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FEDERAL COMMUNICATIONS COMMISSION

Treasury Department

CFR Citation: 47 CFR Part 73

Docket ID: [MB Docket 02-277, and MM Dockets 01-235, 01-317, and 00-244; FCC 03- 127]

NOTICE: Part II

DOCUMENT ACTION: Final rule.

SUBJECT CATEGORY: Broadcast Ownership Rules, Cross-Ownership of Broadcast Stations and Newspapers, Multiple Ownership of Radio Broadcast Stations in Local Markets, and Definition of Radio Markets

DATES: Effective September 4, 2003, except for Sec. Sec. 73.3555 and 73.3613 which contains information collection requirements that are not effective until approved by the Office of Management and Budget. The Commission will publish a document in the Federal Register announcing the effective date of these sections. A separate notice will be published in the Federal Register soliciting public and agency comments on the information collections, and establishing a deadline for accepting such comments.

DOCUMENT SUMMARY: This document completes the Commission's biennial review of its broadcast ownership rules. The Commission replaces its absolute prohibition on common ownership of daily newspapers and broadcast outlets in the same market and its restrictions on common ownership of radio and television outlets in the same market with Cross Media Limits. The Commission also revises the market definition and the way it counts stations for purposes of the local radio rule, revises the local television multiple ownership rule, modifies the national television ownership cap from a 35% national audience reach limit to a 45% reach limit, and retains the dual network rule. The action is taken in response to section 202(h) of the Telecommunications Act of 1996, which requires the Commission to review its broadcast ownership rules on a biennial basis to determine whether the rules remain ``necessary in the public interest.'' The action is necessary to comply with this legislative mandate.

SUMMARY: Federal Communications Commission,

SUPPLEMENTAL INFORMATION

This is a summary of the Commission's Report and Order (R&O) in MB Docket No. 02277 and MM Docket Nos. 01235, 01 317, and 00244; FCC 03127, adopted June 2, 2003, and released July 2, 2003. The complete text of the R&O and the Final Regulatory Flexibility Analysis is available on the Commission's Internet site, at www.fcc.gov., and is also available for inspection and copying during normal business hours in the FCC Reference Information Center, Courtyard Level, 445 12th Street, SW., Washington, DC. The text may also be purchased from the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW., CYB4202, Washington, DC 20554 (telephone 2028632893).

Synopsis of the Report and Order

1. This R&O brings to completion the Commission's third biennial ownership review of all six broadcast ownership rules. The Commission addresses these rules in light of the mandate of section 202(h) of the Telecommunications Act of 1996 (1996 Act), which requires the Commission to reassess and recalibrate its broadcast ownership rules every two years. (Telecommunications Act of 1996, Public Law 104104, 110 Stat. 56 (1996).)

2. The Notice of Proposed Rulemaking (NPRM) in this proceeding (67 FR 65751, October 28, 2002), initiated review of four ownership rules: the national television multiple ownership rule;\1\ the local television multiple ownership rule;\2\ the radiotelevision cross ownership rule; \3\ and the dual network rule.\4\ The first two rules have been reviewed and the proceedings remanded to the Commission by the U.S. Court of Appeals for the District of Columbia Circuit. (Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1044 (D.C. Cir. 2002) (Fox Television), rehearing granted, 293 F. 3d 537 (D.C. Cir. 2002) (Fox Television ReHearing) addressing the national TV ownership rule, and Sinclair Broadcast Group, Inc. v. FCC, 284 F.3d 148 (DC Cir. 2002), (Sinclair) addressing the local TV ownership rule.) After the Commission issued the NPRM, the Commission issued 12 Media Ownership Working Group (MOWG) studies for public comment. A summary of the studies, a public notice, and the text of the studies may be found at www.fcc.gov/ownership. \1\ 47 CFR 73.3555(e).
\2\ 47 CFR 73.3555(b).
\3\ 47 CFR 73.3555(c).

\4\ 47 CFR 73.658(g).

3. In this R&O, the Commission examines the legal context within which this review is conducted, identifies and describes the public interest policy goals that guide our decision, assesses changes in the media marketplace over time, repeals some rules, modifies others, and adopts some new rules. In consideration of the record and our statutory charge, the Commission concludes that neither an absolute prohibition on common ownership of daily newspapers and broadcast outlets in the same market (the newspaper/broadcast crossownership rule) nor a cross service restriction on common ownership of radio and television outlets in the same market (the radiotelevision crossownership rule) remains necessary in the public interest. With respect to both of these rules, the Commission finds that the ends sought can be achieved with more precision and with greater deference to First Amendment interests through our modified Cross Media Limits (CML). The Commission also revises the market definition and the way it counts stations for purposes of the local radio rule, revises the local television multiple ownership rule, modifies the national television ownership cap, and retains the dual network rule.

4. The Commission, in the R&O, adopts limits both for local radio and local television station ownership. Both of these rules are premised on wellestablished competition theory and are intended to preserve a healthy and robust competition among broadcasters in each service. As explained in the R&O, however, because markets defined for competition purposes are generally more narrow than markets defined for diversity purposes, the Commission's ownership limits on radio and television ownership also serve our diversity goal. By ensuring that several competitors remain within each of the radio and television services, the Commission also ensures that a number of independent outlets for viewpoint will remain in every local market, thereby protecting diversity. Further, though, because local television and radio ownership limits cannot protect against losses in diversity that might result from combinations of different types of media within a local market, the Commission adopts a set of specific crossmedia limits.

5. Similarly, by virtue of the staff's extensive information gathering efforts and the voluminous record assembled in this rulemaking docket, the Commission has, for the first time substantial evidence regarding the localism effects of our national broadcast ownership rules. The
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Commission can, therefore, with more confidence than ever, establish a reasonable limit on the national station ownership reach of broadcast networks. In addition, under our dual network rule, the Commission continues to prohibit a combination between two of the largest four networks primarily on competition grounds, but the beneficial effects of this restriction also protect localism. In combination, the Commission's new national broadcast ownership reach cap and our ``dual network'' prohibition will ensure that local television stations remain responsive to their local communities.

