Posted on November 15, 2009 by David Oxenford

Multiple Ownership Workshops Start to Identify Issues for Quadrennial Review - Shared Services Agreements and Local Origination To Be Focus of Public Interest Groups

What will be the issues that broadcasters need to be concerned about in next year's Media Ownership proceeding?  To get a clue, broadcasters should watch and listen to the second day of the FCC workshop on multiple ownership, featuring members of various public interest groups in Washington the week before last (watch it on the FCC website, here).  These workshops, as we wrote here, were held to start the process on the Commission's upcoming Quadrennial Review of the multiple ownership rules.   The representatives who testified on this panel discussed the issues that they thought should be reviewed, and facts that they thought should be collected, in order for the Commission to successfully complete the ownership review required by Congress.  As these Washington "insiders" are sure to be the ones filing comments in the proceeding and lobbying the Commission on the issues, the agenda of these organizations are likely to set the grounds for debate in the upcoming proceeding.  From watching this hearing, there are bound to be a number of contentious issues that will come up.

The panel was made up of representatives of five different Washington public interest groups - four that tend to favor more regulation and less consolidation.  The representative of the fifth organization, suggesting just the opposite - that in the new media world, little or no media ownership regulation is necessary.  While much of the discussion was process-oriented, there was discussion of specific issues that might come up in the review.  Both the process - which included extensive discussion of the need for detailed industry information for informed regulation to take place - and the substance could cause problems for broadcasters.  Substantive issues discussed included the need for more scrutiny of shared services agreements in the television world (as some saw these as a way of evading the FCC ownership regulations), and for ways to insure that there is more local programming as part of the process. One representative also mentioned the need to review noncommercial broadcasting as part of the ownership proceeding - which is usually restricted to a review of commercial operations.

The philosophical issue of whether or not regulation was necessary, and whether regulation can be accomplished in a manner that avoids constitutional issues, was a focus of much back and forth.  All panelists seem to concede that it was problematic for government to regulate content directly.  Several of the panelists suggested that the structural rules embodied in the multiple ownership restrictions were necessary to accomplish the ends that could not be directly mandated consistent with the First Amendment, like encouraging more local programming and more coverage of local issues.  Ken Ferree, the former head of the Media Bureau and now affiliated with the Progress and Freedom Foundation, asked some of the more regulatory-minded panelist how, if the purpose of this structural regulation was to accomplish goals that could not be directly mandated, could the indirect regulation be justified when done for a purpose that admittedly was prohibited.  That question did not seem to have a direct answer.

The Media Bureau representatives who were conducting the panel asked whether regulation should take into account the current economic conditions of broadcasting.  The more regulatory public interest members suggested that the current economic problems of broadcasters were not an intrinsic problem with the industry.  Instead, these representatives suggested that broadcasting, on a cash flow basis, was still a successful business, and that the current problems of broadcasters were due to their high debt loads.  Based on this belief, the representatives of several of the groups felt that, because broadcast owners had put themselves in the situation that they are in, the Commission should not concern themselves with their current economic plight when making regulatory decisions.  One panelist went so far as to say that, if broadcasters don't like the regulations that may be adopted, they don't have to operate under them - they can sell their stations or turn in their licenses.

While there is no doubt some truth to the contention that high debt burdens have caused some broadcasters current economic issues, it seems that these public interest representatives far understate the structural issues facing broadcasters.  We have written about the licenses for television stations which have been surrendered because there is no one who was willing to face the costs of the digital conversion, and of AM stations that simply can no longer make a go of their operations.  These are not imagined problems, or problems caused by debt burdens, but instead real economic issues that have caused stations to go dark and licenses to be surrendered due to changes in the media marketplace.

Several of the panelists suggested that the decisions made by the Commission be data driven - based on research and factual data.  However, many complained that sufficient data was no available to make the necessary determinations.  Suggestions on data accumulation included the Commission's rapid implementation of the Form 355 for television (which it has already been approved but not yet implemented) and for radio (where it was proposed as part of the localism proceeding).  There was other discussion about bringing back FCC Form 324, which required the reporting of annual financial information about the costs and revenues of broadcasters until the form was abolished in the early 1980s.  When asked about the paperwork burden of requiring this information, the suggestion was made that this was simply a cost of doing business in a regulated industry, and broadcasters needed to provide the information for the FCC to make good decisions.   Clearly, these individuals have never run a small market radio station, where such burdens can be crushing. 

