadcast-based technologies or services?

[[Page 65773]]

3. Localism
    168. The Dual Network Order did not address localism as a policy 
goal per se. It did address localism in the context of a discussion of 
diversity. We seek to expand our understanding of the relationship 
between localism and the dual network rule. We invite comment as to 
whether the current rule promotes localism and, if so, whether, 
modification or elimination of the rule would have any effect. We also 
seek comment on whether combinations among major networks would affect 
the quantity or quality of local news provided by the merged company's 
owned and operated stations. Are there any other factors we should 
consider in determining whether to retain, modify, or eliminate the 
dual network rule?

VII. Administrative Matters

A. Procedural Provisions

1. Ex Parte Provisions
    169. Because this proceeding involves broad public policy issues, 
the proceeding will be treated as ``permit but disclose'' for purposes 
of the Commission's ex parte rules. See generally 47 CFR 1.1200-1.1216. 
Ex parte presentations will be governed by the procedures set forth in 
section 1.1206 of the Commission's rules applicable to non-restricted 
proceedings. Should circumstances warrant, this proceeding or any 
related proceeding may be designated as restricted.
    170. Parties making oral ex parte presentations are directed to the 
Commission's statement re-emphasizing the public's responsibility in 
permit-but-disclose proceedings and are reminded that memoranda 
summarizing the presentation must contain the presentation's substance 
and not merely list the subjects discussed. More than a one or two 
sentence description of the views and arguments presented is generally 
required. See 47 CFR 1.1206(b)(2), as revised. Other rules pertaining 
to oral and written presentations are set forth in Sec.  1.1206(b) as 
well.
    171. We urge persons submitting written ex parte presentations or 
summaries of oral ex parte presentations in this proceeding to use ECFS 
in accordance with the Commission rules. Parties using paper ex parte 
submissions must file an original and one copy with the Commission's 
Secretary, Marlene H. Dortch. As applicable, please follow the 
procedures set forth for sending your submission by mail, or for hand 
delivery of your submission to the Commission's filing location in 
downtown Washington, DC.
    172. In addition, we request that parties provide two paper copies 
of each ex parte submission to Qualex International. We ask parties to 
serve one electronic copy via email, plus one paper copy of each ex 
parte submission, to (1) Linda Senecal, Industry Analysis Division, 
Media Bureau, Federal Communications Commission, 445 12th Street, SW., 
Room 2-C438, Washington, DC 20554, email [email protected]; and (2) 
Mania Baghdadi, Industry Analysis Division, Media Bureau, Federal 
Communications Commission, 445 12th Street, SW., Room 2-C267, 
Washington, DC 20554, email [email protected].

B. Initial Regulatory Flexibility Analysis

    173. As required by the Regulatory Flexibility Act, the Commission 
has prepared an Initial Regulatory Flexibility Analysis (``IRFA'') of 
the possible significant economic impact on a substantial number of 
small entities of the proposals addressed in this NPRM. Written public 
comments are requested on the IRFA. These comments must be filed in 
accordance with the same filing deadlines for comments on this NPRM, 
and they should have a separate and distinct heading designating them 
as responses to the IRFA.

VIII. Initial Regulatory Flexibility Act

    174. As required by the Regulatory Flexibility Act (``RFA''), see 5 
U.S.C. 603, the Commission has prepared this Initial Regulatory 
Flexibility Analysis (``IRFA'') of the possible significant economic 
impact on small entities by the policies and rules proposed in this 
NPRM, provided in sections IV, V and VI of the item. Written public 
comments are requested on this IRFA. Comments must be identified as 
responses to the IRFA and must be filed by the deadlines for comments 
on the NPRM. The Commission will send a copy of the NPRM, including 
this IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration (``SBA'').