I. Legal Framework

6. The Commission conducts this biennial ownership review within the framework established by section 202(h) of the 1996 Act, which 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.'' 1996 Act, section 202(h).

7. Two aspects of this statutory language are particularly noteworthy. First, as the court recognized in both Fox Television and Sinclair, ``Section 202(h) carries with it a presumption in favor of repealing or modifying the ownership rules.'' That is, Section 202(h) appears to upend the traditional administrative law principle requiring an affirmative justification for the modification or elimination of a rule. Second, Section 202(h) requires the Commission to determine whether its rules remain ``necessary in the public interest.''

8. The Commission concludes that in its current form only the dual network rule remains necessary in the public interest as a result of competition. The Commission also concludes that the other ownership rules should be modified as described in the R&O.

9. The ownership rules adopted in the R&O must be consistent not only with the legal standard in section 202(h), but also with the First Amendment rights of affected media companies and consumers. The Commission concludes, based on the decisions in the Fox Television and Sinclair cases, that the rational basis standard is the correct First Amendment standard to apply to the broadcast ownership rules.

10. The Commission rejects, as did the court, the application of the intermediate scrutiny (O'Brien) standard applicable to cable operators or the strict scrutiny standard applicable to the print media and to contentbased regulations. Under O'Brien, government regulation of speech will be upheld only if: (1) It furthers an important or substantial governmental interest; (2) the interest is unrelated to the suppression of free expression; and (3) the incidental restriction on alleged First Amendment freedom is no greater than is essential to the furtherance of that interest. In general, ownership limits on cable operators have been subject to the O'Brien test. 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. Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 66263 (1984); Turner Broadcasting System v. FCC, 520 U.S. 180 (1997). On the other hand, the Commission may not burden cable operators' speech with ``illimitable restrictions in the name of diversity.''

11. Strict scrutiny First Amendment analysis would require the Commission to demonstrate that its rules are the ``least restrictive means available of achieving a compelling state interest.''

12. Under the rational basis standard, the Commission's broadcast regulations satisfy the First Amendment if they are ``a reasonable means of promoting the public interest in diversified mass communications.'' FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775, 802 (1978) (NCCB). As the court has noted, there is no unabridgeable First Amendment right to hold a broadcast license; would be broadcasters must satisfy the public interest by meeting the Commission criteria for licensing, including demonstrating compliance with any applicable ownership limitations.

13. In applying the rational basis test, the Fox and Sinclair courts relied on longstanding Supreme Court precedent which also supports our decision. NCCB, 436 U.S. at 802. In NCCB, the Supreme Court applied the rational basis test to the Commission's newspaper/ broadcast crossownership rules, finding that they ``are a reasonable means of promoting the public interest in diversified mass communications; thus they do not violate the First Amendment rights of those who will be denied broadcast licenses pursuant to them.'' The NCCB Court explained that the rational basis test is the appropriate standard to govern our broadcast ownership regulations because spectrum scarcity requires ``Government allocation and regulation of broadcast frequencies'' and because these regulations are not content related. The rational basis standard therefore governs the Commission's broadcast ownership regulations, whether they govern those that own only broadcast outlets or those that might seek to combine ownership of a broadcast outlet with a newspaper.

14. First Amendment interests are implicated by any regulation of media outlets, including broadcast media. The Commission endeavors to be sensitive to those interests and to minimize the impact of our rules on the right of speakers to disseminate a message. As discussed below, our decision today to eliminate the newspaper/broadcast crossownership rule and the radiotelevision crossownership rule, and to modify our other local ownership rules and our national audience reach cap, turns in part on our determination that these rules in their current form are not a reasonable means to accomplish the public interest purposes to which they are directed. The Commission turns next to identifying the policy goals that will inform this determination.

II. Policy Goals

15. The Commission, in the NPRM, identified diversity, competition and localism as longstanding goals that would continue to be core agency objectives that would guide its actions in regulating media ownership. To fulfill our biennial review obligation, the Commission will first define our goals and the ways it will measure them. The Commission can then assess whether our current broadcast ownership rules are necessary to achieve these goals.

A. Diversity

16. There are five types of diversity pertinent to media ownership policy: viewpoint, outlet, program, source, and minority and female ownership diversity.

17. Viewpoint Diversity. Viewpoint diversity refers to the availability of media content reflecting a variety of perspectives. A diverse and robust marketplace of ideas is the foundation of our democracy. Consequently, ``it has been a basic tenant of national communications policy that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.'' This policy is given effect, in part, through regulation of broadcast ownership. Because outlet owners select the content to be disseminated, the Commission has traditionally assumed that there is a positive correlation
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between viewpoints expressed and ownership of an outlet. The Commission has sought, therefore, to diffuse ownership of media outlets among multiple firms in order to diversify the viewpoints available to the public. Prior Commission decisions limiting broadcast ownership concluded that a larger total number of outlet owners increased the probability that their independent content selection decisions would collectively promote a diverse array of media content. The Commission sought comment on whether this longstanding presumed link between ownership and viewpoint could be established empirically. After reviewing studies and comments, the Commission adheres to its longstanding determination that the policy of limiting common ownership of multiple media outlets is the most reliable means of promoting viewpoint diversity. The balance of evidence, although not conclusive, appears to support the Commission's conclusion that outlet ownership can be presumed to affect the viewpoints expressed on an outlet. The Commission therefore continues to believe that broadcast ownership limits are necessary to preserve and promote viewpoint diversity. A larger number of independent owners will tend to generate a wider array of viewpoints in the media than would a comparatively smaller number of owners.

18. Further, owners of media outlets clearly have the ability to affect public discourse, including political and governmental affairs, through their coverage of news and public affairs. Even if the Commission's inquiry were to find that media outlets exhibited no apparent ``slant'' or viewpoint in their news coverage, media outlets possess significant potential power in our system of government. The Commission believes sound public policy requires it to assume that power is being, or could be, exercised.

