Fox Television Stations v. FCC National Television Station Ownership Rule & Cable/Broadcast Cross-Ownership Rule

Background The TCA of 1996 repealed, overrode, or eased the following: Telephone/Cable Cross-Ownership Cable/Broadcast Cross-Ownership Cable/Network Cross-Ownership Restrictions on National Radio Ownership Restrictions on Local Radio Ownership Dual Network Rule

Background The TCA of 1996 also directed the FCC to: Eliminate the cap upon the number of television stations any one entity may own. Increase to 35 from 25 the maximum percentage of American households a single broadcaster may reach. Review its ownership rules every two years in order to continue the process of deregulation. TCA of 1996 § 202(h)

TCA of 1996 § 202(h) In March 1998 the FCC began it’s first review via an NOI ending in June By Fall 1999, the review had yet to be completed. On May 26, 2000 the FCC announced their decision. Retain the NTSO and CBCO.

The National Television Station Ownership Rule (NTSO) What is it? What is its purpose? Prohibits any entity from controlling television stations the combined potential audience reach of which exceeds 35% of the television households in the U.S. Promoting diversification of ownership in order to maximize diversification of program and service viewpoints Prevent undue concentration of economic power

The Cable/Broadcast Cross-Ownership Rule (CBCO) What is it? Prohibits a cable television system from carrying the signal of any television broadcast station if the system owns a broadcast station in the same local market. What is its effect? Prohibiting common ownership of a broadcast station and a cable television system in the same local market.

Retention of the NTSO Why keep it? Observe the effects of recent changes to the rules governing local ownership of TV stations. Observe the effects of the increase in the national ownership cap to 35% Preserve affiliates bargaining power vis-a-vis their networks allowing them to better serve their local communities Prevent increased concentration in the national advertising market Prevent the potential for monopsony power in the program production market from enlarging.

Retention of the CBCO Why keep it? Prevent cable operators from favoring their own stations. Prevent discrimination against stations owned by others. Further the goal of diversity at the local level since it contributes to the diversity of viewpoints in local markets by preserving the voices of independent broadcast stations.

Effects of Retention Viacom’s acquisition of CBS brought its audience reach to 41%. Preventing Fox from going forward with an acquisition that would enable it to reach more than 40% of the national audience. Preventing Time Warner from acquiring TV stations in markets where it already owns a cable system. Hinders Time Warner’s WB Network from competing with networks that own stations in major markets.

The NTSO Rule and the Court Networks argued NTSO was arbitrary and capricious because: Irrational Not necessary in the public interest Failed to explain change in position Networks argued FCC failed to comply with 202(h). Networks argued FCC failed to address 1984 Report. Violates the First Amendment

Arbitrary and Capricious 35% Cap less justified than limitation in Time Warner II. Court: Time Warner II does not control No reason why necessary for public interest. Court: No valid reason that necessary to safeguard competition. No explanation why change from irrelevancy of diversity in No explanation why NTSO furthers diversity. Reasons given in the 1998 Report do not support retention. Retention is Inconsistent Court: Maintaining National Ownership Cap not inconsistent with other deregulation decisions.

Other Arguments Against NTSO FCC failed to comply with 202(h). Court: FCC did not even address meaningfully the question Congress required it to answer since no evidence given. FCC failed to address the 1984 Report. Court: The FCC may change its mind but it must explain why it is reasonable to do so.

NTSO and First Amendment Red Lion scarcity rationale not valid. Court: We’re not in a position to overturn Red Lion. NTSO does not mitigate scarcity. Court: NTSO increases different voices heard nationally. NTSO subject to intermediate scrutiny. Court: NTSO is not content-based. NTSO Fails Rational Review Court: Not unreasonable for Congress to prefer having more voices heard in the aggregate.

The CBCO Rule and the Court Time Warner contends the CBCO is arbitrary and capricious because: It does not promote competition as reasoned by the FCC. It does not promote diversity as reasoned by the FCC.

Competition FCC: Discrimination by offering joint advertising sales and promotions. Incentive not to carry or to carry undesirable stations. Time Warner: No evidence given why joint advertising is discrimination. FCC has declined to impose must-carry rules. Must-Carry provisions ensure access; DBS makes discrimination unprofitable; no reason by FCC why change from 1992; Rule does little to cure alleged of incentive to discriminate. Court: FCC failed to justify its retention of the CBCO.

Diversity FCC: Cable/TV combo. would represent consolidation of only participants in video market for local programming. Time Warner: 202(h) precludes consideration of diversity; Increase in number of local stations renders marginal increase too slight; Retention of CBCO cannot be reconciled with TV Ownership Order. Court: FCC diversity rationale woefully inadequate.

Conclusion NTSO was remanded to the FCC for further consideration whether to repeal or modify. CBCO was vacated.