A. Need for, and Objectives of, the Proposed Rules

    175. Section 202(h) of the Telecommunications Act of 1996 (``1996 
Act'') requires the Commission to review all of its broadcast ownership 
rules every two years commencing in 1998, and to determine whether any 
of these rules are necessary in the public interest as the result of 
competition. The 1996 Act also requires the Commission to repeal or 
modify any regulation it determines to be no longer in the public 
interest. At the time these ownership rules were adopted, there were 
fewer local media outlets and fewer types of media than there are 
today. The ownership rules in their current form therefore may need 
revision to ensure that they accurately reflect current media 
marketplace conditions. The goal of this proceeding is to solicit 
comment on the modification of the subject policies and rules.
    176. In this NPRM, we seek comment on both ``local'' and 
``national'' ownership rules. The local rules are the local TV multiple 
ownership rule and the radio/TV cross-ownership rule. The national 
ownership rules are the national TV multiple ownership rule and the 
dual network rule. These four rules are described in sections V and VI 
of this NPRM. Additionally, open proceedings concerning the newspaper/
broadcast cross-ownership rule and the local radio ownership rule are 
incorporated into this proceeding.
    177. Section 202(h) of the 1996 Telecommunications act directs the 
Commission to re-examine its broadcast ownership rules every two years 
and either repeal, retain or modify them. Additionally, two recent 
court decisions by the U.S. Court of Appeals for the District of 
Columbia Circuit state that section 202(h) carries with it a 
presumption in favor of repealing or modifying the ownership rules. In 
the Fox Television case, discussed in section II of the item, the court 
vacated the cable/broadcast cross-ownership rule and remanded for 
further consideration the Commission's decision in its 1998 biennial 
review to retain then national TV multiple ownership rule. In the 
Sinclair case, discussed in section II of the item, the same court 
invalidated the Commission's definition of ``voices'' under the local 
TV ownership rule, stating the Commission had failed to justify its 
decision to include only TV broadcast stations as voices.
    178. In light of the mandate in section 202(h) and these recent 
court decisions, the Commission seeks comment from parties concerning 
ownership rules discussed in the NPRM. The Commission believes that a 
broad range of comments must be received to ensure we fulfill our 
mandate to further the public interest, convenience and necessity.
    179. We are required under the Regulatory Flexibility Act to 
demonstrate a flexible and responsive awareness of the interests of 
small business entities that are subject to the rules under review in 
this NPRM. Accordingly, we solicit comment from all small business 
entities, including minority-owned and women-owned small businesses. We 
especially solicit

[[Page 65774]]

comment on whether, and if so, how, the particular interests of these 
small businesses may be affected by the rules.

B. Legal Basis

    180. This NPRM is adopted pursuant to sections 1, 2(a), 4(i), 303, 
307, 309, and 310 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 152(a), 154(i), 303, 307, 309, and 310, and section 202(h) 
of the Telecommunications Act of 1996.