19. The Commission does not pass judgment on the desirability of owners using their outlets for the expression of particular viewpoints. Indeed, the Commission has always proceeded from the assumption that they do so and that its rules should encourage diverse ownership precisely because it is likely to result in the expression of a wide range of diverse and antagonistic viewpoints. The Commission merely observes here that evidence from a variety of researchers and organizations appears to disclose a meaningful connection between the identity of the outlet owner and the content delivered via its outlet(s). This evidence provides an additional basis to reaffirm the Commission's longstanding conclusion that regulating ownership is an appropriate means to promote viewpoint diversity.

20. The Commission's conclusion also should not be read to suggest that each and every incremental increase in the number of different outlet owners can be justified as necessary in the public interest. To the contrary, there certainly are points of diminishing returns in incremental increases in diversity. Moreover, such increases may, in some instances, harm the public interest in localism and competition. The balancing of these interests are addressed in the sections below dealing with individual rules.

21. Measuring viewpoint diversity. Viewpoint diversity is a paramount objective of this Commission because the free flow of ideas undergirds and sustains our system of government. Although all content in visual and aural media have the potential to express viewpoints, the Commission finds that viewpoint diversity is most easily measured through news and public affairs programming. Not only is news programming more easily measured than other types of content containing viewpoints, but it relates most directly to the Commission's core policy objective of facilitating robust democratic discourse in the media. Accordingly, the Commission has sought in this proceeding to measure how certain ownership structures affect news output.

22. Nonetheless, the Commission agrees with Fox and CFA that content other than traditional newscasts also contributes to a diversity of viewpoints. Television shows such as 60 Minutes, Dateline NBC, and other newsmagazine programs routinely address matters of public concern. In addition, as Fox points out, entertainment programming such as Will & Grace, Ellen, The Cosby Show, and All in the Family all involved characters and storylines that addressed racial and sexual stereotypes. In so doing, they contributed to a national dialogue on important social issues.

23. Although the Commission agrees that entertainment programs can contribute to its goal of viewpoint diversity, it will focus on the news component of viewpoint diversity where the record permits it to do so. The Commission's objective of promoting program diversity in this proceeding subsumes the viewpoint diversity contained within entertainment programming. Finally, the Commission concludes that the diversity of viewpoints by national media on national issues is greater than that regarding local issues. This is principally due to the vast array of national news sources available on the Internet, cable television and DBS.

24. Program Diversity. The Commission concludes that program diversity is a policy goal of broadcast ownership regulation. Program diversity refers to a variety of programming formats and content. With respect to television, this includes dramas, situation comedies, reality shows, and newsmagazines, as well as targeted programming channels such as food, health, music, travel, and sports. With respect to radio, program diversity would be reflected in a variety of music formats such as jazz, rock, and classical as well as allsports and allnews formats. Programming aimed at various minority and ethnic groups is an important component of program diversity for both television and radio. In general, the Commission finds that program diversity is best achieved by reliance on competition among delivery systems rather than by government regulation. The rules adopted in this proceeding will ensure competition in the delivered video and radio programming markets.

25. Outlet Diversity. Outlet diversity means that, in a given market, there are multiple independentlyowned firms. The Commission has previously found that outlet diversity has not been viewed as an end in itself, but a means through which the Commission seeks to achieve our goal of viewpoint diversity. The Commission finds that independent ownership of outlets by multiple entities in a market contributes to our goal of promoting viewpoints.

26. The Commission's review of the record persuades us that outlet diversity within radio broadcasting continues to be an important aspect of the public interest that the Commission should seek to promote. The Commission is committed to establishing a regulatory framework that promotes innovation in the field of broadcasting. Because new entrants are often a potent source of innovation, the Commission seeks to preserve opportunities for new entry in radio which remains one of the most affordable means for entering the media business.

27. The Commission believes that one benefit of outlet diversity is the promotion of public safety. In an emergency, the separation of broadcast facilities and personnel among multiple independent broadcast companies in a given market will avoid any possibility that the failure of one broadcast company to transmit critical public safety information will not leave that area without other broadcast owners to perform that service.

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28. Source Diversity. Source diversity refers to the availability of media content from a variety of content producers. The record before us does not support a conclusion that source diversity should be an objective of the Commission's broadcast ownership policies. In light of dramatic changes in the television market, including the significant increase in the number of channels available to most households today, the Commission finds no basis in the record to conclude that government regulation is necessary to promote source diversity. Given the explosion of programming channels now available in the vast majority of homes today, and in the absence of evidence to the contrary, the Commission cannot conclude that source diversity should be a policy goal of our broadcast ownership rules.

29. Minority and Female Ownership Diversity. Encouraging minority and female ownership historically has been an important Commission objective, and the Commission reaffirms that goal here. NABOB recommends that the Commission should maintain our current ownership rules; use Arbitron markets to define radio markets; give greater consideration to the promotion of viewpoint diversity and minority ownership when the Commission reviews assignment of license and transfer of control applications; eliminate our policy of granting temporary waivers of our multiple ownership rules (which allow merging broadcasters 624 months to come into compliance with the rules); adopt a brightline test to limit radio ownership consolidation; and urge Congress to reinstate the minority tax certificate policy.

30. IPI argues that maintenance of broadcast ownership caps will best serve the distinct programming preferences of minority groups. AWRT asks us to include the goal of increasing the number of female owned broadcast businesses as the Commission considers changes to its broadcast ownership rules. UCC urges the Commission to ``explicitly advance through its ownership rules'' the policy goal of promoting broadcast ownership opportunities for women, minorities and small businesses.