These proposals don't reflect anything more than the views of the parties who were represented.  But, as referenced above, these are parties active in Washington and accustomed to dealing with the FCC.  They will be filing comments in the Quadrennial Review and lobbying the Commission on these matters.  And, from the fact that they were included on the panels, they have at least some attention of those within the FCC.  So broadcasters must note their concerns, and be prepared to respond to these issues when they are formally presented to the Commission. 
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Posted on December 8, 2008 by David Oxenford

As the FCC Transition Progresses, The Broadcast Industry Shows Economic Strains - Tribune and Equity Declare Bankruptcy and NBC Cuts Programming Costs By Putting Leno on at 10 PM, Five Days A Week

As the Obama administration fills its top level government posts, all eyes are now turning to the next levels of government appointments which, at some point, will include a new Chair of the FCC and potentially other new FCC Commissioners. We wrote about our hopes for an Obama administration at the FCC immediately after the election, and now other voices in Washington are weighing in. And, as one might expect, with so many different perspectives, the advice is far from consistent. As we wrote in our analysis, the appointment of the FCC Chair is crucial as it is the FCC Chair, far more than the President or the White House, who sets the tone for Communications policy. This is made clear by the extensive regulations either adopted or proposed for broadcasters by the current Republican FCC, seemingly at the direction of the current chairman, regulations that would not have been expected from a Republican administration.  In light of the economic challenges facing broadcasters, as evidenced by today's news that two television companies - Tribune and Equity - declared bankruptcy, and another, NBC, has announced a cut back in prime time programming, replacing it with a prime time, 5 day a week Jay Leno program. 

So what should the transition team look to accomplish at the FCC?  In one of the most perceptive articles that I’ve seen recently, Harry Jessell in TV Newsday has urged the new Commission to simply do nothing on broadcast regulation for the next year. The current state of the economy and its ramifications for the advertising that is the lifeblood of the broadcast industry simply leaves no room for broadcasters to have to bear new costs for new regulations.  Broadcasting and Cable magazine has echoed that sentiment last week.  Recently, not only have we seen the economy and the state of the broadcast industry been reflected by the actions announced by Tribune, Equity and NBC today, but we’ve seen numerous mainstream press articles about the economic peril in which the entire broadcast industry finds itself.  In one recent article, radio’s dramatic decline in revenues was highlighted, even as the industry's listenership remains high (as confirmed by BIA’s recent prediction that radio revenues will decline by 7% in the coming year, coming after declines this year – perhaps the first two year decline in revenues in radio history). I recently attended the Radio Ink Forecast 2009 conference in New York.   While the conference is off the record, I don’t think that I’d be betraying any confidences to state that there was much concern about the short term health of the radio industry. 

In a New York Times article last Monday, the focus was on TV, where the cost cutting caused by declining revenue has led to the termination of the contracts of many long-serving, high priced television anchors. With the digital transition upon us in just over two months, and the likely disruptions that will cause, along with the slowdown of the economy and the loss of revenue in a non-political, non-Olympic year, TV is in no better position than radio to weather the addition of new regulations. And there are potentially many regulatory issues that could hit television – from the already adopted but never implemented FCC Form 355 (see our summary here and our speculation as to the reasons for the implementation delays here), to potential new rules on violent programs and ads for unhealthy food and prescription drugs, to the potential adoption of rules prohibiting embedded advertising and product placement, the potential for mischief is great. For more, see my discussion of these concerns in my keynote at the Future of Television Conference held in New York last month, video of which is available here.

 

But citizens groups are also pushing their agendas for the new FCC.   Free Press, an advocacy group opposed to media consolidation, has published an ad calling for more citizen participation in the FCC’s agenda, and called for the appointment of FCC Commissioners who share these views. Other public interest groups have made similar comments.