C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply

    181. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of the number of small entities that may be 
affected by any proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
entity'' under section 3 of the Small Business Act. In addition, the 
term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act. A small business 
concern is one which: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) satisfies any 
additional criteria established by the SBA.
    182. In this context, the application of the statutory definition 
to television stations is of concern. An element of the definition of 
``small business'' is that the entity not be dominant in its field of 
operation. We are unable at this time to define or quantify the 
criteria that would establish whether a specific television station is 
dominant in its field of operation. Accordingly, the estimates that 
follow of small businesses to which rules may apply do not exclude any 
television station from the definition of a small business on this 
basis and are therefore over-inclusive to that extent. An additional 
element of the definition of ``small business'' is that the entity must 
be independently owned and operated. We note that it is difficult at 
times to assess these criteria in the context of media entities and our 
estimates of small businesses to which they apply may be over inclusive 
to this extent.
    183. Television Broadcasting. The Small Business Administration 
defines a television broadcasting station that has no more than $12 
million in annual receipts as a small business. Television broadcasting 
consists of establishments primarily engaged in broadcasting images 
together with sound, including the production or transmission of visual 
programming which is broadcast to the public on a predetermined 
schedule. Included in this industry are commercial, religious, 
educational, and other television stations. Also included are 
establishments primarily engaged in television broadcasting and which 
produce programming in their own studios. Separate establishments 
primarily engaged in producing programming are classified under other 
NAICS numbers.
    184. According to Commission staff review of the BIA Publications, 
Inc., Master Access Television Analyzer Database on August 22, 2002, 
about 870 (70%) of 1,250 commercial television broadcast stations have 
revenues of $12 million or less. We note, however, that under SBA's 
definition, revenues of affiliates that are not television stations 
should be aggregated with the television station revenues in 
determining whether a concern is small. Our estimate, therefore, likely 
overstates the number of small entities that might be affected by any 
changes to the ownership rules, because the revenue figure on which it 
is based does not include or aggregate revenues from non-television 
affiliated companies.
    185. Radio Broadcasting. The SBA defines a radio station that has 
$6 million or less in annual receipts as a small business. According to 
Commission staff review of BIA Publications Inc. Master Access Radio 
Analyzer Database on August 22, 2002, about 10,800 (96%) of 11,320 
commercial radio stations have revenue of $6 million or less. We note, 
however, that many radio stations are affiliated with much larger 
corporations with much higher revenue. Our estimate, therefore, likely 
overstates the number of small entities that might be affected by any 
changes to the ownership rules.
    186. Cable and Other Program Distribution. The SBA has developed a 
small business size standard for cable and other program distribution 
services, which includes all such companies generating $12.5 million or 
less in revenue annually. This category includes, among others, cable 
operators, direct broadcast satellite (``DBS'') services, home 
satellite dish (``HSD'') services, multipoint distribution services 
(``MDS''), multichannel multipoint distribution service (``MMDS''), 
Instructional Television Fixed Service (``ITFS''), local multipoint 
distribution service (``LMDS''), satellite master antenna television 
(``SMATV'') systems, and open video systems (``OVS''). According to the 
Census Bureau data, there are 1,311 total cable and other pay 
television service firms that operate throughout the year of which 
1,180 have less than $10 million in revenue. We address each service 
individually to provide a more precise estimate of small entities.
    187. Cable Operators. The Commission has developed, with SBA's 
approval, our own definition of a small cable system operator for the 
purposes of rate regulation. Under the Commission's rules, a ``small 
cable company'' is one serving fewer than 400,000 subscribers 
nationwide. We last estimated that there were 1,439 cable operators 
that qualified as small cable companies. Since then, some of those 
companies may have grown to serve over 400,000 subscribers, and others 
may have been involved in transactions that caused them to be combined 
with other cable operators. Consequently, we estimate that there are 
fewer than 1,439 small entity cable system operators that may be 
affected by the decisions adopted in this NPRM.
    188. The Communications Act, as amended, also contains a size 
standard for a small cable system operator, which is ``a cable operator 
that, directly or through an affiliate, serves in the aggregate fewer 
than 1% of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that 
there are 68,500,000 subscribers in the United States. Therefore, an 
operator serving fewer than 685,000 subscribers shall be deemed a small 
operator if its annual revenues, when combined with the total annual 
revenues of all of its affiliates, do not exceed $250 million in the 
aggregate. Based on available data, we find that the number of cable 
operators serving 685,000 subscribers or less totals approximately 
1,450. Although it seems certain that some of these cable system 
operators are affiliated with entities whose gross annual revenues 
exceed $250,000,000, we are unable at this time to estimate with 
greater precision the number of cable system operators that would 
qualify as small cable operators under the definition in the 
Communications Act.
    189. DBS Service. Because DBS provides subscription services, DBS 
falls within the SBA-recognized definition of cable and other program 
distribution services. This definition provides that a small entity is 
one with $12.5 million or less in annual receipts. The Commission, 
however, does not collect annual revenue data for DBS and, therefore, 
is unable to ascertain the number of small DBS licensees that could be 
impacted by these proposed rules. DBS service requires a great 
investment of capital for operation, and we acknowledge, despite the 
absence of

[[Page 65775]]