31. MMTC proposes business and regulatory initiatives that ``would go a long way toward increasing entry into the communications industry by minorities.'' MMTC's initiatives include: (1) Equity for specific and contemplated future acquisitions; (2) enhanced outreach and access to debt financing by major financial institutions; (3) investments in institutions specializing in minority and small business financing; (4) cash and inkind assistance to programs that train future minority media owners; (5) creation of a business planning center that would work oneonone with minority entrepreneurs as they develop business plans and strategies, seek financing, and pursue acquisitions; (6) executive loans, and engineers on loan, to minority owned companies and applicants; (7) enhanced access to broadcast transactions through sellers undertaking early solicitations of qualified minority new entrants and affording them the same opportunities to perform early due diligence as the sellers afford to established nonminority owned companies; (8) nondiscrimination provisions in advertising sales contracts; (9) incubation and mentoring of future minority owners; (10) enactment of tax deferral legislation designed to foster minority ownership; (11) examination of how to promote minority ownership as an integral part of all FCC general media rulemaking proceedings; and (12) ongoing longitudinal research on minority ownership trends, conducted by the FCC, NTIA, or both; (13) sales to certain minority or small businesses as alternatives to divestitures. The Commission has received many creative proposals to advance minority and female ownership. Clearly, a more thorough exploration of these issues, which will allow us to craft specifically tailored rules that will withstand judicial scrutiny, is warranted. The Commission will issue a Notice of Proposed Rulemaking to address these issues and incorporate comments on these issues received in this proceeding into that proceeding.

32. The Commission sees significant immediate merit in one commenter's proposal regarding the transfer of media properties that collectively exceed our radio ownership cap. Minority Media & Telecommunications Council (MMTC) recommends that the Commission generally forbid the wholesale transfer of media outlets that exceed our ownership rules except where the purchaser qualifies as a ``socially and economically disadvantaged business.'' The Commission agrees with MMTC that a limited exception to a ``no transfer'' policy for abovecap combinations would serve the public interest. The Commission also agrees with MMTC that the benefits to competition and diversity of a limited exception allowing entities to sell abovecap combinations to eligible small entities outweigh the potential harms of allowing the abovecap combination to remain intact.

33. The Commission intends to refer the question of how best to ensure that interested buyers are aware of broadcast properties for sale to the Advisory Committee on Diversity for further inquiry and will carefully review any recommendations this Committee may proffer. As soon as the Commission receives authorization to form this committee it will ask it to make consideration of this issue among its top priorities.

B. Competition

34. From its inception, the Commission has sought to ensure that transfers and assignments of station licenses remain consistent with the policy of free competition embodied in the Communications Act. The Commission sees nothing in the 1996 Act that signifies a retreat from our deep and abiding interest in promoting and preserving competition in broadcasting. It is clear that competition is a policy that is intimately tied to our public interest responsibilities and one that the Commission has a statutory obligation to pursue. The Commission affirms our longstanding commitment to promoting competition by ensuring procompetitive market structures. Consumers receive more choice, lower prices, and more innovative services in competitive markets than they do in markets where one or more firms exercises market power. These benefits of competition can be achieved when regulators accurately identify market structures that will permit vigorous competition.

35. In limiting broadcast ownership to promote economic competition, the Commission also takes major strides toward protecting and promoting its separate policy goal of protecting competition in the marketplace of ideas. In many markets, the record evidence shows that the Commission's competitionbased ownership limits more than adequately protect viewpoint diversity in a large number of markets. Nonetheless, the Commission's analysis of the record leads it to conclude that preserving competitive markets will not, in all cases, adequately protect viewpoint diversity. The Commission finds that certain combinations in smaller markets would unreasonably threaten viewpoint diversity even if they would not result in competitive harms.

36. Measurement of competition. Historically the Commission has relied on assessments of competition in advertising markets as a proxy for consumer welfare in media markets.

37. Although advertising markets continue to be a reasonable basis on
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which to evaluate competition among media companies, in this R&O the Commission will rely more heavily on other metrics. In the past, television stations generally faced economic competition from other television stations, and radio stations from other radio stations. The television and radio markets relied principally on advertising revenues to fund their businesses. Today, a large portion of the revenue in the television business consists of direct payment by consumers. Eighty five percent of American households subscribe to television programming supplied by cable or direct broadcast satellite. Therefore, in analyzing markets comprised of both free overtheair broadcasters as well as subscription delivery systems, the Commission will look to audience share as one metric for assessing the state of competition. The Commission will not discard advertising market analysis where appropriate, but it limits its reliance to discrete markets where it believes the foregoing analysis is inapplicable.

38. The Commission's public interest focus must be first and foremost on the interest, the convenience, and the necessity of the public, and not on the interest, convenience, or necessity of the individual broadcaster, or the advertiser. Thus, in evaluating the Commission's interest in preserving competitive broadcast markets, it will consider the ultimate effect that a diminution in competition would have on the consuming public. The Commission has a public interest responsibility to ensure that broadcasting markets remain competitive so that all the benefits of competitionincluding more innovation and improved serviceare made available to the public. In setting its local television and local radio ownership caps, the Commission will rely, where possible, on measures other than shares of advertising markets in order to reflect the decreasing relevance of advertising market shares as a barometer of competition.

39. Innovation. The Commission concludes that it should seek to promote innovation through its broadcast ownership limits. Where a market such as broadcasting is characterized by a significant degree of nonprice competition, it may be particularly important for the Commission to focus on how its ownership rules affect innovation incentives. Innovation, over longer periods of time, may represent a critical driver of consumer welfare.

40. The transition from analog to digital services by broadcasters represents a potentially significant enhancement to consumer welfare. Digital transmission of video and audio programming by television and radio stations may facilitate new services for consumers by permitting more efficient bandwidth utilization. With respect to local televisions stations, this additional bandwidth could be used to transmit high definition programming; to transmit one or more additional program streams; or to deliver entirely new services. NAB/NASA has argued that local television ownership structures are very likely to affect stations' ability to proceed with the ongoing digital transition. NAB contends that the fixed costs associated with digital television equipment upgrades fall disproportionately on stations in smaller markets and that station combinations will speed the transition. In addition, the introduction of digital transmission by radio stations may permit greater competition and innovation in radio markets by facilitating improved signal quality and by permitting stations to deliver data along with audio to users' receivers.

