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Could the FCC’s Legacy of Failure Trigger Even More Consolidation?

Editor’s Note: Prof. Terry also guests on this week’s Radio Survivor Podcast, which is a companion to this post.

The 3rd Circuit Court of Appeals recently handed down a decision in a third round of the case Prometheus Radio Project v FCC. This decision, while reasonably straightforward, has the potential to be earth shattering to the current broadcast media environment.

I think the decision speaks for itself, but if you’re not in the mood to read through it (not everyone is a telecom nerd like me), the oral argument, which is a bit wonky, can be listened to here (the FCC Lawyer is up at about 36 minutes into the audio).

I have discussed the ongoing dispute in Prometheus v FCC on the Radio Survivor podcast and in a lengthy blog post in the past. While the agency’s 20 year failure on the regulation of media ownership continues, the most recent decision is setting the stage for another massive change, and my friends, not for the better.

“In some respects the Commission has made progress in the intervening years. In key areas, however, it has fallen short. These shortcomings are at the center of this dispute—the third (and likely not the last) round in a protracted battle over the future of the nation’s broadcast industry.”

Importantly, the Third Circuit has simply had enough of the FCC’s lollygagging, whining and outright nonsense on media ownership. The agency’s continuing failure to develop, and support with empirical evidence, and plan to create a policy plan to increase ownership of stations by women and minorities is pushing the court in the direction of something drastic, and we’re likely to see that before the end of this year.

“The FCC presents two arguments for why we should not order relief. Both fail. The first is that it is not yet in violation of Prometheus II because we instructed it to address the eligible entity definition during the 2010 Quadrennial Review, which is still ongoing. This contention improperly attempts to use one delay (the Quadrennial Review) to excuse another (the eligible entity definition). By this logic, the Commission could delay another decade or more without running afoul of our remand. Simply put, it cannot evade our remand merely by keeping the 2010 review open indefinitely.”

Unfortunately for us, that outcome might be a complete tear-down of the FCC’s structural scheme (essentially ownership-based approach) to media regulation. While I am not a fan of the current approach, at least it is an approach with rules. The agency’s failure to act may undermine those rules to the point of total repeal, which in turn, would open the doors to another round of ownership consolidation with essentially no controls on what could be owned by a single media organization. That is a terrifying reality, and one the court explicitly says it may resort to.

“Equally troubling is that nearly a decade has passed since the Commission last completed a review of its broadcast ownership rules….Several broadcast owners have petitioned us to wipe all the rules off the books in response to this delay—creating, in effect, complete deregulation in the industry. This is the administrative law equivalent of burning down the house to roast the pig, and we decline to order it. However, we note that this remedy, while extreme, might be justified in the future if the Commission does not act quickly to carry out its legislative mandate.”

The reality here is that we find ourselves at this point because the agency has failed to do the most fundamental job it has: ensure that citizens have access to diverse and antagonistic viewpoints. Early legal decisions regarding the FCC’s authority recognized the high societal goal attached to this responsibility.

So how did we get this point? It is a story 20 years in the making.

The passage of the 1996 Telecommunications Act changed the face of broadcast radio in this country. The new limits, imposed by Congress, are as follows:

  • In a radio market with 45 or more commercial radio stations, a single party may own, operate, or control up to 8 commercial radio stations, not more than 5 of which are in the same service (AM or FM).
  • In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate, or control up to 7 commercial radio stations, not more than 4 of which are in the same service (AM or FM).
  • In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate, or control up to 6 commercial radio stations, not more than 4 of which are in the same service (AM or FM).
  • And in a radio market with 14 or fewer commercial radio stations, a party may own, operate, or control up to 5 commercial radio stations, not more than 3 of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50 percent of the stations in such market.

These changes to ownership limits (combined with the complete abolishment of a national ownership cap -ed.) transformed radio from a local to a national medium through consolidation.

More important for our current discussion, the 1996 Telecommunications Act required the Commission to conduct a biannual review of media ownership rules. This two-year review was extended to four years with the 2006 Quadraennial Review, but the FCC has not completed the media ownership proceeding in 2010, having rolled it on an ongoing basis into the 2014 rule review.

