FCC MUST JUSTIFY NATIONAL TV OWNERSHIP CAP, COURT SAYS

FCC provided “not a single valid reason to believe the [station cap] is necessary,” appeals court said in case brought by Fox, NBC, Time Warner, Viacom-CBS. As result, it said Commission decision (CD May 27/00 p1) not to conduct rulemaking to overturn cap was “both arbitrary and capricious.” Court’s decision had been expected, as 3-judge panel questioned govt. lawyer closely during late summer oral argument (CD Sept 10 p1). At that time, observers from both sides predicted best FCC could expect would be remand -- as opposed to throwing restrictions out entirely, as was case with cable.

Court refused to rule, however, that cap was unconstitutional as claimed by appellants, saying U.S. Supreme Court already had upheld spectrum scarcity rationale for broadcast regulation and appeals court wasn’t in position to overturn that. Court also rejected claim that cap was subject to heightened scrutiny, saying “unlike the ban on editorializing” in earlier case, cap was “not content-based regulation.”

Cap is affecting broadcasters directly, court said. It said Viacom’s acquisition of CBS brought its audience reach to 41% of nation, and only FCC-granted stay had prevented forced divestiture. Cap also is blocking Fox from completing purchase of Chris-Craft stations, which would give it 40% national audience reach. Cable-broadcast cross-ownership ban is preventing Time Warner from buying local TV stations in markets such as N.Y.C. where it has cable systems, court said.

Court rejected most FCC rationales for retaining cap. It said, for example, that Commission hadn’t provided adequate reasoning for rejecting earlier study showing that locally owned stations didn’t necessarily meet local community needs better than group-owned stations. It said agency tried to rebut broadcaster arguments that Commission hadn’t shown that broadcasters had undue market power, “but to no avail.”

FCC also had said it was required to retain 35% national ownership cap because Congress had rejected increasing it to 50% in 1996 Telecom Act. However, court said congressional action set 35% -- rather than 50% -- only as starting point for FCC consideration of cap: “The statute imposed upon the Commission a duty to examine critically the 35% rule and to retain it only if it continued to be necessary.”

Appeals court rejected Commission claim that it shouldn’t decide case because it wasn’t “ripe” or reviewable. Agency had said biennial competition review wasn’t intended to create action that was reviewable by court, but court said 3-2 vote accepting review was “at the least a decision not to initiate a rulemaking.” Court also said petitioners would be hurt if lack of court decision now caused longer delay.

Appeals court was even briefer in dismissing cable- broadcast cross-ownership ban, calling that decision “arbitrary and capricious as well,” and saying chances were so slim Commission could justify ban on remand that court was justified in vacating it entirely. Court said it was clear regulation should be retained only if it was “necessary” in public interest, not just “consonant” with public interest.

FCC “responded feebly” to claims it didn’t adequately consider changed competitive environment when deciding to retain cable ban, appeals court said. It said Commission gave no explanation for decision not to consider increased number of TV stations, nor impact of DBS competition: “It is hard to imagine anything more relevant to the question of whether the rule is still necessary to further diversity.” FCC “simply failed to respond to the objections put before it” in considering whether to retain cable ban, court said, and its reasons for retaining rule “were at best flimsy, and its half-hearted attempt to defend its decision in this court is but another indication that the [cable ban] is a hopeless cause.”

NCTA, while not party to case, said it welcomed increased flexibility that decision would give to cable operators. News Corp., which is over 35% limit said: “We have long believed that the national broadcast ownership cap is outdated and no longer serves the public interest. We are pleased the court agreed with our view.” AOL Time Warner Exec. Vp.-Gen. Counsel Paul Cappuccio said company’s officials were “very pleased” by ruling. “That rule had long ago become an anachronism that did not serve the public interest,” he said. Viacom called ruling “a great decision for viewers” and said FCC should eliminate its “archaic” restrictions. It said rules “are clearly an anachronism in today’s world of ever-expanding media choices.”

NAB’s support of ownership cap was catalyst that caused 3 of Big 4 TV networks to withdraw from NAB, whose Pres. Edward Fritts said Mon. Assn. will “continue to build a solid record” in attempt to convince FCC, Congress and courts to keep rule in place. Cap “has been critically important in preserving the network-affiliate relationship,” Fritts said, and “has been instrumental in promoting localism and diversity.” CBS said court’s ruling was “a great decision for viewers. We believe strongly that the FCC should eliminate its archaic restrictions on broadcast ownership… in today’s world of ever-expanding media choices.” NBC also said it was “pleased” with court’s ruling: “We hope that now the Commission takes a fresh look at this antiquated rule.”

Alan Frank of Post-Newsweek Stations, also pres. of Network Affiliated Stations Alliance (NASA), said group was “very encouraged” by court’s statement that “probability” FCC would be able to “justify retaining the rule is sufficiently high” to warrant remand. “We have always believed that Congress intended for the rule to be no higher that 35%,” Frank said, “and the court’s ruling today seems to acknowledge that fact. Even more pointedly, the court indicated the likelihood the cap was justifiable in the very same decision that struck down the cable/broadcast cross- ownership [ban].” NASA attorney Wade Hargrove told us court’s ruling that cap didn’t violate First Amendment “is an invitation to Congress to address these issues.”

Jeff Chester of Center for Digital Democracy said decision “erodes the public’s First Amendment rights to have a diversely owned media marketplace.” He said decision would remove one of few remaining safeguards against “media conglomerate power” and usher in more local monopolies. He called on Congress to “wake up” and stop consolidation that, he said, would have only few entities shaping public opinion, including on political candidates. Andrew Schwartzman of Media Access Project said Court of Appeals was “squashing congressional powers and the public’s First Amendment rights of access along the way.” He said only good thing about decision was that it could capture Supreme Court’s attention.