41. In sum, the Commission concludes that it should seek to promote innovation through its broadcast ownership limits. Consumer welfare is likely to be enhanced when, all else being equal, the Commission permits broadcast market structures that encourage innovation. The Commission agree with IPI, however, that multiple factors influence the pace of innovation, only one of which is market structure. The Commission will therefore make ownership decisions that promote innovation in media markets based principally on evidence that particular market structures or firm characteristics tend to encourage innovation.

C. Localism

42. The Commission agrees that localism continues to be an important policy objective. Localism is rooted in Congressional directives to this Commission and has been affirmed as a valid regulatory objective many times by the courts. The Commission hereby reaffirms its commitment to promoting localism in the broadcast media. Today, the Commission seeks to promote localism to the greatest extent possible through market structure that take advantage of media companies' incentive to serve local communities.

43. Federal regulation of broadcasting has historically placed significant emphasis on ensuring that local television and radio stations are responsive to the needs and interests of their local communities. In the Communications Act of 1934, Congress directed the Commission to ``make such distribution of licenses, frequencies, hours of operation, and power among the several States and communities as to provide a fair, efficient, and equitable distribution of radio service to each of the same.'' In the legislative history of the 1996 Act, Congress strongly reaffirmed the importance of localism.

44. The courts too have long viewed localism as an important public interest objective of broadcast regulation. In NBC v. United States, the Supreme Court wrote: ``Local program service is a vital part of community life. A station should be ready, able, and willing to serve the needs of the local community.'' Last year the DC Circuit affirmed the legitimacy of Commission regulation to preserve localism, stating: ``[T]he public interest has historically embraced diversity (as well as localism) * * * and nothing in section 202(h) signals a departure from that historic scope.''

45. Measurement of Localism. The Commission remains firmly committed to the policy of promoting localism among broadcast outlets. Today the Commission seeks to promote localism to the greatest extent possible through market structures that take advantage of media companies' incentives to serve local communities. In addition, the Commission seeks to identify characteristics of those broadcasters that have demonstrated effective service to individual local communities and to encourage their entry into markets currently prohibited by our existing rules. To measure localism in broadcasting markets, the Commission will rely on two measures: the selection of programming responsive to local needs and interests, and local news and public affairs programming quantity and quality. The Commission decided long ago that local station licensees have a responsibility to air programming that is suited to the tastes and needs of their community and that the station licensee, not a network or any other party, must decide what programming will best serve those needs. Program selection, then, is a means by which local stations respond to local community interests, and the Commission will use it as one measure of localism. Its second measure of localism can serve as a useful measure of a station's effectiveness in serving the needs of its community. As discussed below, this measure of service to local markets is relevant to the Commission's consideration of both the national television cap and its local broadcast rules.
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D. Regulatory Certainty

46. The Commission considered both a casebycase analysis and bright line rules to determine the particular regulatory framework that would best achieve our policy goals. Based on the record and our own experience administering structural ownership rules, the Commission concludes that the adoption of bright line rules, on balance, continue to play a valuable role in implementing the Commission's goals. The Commission has also decided to retain our existing framework of targeted, outletspecific, multiple ownership rules, that cover the various media and perceived areas of potential competition and diversity concerns rather than adopting a single rule to cover all media.

47. The Commission is required to examine any proposed transfer of a broadcast license and must affirmatively find that the transfer is in the public interest. In the context of broadcast transactions, the Commission's analysis is simplified by the extensive body of structural rules it adopts herein. Thus, the extensive rulemaking proceeding used to develop these broadcast ownership rules takes full account of the Commission's public policy goals of diversity, competition, and localism. These rules squarely embody the Commission's public interest goals of limiting the effect of market power and promoting localism and viewpoint diversity.

48. The bright line rules the Commission establishes in this Order will protect diversity, competition, and localism while providing greater regulatory certainty for the affected companies than would a casebycase review. Any benefit to precision of a casebycase review is outweighed, in the Commission's view, by the harm caused by a lack of regulatory certainty to the affected firms and to the capital markets that fund the growth and innovation in the media industry. Companies seeking to enter or exit the media market or seeking to grow larger or smaller will all benefit from clear rules in making business plans and investment decisions. Clear structural rules permit planning of financial transactions, ease application processing, and minimize regulatory costs.

49. The Commission recognizes that bright line rules preclude a certain amount of flexibility. A casebycase analysis would allow the Commission to reach decisions by taking into account particular circumstances of every case. For instance, bright line rules may be overinclusive, by preventing transactions that would result in increased efficiencies, or underinclusive, by allowing transactions that would raise concerns, if the circumstances of the case were reviewed. However, the Commission's experience with the current case bycase analysis used for radio transactions leads it to believe that this approach in the area of media ownership is fraught with administrative problems. Currently, any radio transaction that proposes a radio station combination that would provide one station group with a 50% share of the advertising revenue in the local radio market, or the two station groups with a 70% advertising revenue, undergoes additional public interest analysis. For each of these transactions, the staff conducts an individual competitive analysis and may request additional information from the parties if it is necessary in order to reach a decision on a particular transaction. The administrative time and resources required for such an undertaking are considerable. Moreover, such an approach hinders business planning and industry investment for all radio firms falling within the ambit of our casebycase review. The Commission is not persuaded that this approach is necessary in order to administer its ownership rules effectively.

50. The bright line rules adopted today have been developed based upon the Commission's review of the media marketplace and our assessment of what ownership limits are necessary in order to promote our goals in applying ownership rules. The Commission is confident that the modified rules will reduce the chances of precluding transactions that are in the public interest or, alternatively, permitting transactions that are not in the public interest. In addition, the Commission has discretion to review particular cases, and the Commission is obligated to give a hard look both to waiver requests, where a bright line ownership limit would proscribe a particular transaction, as well as petitions to deny.
III. Modern Media Marketplace

A. IntroductionThe Evolution of Media

51. Today's media marketplace is characterized by abundance. Traditional modes of media have greatly evolved since the Commission first adopted media ownership rules in 1941, and new modes of media have transformed the landscape, providing more choice, greater flexibility, and more control than at any other time in history. In short, the number of outlets for national and local news, information, and entertainment is large and growing.\5\
\5\ Today, there are more than 308 nonbroadcast networks available for carriage by cable systems, whereas ten years ago in 1993, there were only 106 nonbroadcast programming services available for carriage.