specific data on this point, that there are entrants in this field that 
may not yet have generated $12.5 million in annual receipts, and 
therefore may be categorized as a small business, if independently 
owned and operated.
    190. Home Satellite Dish (``HSD'') Service. Because HSD provides 
subscription services, HSD falls within the SBA-recognized definition 
of cable and other program distribution services. This definition 
provides that a small entity is one with $12.5 million or less in 
annual receipts. The market for HSD service is difficult to quantify. 
Indeed, the service itself bears little resemblance to other MVPDs. HSD 
owners have access to more than 265 channels of programming placed on 
C-band satellites by programmers for receipt and distribution by MVPDs, 
of which 115 channels are scrambled and approximately 150 are 
unscrambled. HSD owners can watch unscrambled channels without paying a 
subscription fee. To receive scrambled channels, however, an HSD owner 
must purchase an integrated receiver-decoder from an equipment dealer 
and pay a subscription fee to an HSD programming package. Thus, HSD 
users include: (1) Viewers who subscribe to a packaged programming 
service, which affords them access to most of the same programming 
provided to subscribers of other MVPDs; (2) viewers who receive only 
non-subscription programming; and (3) viewers who receive satellite 
programming services illegally without subscribing. Because scrambled 
packages of programming are most specifically intended for retail 
consumers, these are the services most relevant to this discussion.
    191. Multipoint Distribution Service (``MDS''), Multichannel 
Multipoint Distribution Service (``MMDS''), Instructional Television 
Fixed Service (``ITFS'') and Local Multipoint Distribution Service 
(``LMDS''). MMDS systems, often referred to as ``wireless cable,'' 
transmit video programming to subscribers using the microwave 
frequencies of the MDS and ITFS. LMDS is a fixed broadband point-to-
multipoint microwave service that provides for two-way video 
telecommunications.
    192. In connection with the 1996 MDS auction, the Commission 
defined small businesses as entities that had an annual average gross 
revenues of less than $40 million in the previous three calendar years. 
This definition of a small entity in the context of MDS auctions has 
been approved by the SBA. The MDS auctions resulted in 67 successful 
bidders obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. MDS also includes licensees of stations authorized prior to 
the auction. As noted, the SBA has developed a definition of small 
entities for pay television services, which includes all such companies 
generating $12.5 million or less in annual receipts. This definition 
includes multipoint distribution services, and thus applies to MDS 
licensees and wireless cable operators that did not participate in the 
MDS auction. Information available to us indicates that there are 
approximately 850 of these licensees and operators that do not generate 
revenue in excess of $12.5 million annually. Therefore, for purposes of 
the IRFA, we find that there are approximately 850 small MDS providers 
as defined by the SBA and the Commission's auction rules.
    193. The SBA definition of small entities for cable and other 
program distribution services, which includes such companies generating 
$12.5 million in annual receipts, seems reasonably applicable to ITFS. 
There are presently 2,032 ITFS licenses. All but 100 of these licenses 
are held by educational institutions. Educational institutions are 
included in the definition of a small business. However, we do not 
collect annual revenue data for ITFS licensees, and are not able to 
ascertain how many of the 100 non-educational licensees would be 
categorized as small under the SBA definition. Thus, we tentatively 
conclude that at least 1,932 licensees are small businesses.
    194. Additionally, the auction of the 1,030 LMDS licenses began on 
February 18, 1998, and closed on March 25, 1998. The Commission defined 
``small entity'' for LMDS licenses as an entity that has average gross 
revenues of less than $40 million in the three previous calendar years. 
An additional classification for ``very small business'' was added and 
is defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding calendar 
years. These regulations defining ``small entity'' in the context of 
LMDS auctions have been approved by the SBA. There were 93 winning 
bidders that qualified as small entities in the LMDS auctions. A total 
of 93 small and very small business bidders won approximately 277 A 
Block licenses and 387 B Block licenses. On March 27, 1999, the 
Commission re-auctioned 161 licenses; there were 40 winning bidders. 
Based on this information, we conclude that the number of small LMDS 
licenses will include the 93 winning bidders in the first auction and 
the 40 winning bidders in the re-auction, for a total of 133 small 
entity LMDS provides as defined by the SBA and the Commission's auction 
rules.
    195. In sum, there are approximately a total of 2,000 MDS/MMDS/LMDS 
stations currently licensed. Of the approximate total of 2,000 
stations, we estimate that there are 1,595 MDS/MMDS/LMDS providers that 
are small businesses as deemed by the SBA and the Commission's auction 
rules.
    196. Satellite Master Antenna Television (``SMATV'') Systems. The 
SBA definition of small entities for cable and other program 
distribution services includes SMATV services and, thus, small entities 
are defined as all such companies generating $12.5 million or less in 
annual receipts. Industry sources estimate that approximately 5,200 
SMATV operators were providing service as of December, 1995. Other 
estimates indicate that SMATV operators serve approximately 1.5 million 
residential subscribers as of July, 2001. The best available estimates 
indicate that the largest SMATV operators serve between 15,000 and 
55,000 subscribers each. Most SMATV operators serve approximately 
3,000-4,000 customers. Because these operators are not rate regulated, 
they are not required to file financial data with the Commission. 
Furthermore, we are not aware of any privately published financial 
information regarding these operators. Based on the estimated number of 
operators and the estimated number of units served by the largest ten 
SMATVs, we believe that a substantial number of SMATV operators qualify 
as small entities.
    197. Open Video Systems (``OVS''). Because OVS operators provide 
subscription services, OVS falls within the SBA-recognized definition 
of cable and other program distribution services. This definition 
provides that a small entity is one with $12.5 million or less in 
annual receipts. The Commission has certified 25 OVS operators with 
some now providing service. Affiliates of Residential Communications 
Network, Inc. (``RCN'') received approval to operate OVS systems in New 
York City, Boston, Washington, DC and other areas. RCN has sufficient 
revenues to assure us that they do not qualify as small business 
entities. Little financial information is available for the other 
entities authorized to provide OVS that are not yet operational. Given 
that other entities have been authorized to provide OVS service but 
have not yet begun to generate revenues, we conclude that at least some 
of the OVS operators qualify as small entities.