In June of 2003, in response to the requirement of a quadrennial review of the media ownership rules, the Commission, without a period of public comment or review, released a revised set of media ownership limits. At the heart of this order, which allowed substantial additional concentrations of media ownership, was the FCC’s new Diversity Index.

The Diversity Index was based on a system of Herfindahl–Hirschman Index measurements, an economic instrument commonly used in anti-trust inquiries. The Commission’s stated goal was to assure that at least six competitors would exist in each market. After multiple challenges were filed, a multidistrict panel assigned the case to the Third Circuit Court of Appeals, which heard eight hours of oral argument on February 11, 2004.

On June 24, 2004, (yes, almost 12 years ago!) the Third Circuit released a 2-1 decision, written by Justice Ambro. The verdict, while mixed, stayed and remanded most of the FCC’s 2003 order. Among the primary reasons was the FCC’s arbitrary and capricious decision making process for how it would determine what would count as a sufficient number of competitors, and the lack of evidence in the record supporting the FCC’s proposed standards.

The FCC retreated to lick its wounds. Having completed the required review from 2006, but also being exposed for having buried clear evidence that current media ownership policy was having unintended consequences, all of which were negative in terms of the agency’s stated policy goals, on November 13, 2007 the FCC released a proposed change to only one rule: a partial repeal of the longstanding prohibition on Newspaper-Broadcast Cross Ownership first implemented in 1975. The rule change was included in an order on February 4, 2008, and a month later, the FCC released one additional media ownership rule developed in a separate proceeding, which was designed, at least nominally, to help increase ownership of media outlets by minorities and women.

Relying on the Small Business Administration, the FCC created a class of applicants called “eligible entities.” The Commission argued that an increase in the number of “small media owners”—owners who operate either a single or small group of stations—would by itself result in an increase in the diversity of programming content, including programming content targeted at minorities, both stated goals of the agency, and essentially basic requirements of the remand the agency faced from the 2004 Prometheus Decision.

These policies, like the Diversity Index from 2003, were also challenged, and then reviewed by the Third Circuit Court of Appeals panel, under the remand in the first Prometheus case. In July 2011, in the middle of the 2010 review process, the Court again remanded the agency decisions citing procedural and evidence problems with the FCC’s actions.

The remand, first handed down in 2003, and then again in 2011, in the Prometheus Decision remains at the center of the FCC’s media ownership rule review and the current dispute for a simple reason: the FCC has not acted in any meaningful way to answer the Court’s questions as detailed in the remand.

Fast forward to April of 2016. Having failed to deliver any meaningful response to the Court’s two mandates, the FCC found itself in front of the Third Circuit for oral argument again. It did not go well for the agency. The judges on the panel wanted a straight answer as to when the FCC would resolve this longstanding dispute. The response was essentially, “we’re working on it.” Which, of course, is the answer the FCC has been giving for the past ten plus years.

The agency proposed that a draft of new rules would be circulated among the commissioners by the end of June. I am skeptical that will happen, having studied the last 20 years of policymaking very closely. Either way, without a recognition by the agency of the “Legacy of Failure” that media ownership policy has been, the legacy we may be left with is even worse than the one already created by the agency.

Stay Tuned. Things are about to get a bit more consolidated in these parts.

Christopher Terry is an assistant professor of media law and ethics in the School of Journalism and Mass Communication at the University of Minnesota. A former radio professional, his primary research focus examines the effect of law and policy on political communication and has published research on regulatory topics in political advertising, media ownership policy and news production. He has been frequently interviewed by radio, television and print media on contemporary issues relating to media content and regulation.

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One Response to Could the FCC’s Legacy of Failure Trigger Even More Consolidation?

  1. RebeccaW June 14, 2016 at 2:25 pm #

    Thanks for the heads up Chris. In light of the FCC’s abysmal failure, how about petitioning the court to effectively overturn the Telecom Act, returning to pre-1996 ownership limits? This would counterbalance petitions by broadcasters that they, once again, be given a deregulatory free-for-all.

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