52. Section 202 (h) requires the Commission to consider whether any of its broadcast ownership rules are ``necessary in the public interest as a result of competition.'' This R&O confronts that challenge by determining the appropriate regulatory framework for broadcast ownership in a world characterized not by information scarcity, but by media abundance. This section tracks the history of the modern media marketplace to illustrate the rapid evolution of media outlets over the past sixty years.

B. History of the Modern Media Marketplace

53. The Age of Radio. At the time commercial broadcast radio was introduced during the early 1920s, newspapers were the primary source of news and information, with circulation reaching nearly 28 million readers. By 1926, just six years after the first official commercial broadcasts, there were 528 stations and 5.7 million radio sets, generating a weekly radio audience of 23 million listeners. Unlike today's targeted, niche programming, however, a typical radio station's programming in the early 1930's was largely ``variety'' format, including a small amount of many different types of programming. Notable and newsworthy events were, of course, the exception to the variety format. During World War II, radio proved a vital asset in the dissemination of news and publicservice messages, and it boosted the morale of those remaining on the homefront.

54. The Introduction of Television. Although General Electric began regular television broadcasting in 1928, it was not until 1941 that the first commercial television station was introduced. In addition to a proliferation of new programming, many radio stars began to move their acts to television in the late 1940's. With World War II over, and the Depression behind them, Americans began to accept television as a cogent means of receiving information and entertainment. In 1951, just ten years after television's introduction to the public, there were more than 108 stations on the air and more than 15 million households with television sets.

55. The Multimedia Landscape I1960's. By 1960, a multimedia landscape began to form, though media at that time was still dominated by broadcast radio and television. Forty
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years after the introduction of commercial broadcast radio, and 19 years after the introduction of commercial broadcast television, there were 4,086 radio stations and 573 television stations. Approximately 45 million homes had a television in 1960, and about six million of those had more than one television. Relatively few markets had cable systems in 1960, and nationwide there were only about 750,000 cable subscribers. There were approximately 1,700 daily newspapers in 1960 with a total circulation of about 58 million readers. According to MOWG Study No. 1, the number of outlets per market in 1960 varied largely by size of the market.\6\ The smallest markets had few choices, while large markets had comparatively more outlets for news, information, and entertainment.
\6\ This market definition is not necessarily consistent with the market definition of the Commission's rules.

56. An informal analysis \7\ of the news and public interest programming available to the public over television in 1960, revealed that, in most markets, there was less than onehour of national news programming broadcast daily by all the stations combined in a given market. Programming characterized as ``public interest programming'' \8\ on average was aired for about two to three hours perstation, per day (or approximately six to nine hours of public interest programming produced perday by all stations combined in the markets it reviewed). \7\ In this analysis, Commission staff examined current and historic TV Guide magazines to determine the amount of differing types of programming (local news, national news and public interest programming) provided by stations in markets of differing sizes. The study examined the amount of programming available in a sample day in three cities, New York, Little Rock, and Terre Haute, selected from the larger group of ten cities represented in MOWG Study No. 1. The three cities chosen for this particular informal study were each chosen to respectively represent small, medium, and large television markets. Programming schedules for between the hours of 6 am and midnight on July 1st of the given year were examined for each city to determine how much of each type of programming was available to consumers in the selected market. (``Three City Study'').
\8\ Public Interest Programming is defined for these purposes as programming of cultural, civic, children's, family, public affairs and educational interest.

57. Television Evolves. Between 1960 and 1963, several historical events were broadcast over television, changing the very medium itself and its role in society. The use of television by John F. Kennedy and Richard M. Nixon during the Presidential election of 1960, ushered in a new era in American politics and a new era for television as an important medium of communications. Television coverage of Martin Luther King Jr.'s ``I Have a Dream'' speech provided activists nationwide the information and the inspiration on which to mobilize America into one of the most turbulent and progressive eras in its history. And when word of President Kennedy's assassination was announced in 1963, an estimated 180 million Americans watched their television sets almost continuously for four days, witnessing the same tragic event in unison.

58. The Introduction of NonBroadcast Networks. From its beginnings in 1948, through the late 1960's, cable television extended the reach of broadcast television. Early cable systems were born out of the need to carry television signals into areas where overtheair reception was either nonexistent or of poor quality because of interference. The creation of nationally distributed, nonbroadcast cable programming enabled cable to become a competitive medium for the dissemination of news, information, and entertainment. Unlike the general interest, ``variety'' programming of the broadcast television networks, many non broadcast basic cable networks provided highly specialized programming and provided it on a 24hour basis. Thus, the inclusion of non broadcast networks in the array of media choices gave the public continuous access to national news, information, and entertainment.

59. In 1980, with the addition of numerous payTV and basic cable networks, there were more than 19.2 million subscribers, an increase of 95.3%. But as a competitor to broadcast radio and television, cable's appeal was primarily national in orientation. Although some regional and local nonbroadcast networks were distributed during the 1970's and 1980's, the banner offerings of cable systems during that period were nationallydistributed networks.

60. The Introduction of HomeUse Satellite Television Technology. Home satellite dish (``HSD'') technology was based on the same system used by cable operators to receive network signals from satellites for delivery over their terrestrial cable systems. HSD systems could gain access to hundreds of channels of programming further enhancing consumer access to nonbroadcast television programming, much the same way cable served to enhance broadcast television service in its early years.

61. The Multimedia Landscape II1980's. By 1980, traditional media still dominated mainstream use, but the public did have other options. Many could now choose among both broadcast and nonbroadcast television programming to access news, information and entertainment. In addition to the traditional broadcast television stations offered overtheair and via cable systems, there were also approximately 20 nationally distributed nonbroadcast networks available to the public nationwide and an unknown number of regionally distributed nonbroadcast networks. The number of media outlets per market varied in 1980 based on market size, as they had in 1960. Overall, however, most markets seemed to have at least doubled the number of television stations and station owners than they had in 1960.