[[Page 65776]]

    198. Daily newspapers. The SBA defines a newspaper publisher with 
less than 500 employees as a small business. According to the 1997 
Economic Census, 8,620 of 8758 newspaper publishers had less than 500 
employees. The data does not distinguish between newspaper publishers 
that publish daily and those that publish less frequently, and the 
latter are more likely to be small businesses than the former because 
of the greater expense to publish daily. The newspaper/broadcast cross-
ownership rule applies only to daily newspapers. It is likely that not 
all of the 8,620 small newspaper publishers are affected by the current 
rule.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    199. We anticipate that none of the proposals presented in the NPRM 
will result in an increase to the reporting and recordkeeping 
requirements of broadcast stations, newspapers, or cable television 
stations. However, one alternative available to the Commission in this 
NPRM is retention of the current rules.

E. Steps Taken To Minimize Significant Impact on Small Entities, and 
Significant Alternatives Considered

    200. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    201. We are directed under law to consider alternatives, including 
alternatives not explicitly listed. This NPRM invites comment on a 
number of alternatives to retain, modify, or eliminate the individual 
ownership rules. The Commission will also consider additional 
significant alternatives developed in the record.
    202. In this context, we highlight certain aspects of this NPRM in 
which we have asked commenters to discuss alternative means of 
achieving our goals. Parties' discussions of alternatives that are in 
their submitted comments will be fully considered in our evaluation of 
whether to retain, modify or eliminate our media ownership rules.
    203. Our local ownership rules include the newspaper/broadcast 
cross-ownership rule, the radio/TV cross-ownership rule, the local 
radio ownership rule, and the local TV multiple ownership rule. These 
rules are interrelated. Each is intended to foster competition and 
diversity in the local media marketplace. One approach under 
consideration is to consider these rules collectively and thus adopt a 
single rule that would foster diversity, competition, and localism. An 
alternative option is to retain the current regulatory scheme, in which 
we apply individual, media-specific local ownership rules. We ask for 
comment on how best to choose among these or other alternatives.
    204. We also ask about alternative approaches to identifying and 
weighting ``voices'' if the Commission adopts a new ``voice'' test. 
Should the Commission develop a new ``voice'' test, according weights 
to different outlet types, or considering factors such as audience 
reach, ownership structure, percentage of programming or print content 
devoted to local news, and/or consumer use patterns? Should the 
Commission consider an alternative that would count, or not count, 
certain types of media outlets as a ``voice''?
    205. In this NPRM, the Commission explores the underpinnings of 
three principles underlying the regulation of the broadcast industry, 
namely diversity, competition and localism. These principles are of 
particular import to small entities. Thus, we seek comment to promote 
on the general advantages and disadvantages of relying on our current 
ownership rules to promote the public interest versus developing a 
single local ownership rule or conducting a case-by-case analysis.
    206. In addition to seeking to foster the policy goals discussed, 
the Commission has historically used the ownership rules to foster 
ownership by diverse groups, such as minorities, women and small 
businesses. In the context of this comprehensive review of our 
ownership rules, we invite comment on whether we should consider such 
diverse ownership as a goal in this proceeding. If so, how should we 
accommodate or seek to foster that goal? In addition, we invite comment 
as to our legal authority to adopt measures to foster that goal.

F. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    None.

IX. Ordering Clauses

    207. Pursuant to sections 1, 2(a), 4(i), 303, 307, 309, and 310 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 
154(i), 303, 307, 309, and 310, and section 202(h) of the 
Telecommunications Act of 1996, this NPRM.
    208. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this NPRM, including 
the Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 73

    Radio, Television broadcasting.

Federal Communications Commission.

Marlene H. Dortch,
 Secretary.
[FR Doc. 02-27311 Filed 10-25-02; 8:45 am]
BILLING CODE 6412-01-P