62. The Commission's informal analysis of the news and public interest programming available to the public via television revealed that, on average, most television stations in the markets it reviewed were airing more local news programming in1980 than they did in 1960, though some small market stations were airing less local news programming. In addition, in the large market that the Commission studied, New York, there were more television broadcast stations available to the public than there were in 1960, resulting in a greater total amount of local news produced in these markets, on a given day. In addition, a nonbroadcast television network, CNN, aired national news programming for 24hours per day, and was available to all those with access to cable or HSD systems. More broadcast television stations aired public interest programming in 1980 than in 1960, particularly in large and mediumsized markets In addition, there were several new non broadcast television networks providing public interest programming on a 24hour basis. In short, the addition of nationally distributed non broadcast television networks, an increase in the number independent and affiliate broadcast television stations and in the number of hours broadcast per station, resulted in an increase in the news and public interest programming available in markets of all sizes between 1960 and 1980.

63. Competitive Pressure Builds: A Crowded Programming Market. The amount of competitive programming available on cable continued to increase during the eighties and into the nineties. The concise format of a majority of nonbroadcast programming networks was attractive to audiences who were developing a preference for scanning quickly through the many new channel offerings available to them. While some non broadcast networks were providing general interest fare in the mold of the traditional broadcast networks, many
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provided programming geared towards a particular audience interest. Regionally distributed nonbroadcast networks also flourished in the 1980's through the 1990's. Some provided regional sports, while others provided regional and local news or general regionalinterest programming.

64. When the Fox broadcast network launched as a challenger to the ``Big Three'' networks in 1985, it entered the market building on the niche concept employed by the nonbroadcast networks. Fox provided general interest fare, like its broadcast competitors, but targeted its programming to the teenage demographic. Later, in January 1995, Paramount and Warner Brothers launched the UPN and WB networks, respectively, both building on similar demographics on which Fox had initially entered the market.

65. Significant Technological Advances: Recorded Media, Digital Compression, and the Internet. Several significant advances in technology during the 1980's and 1990's supplied the footing for increased competitive pressure on the media marketplace. The video cassette recorder (``VCR'') empowered the public with the ability to stray from the preset video programming schedule inherent in broadcast television content. Furthermore, content not available over other video media, or content which had been previously available over broadcast television was created specifically for VCR consumption. By 1986, more than 13 million VCRs had been sold in the United States.

66. Digital technology was used in the development of advanced satellite distribution systems. Direct broadcast satellite systems (``DBS'') provided an alldigital transmission of video programming, employing a small satellite dish, practical for both rural and urban deployment. DBS provides more than 200 channels of video programming to subscribers. The presence of DBS in the market for the delivery of subscription video programming has expanded the market, such that now almost all televisions households have access to subscription video. In addition, the competitive presence of DBS has forced cable television services to expand channel capacity and service options. At the end of 1994, DBS services had approximately 600,000 subscribers. Today there are more than 18 million subscribers.

67. As a result of the widespread acceptance of DBS, cable television operators began replacing much of their original infrastructure, and began employing digital technology to transmit highquality video signals to their customers. Digital technology also expanded the channel capacity of the networks, enabling cable operators to provide vastly more channels of video programming, and furthered the ability of cable operators to implement advanced twoway services.

68. Digital versatile disc (``DVD'') players were introduced in 1997, and the personal video recorder (``PVR'') was introduced in 1999. PVR's use a hard disk drive, software, and other technology to digitally record and access programming. In addition to these other significant technological advancements of the 1980's and 1990's, the Internet has spawned an entirely new way of looking at media. Today the Internet affects every aspect of media, from video and audio, to print and personal communications. Whereas other forms of media allow for only a finite number of voices and editoriallycontrolled viewpoints, the Internet provides the forum for an unlimited number of voices, independently administered. Furthermore, content on the Web is multi media; it can be read, viewed, and heard simultaneously. Since Web pages are stored on Webhosting file servers, accessing Web content is a highly individualized activity, and any individual with access to a Web browser can access all available Web content 24hours a day throughout the world.

69. Virtually every major media company has a corresponding Web site, today, and any individual with access to a Webhosting file server can create a Web site for public access. As such, the Web provides an unrestrained forum for the dissemination and consumption of ideas. News and information are available on the Internet like they have never been available to the public before. Internet users can view the news source of their own choosing, or can use a news gathering service which presents information culled from thousands of news sources worldwide. Furthermore, Internet users can access content that may have appeared in print or on broadcast television at an earlier time, giving them greater control over traditionally available content.

70. The Multimedia Landscape III2000. Since the 1960's, there has been tremendous growth in the media market. By 2000, American consumers had access to a multitude of media outlets, hundreds of channels of video programming, and enormous amounts of content not available just twenty, or even ten years earlier. There were more than 12,615 radio stations in 2000, and 1,616 broadcast television stations.

71. Approximately 100.8 million homes had a television in 2000 and 76.2 million of those had more than one television. There were 68.5 million cable subscribers in 2000, approximately 14.8 million DBS subscribers and 1.2 million HSD subscribers. There also were 1,480 daily newspapers in 2000 with a total circulation of 55.8 million readers. In addition to the traditional broadcast television stations offered overtheair and via cable systems, there were 281 nationally distributed nonbroadcast networks available in 2000 and 80 regional nonbroadcast networks. Approximately 42.5 million households subscribed to an Internet access provider in 2000.

72. The number of outlets per market also grew significantly between 1960 and 2000. The number of radio outlets grew by 142% from 1960 to 2000 and the number of independent radio station owners grew by 74% in that same time period. The number of television outlets grew by 217% from 1960 to 2000 and the number of independent television station owners grew by 150% in that same time period. The number of daily newspapers declined by 9% from 1960 to 2000 and the number of newspaper owners was the same in 2000 as it was in 1960.

73. The number of hours of news and public interest programming has also grown significantly since 1980. Although in most markets, only a few stations increased the amount of national news programming available from 1980, when national news was aired for about thirty to forty five minutes per station per day, there were more broadcast stations airing national news in 2003, and several nonbroadcast news networks airing national news programming on a 24hour a day basis. Public interest programming also has proliferated. Although television broadcast stations in various markets were airing about the same amount of public interest programming perstation in 2003 as they were in 1980, in 2003, there are more television broadcast stations permarket and numerous new nonbroadcast networks providing such programming.

74. The Current Competitive Landscape and Developments Since 2000. Nonbroadcast television programming continues to proliferate. We are moving to a system served by literally hundreds of networks serving all conceivable interests. Today, there are more than 308 satellite delivered national nonbroadcast television networks available for carriage over cable, DBS and other multichannel video program distribution (``MVPD'')
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systems. Of the 102 channels received by the average viewing home, the four largest broadcast networks have an ownership interest in approximately 25% of those channels.

75. Since its inception, nonbroadcast programming has gained significantly in popularity as compared with broadcast programming. In 2002, for the first time, cable television collectively had more primetime viewers on average over the course of the year than broadcast programming. In June 2002, cable networks for the very first time collectively exceeded a 50% share for the month, while the broadcast networks collectively registered a 38% primetime share.

76. Broadcasters are currently experimenting with, and beginning to commercially deploy, digital and highdefinition television (``DTV'' and ``HDTV''). Digital television offers improved picture quality, the ability to provide such additional enhancements as HTDV, multicasting, and interactivity. Cable operators and DBS service providers are also beginning to provide DTV and HDTV options.

77. Today's media marketplace also provides choices to the public on an entirely new, personal level. In addition to the Web, for example, videoondemand (``VOD'') is the newest technology being developed and deployed by cable and DBS operators. VOD services provide advertisingfree material on a programbyprogram basis. In addition, satellite radio became available in 2001, providing subscribers over 100 channels of commercialfree, digital audio.

78. In short, there are far more types of media available today, far more outlets pertype of media today, and far more news and public interest programming options available to the public today than ever before. Although many of these new outlets are subscriptionbased the competitive pressure placed upon free, overtheair media has led to better quality and in some cases, an increase in the quantity of some types of content. In the next five to ten years, it expects more free, overtheair content to become available as new technologies are applied to these traditional media.

IV. Local and National Framework

79. The Commission, in the R&O, adopts limits both for local radio and local television ownership. Both of these rules are premised on wellestablished competition theory and are intended to preserve a healthy and robust competition among broadcasters in each service. As explained in the R&O, however, because markets defined for competition purposes are generally more narrow than markets defined for diversity purposes, the Commission's limits on radio and television ownership also serve our diversity goal. By ensuring that several competitors remain within each of the radio and television services, the Commission also ensures that a number of independent outlets for viewpoint will remain in every local market, thereby ensuring that our diversity goal will be promoted. Further, though, because local television and radio ownership limits cannot protect against losses in diversity that might result from combinations of different types of media within a local market, the Commission adopts a set of specific crossmedia limits.

80. Similarly, by virtue of the staff's extensive information gathering efforts and the voluminous record assembled in this rulemaking docket, the Commission has, for the first time substantial evidence regarding the localism effects of our national broadcast ownership rules. The Commission can, therefore, with more confidence than ever, establish a reasonable limit on the national station ownership reach of broadcast networks. The Commission continues to prohibit a combination between two of the largest four networks primarily on competition grounds, but the beneficial effects of this restriction also protect our interest in preserving localism. In combination, the Commission's new national broadcast ownership reaches cap and our ``dual network'' prohibition will ensure that local television stations remain responsive to their local communities. In sum, the modified broadcast ownership structure the Commission adopts in the R&O will serve our traditional goals of promoting competition, diversity, and localism in broadcast services. The new rules are not blind to the world around them, but reflective of it; they are, to borrow from our governing statute, necessary in the public interest. V. Local Ownership Rules

A. Local TV Multiple Ownership Rule

81. The current 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 stations is not ranked among the four highestranked stations in the DMA, and (b) at least eight independently owned and operating commercial or non commercial fullpower broadcast television stations would remain in the DMA after the proposed combination (``top fourranked/eight voices test''). 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 as voices under the rule.

82. Having examined the competitive impact of other video programming outlets on television broadcast stations, the Commission concludes, in light of the myriad sources of competition to local television broadcast stations, that our current local TV ownership rule is not necessary in the public interest to promote competition. The Commission also concludes that media other than television broadcast stations contribute to viewpoint diversity in local markets. Because our current local TV ownership rule is premised on the notion that only local TV stations contribute to viewpoint diversity and does not account for the contributions of other media, the Commission concludes the current rule is not the best means to promote our diversity goal. Moreover, the Commission concludes that retaining our current rule does not promote, and may even hinder, program diversity and localism. However, the Commission finds that some limitations on local television ownership are necessary to promote competition. Accordingly, the Commission modifies our local TV ownership rule.

83. The Commission's modified local TV ownership rule will permit an entity to have an attributable interest in two television broadcast stations in markets with 17 or fewer television stations; and up to three stations in markets with 18 or more television stations. To further ensure that no single entity possesses excessive market power, however, the Commission will prohibit combinations which would result in a single entity acquiring more than one station that is ranked among the top four stations in the market based on audience share. As a result, no combinations will be permitted in markets with fewer than five television stations. Because the Commission has determined that Nielsen DMAs are the relevant geographic market, common ownership of stations in the same market will be subject to this standard without regard to whether the affected stations have overlapping contours, and the Commission eliminated the provision of its local TV ownership rule that permits samemarket combinations where there is no Grade B contour overla

FOR FURTHER INFORMATION CONTACT Mania Baghdadi, Deputy Division Chief, Industry Analysis Division, Media Bureau, 2024182133. For further information concerning the information collection requirements contained in this Report and Order, contact Les Smith, Federal Communications Commission, 2024180217, or via the Internet at
Leslie.Smith@fcc.gov.