 

Certainly citizens should have a voice in any decision of their government.  But the new FCC must remember that those in the industry are citizens too, and they are usually the best informed citizens as to the economics of their businesses. The transition team needs to take those voices into account, as well as the real struggles of the companies that operate the stations, and take a light touch to broadcast regulation that could further damage the already precarious health of this industry. 
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Posted on July 14, 2008 by David Oxenford

OMB Throws Out Leased Access Rules as Violation of Paperwork Reduction Act - Will TV Enhanced Disclosure Be Next?

Last week, the Office of Management and Budget determined that the FCC's new rules on Leased Access to cable channels (see our bulletin describing those rules) violated the Paperwork Reduction Act. This means that the new rules, which would have significantly lowered the cost for parties who wanted to lease cable channels to provide their own programming, will be sent back to the FCC for further consideration.  These rules are also on appeal to the Courts, which had stayed the effectiveness of the rules while the appeal is being considered, which is usually a good indication that the Court had issues with the rules as well.  The OMB action has the effect of returning the rules back to the FCC to be considered anew in light of the OMB findings.  Our firm has prepared a memo detailing the decision, here.  Given the OMB decision that these rules imposed too great a burden on cable systems, one wonders if this decision portends a similar result when the OMB reviews the FCC's rules on Enhanced Disclosure and an on-line public inspection file - rules that would impose a significant burden on television broadcasters (about which we wrote here).

The OMB decision on the leased access rules highlighted some of the perceived shortcomings of the FCC decision, including that the FCC had not shown that they had taken steps to minimize the burden on companies who would have to hire staff to comply with the new rules, and they had not provided reasons why reduced timeframes for responses to requests for leased access were necessary.  Looking at these standards, one would have to think that much of the same reasoning would apply to the FCC's Enhanced Disclosure requirements for TV stations as set out in the new Form 355.  The completion of the Form would clearly require the hiring of new staff.  We've also questioned whether the Commission has given any justification for the increased paperwork requirements, as the information itself has no regulatory purpose as the FCC has not adopted any quantitative standards for public interest programming.  With no purpose and increased costs, how could the OMB treat the enhanced disclosure requirements differently than it did the leased access requirements?

It's also interesting to note that both the leased access decision and the Form 355 were adopted at the Commission's November 2007 meeting.  Yet the Form 355 and the requirements for on-line public files still has not been considered by the OMB.  Perhaps the FCC recognizes its problems and intends to address the issues on reconsideration, in an attempt to minimize the burdens.  If not, watch for the OMB review, and see if indeed this decision portends good news for broadcasters when the the Form 355 is considered under the provisions of the Paperwork Reduction Act.
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Posted on April 17, 2008 by David Oxenford

FCC Form 355 - A Form Without a Reason?

The FCC Form 355 requiring "enhanced disclosure" by television stations was a frequent topic of discussion at this week's NAB Convention in Las Vegas.  That form will require that television broadcasters report significant, detailed information about their programming, providing very detailed reports of the percentage of programming that they devote to news, public affairs, election programming, local programming, PSAs, independently produced programs and various other program categories, as well as specifics of each program that fits into these categories (see our detailed description of the requirements here).  Obviously, all broadcasters were concerned about how they would deal with the expense and time necessary to complete the forms, and the potential for complaints about the programming that such reports will generate.  At legal sessions by the American Bar Association Forum on Communications Law and the Federal Communications Bar Association, held in connection with the NAB Convention, it became very clear to me that the obligations imposed by these new rules are obligations adopted for absolutely no reason, as the Commission has not adopted any rules mandating specific amounts of the types of programming reported on the form.  In fact, one of the Commissioner's legal assistants confirmed that, unless and until the FCC adopts such specific programming requirements, the Commission's staff will not need to spend any time processing these forms.  Thus, if the form goes into effect, broadcasters will be forced to keep these records, and expend significant amounts of staff time and station resources necessary to complete the forms, for essentially no purpose.

Of course, public interest advocates will argue that the forms will allow the Commission to assess the station's operation in the public interest, and will allow the public to complain about failures of stations to serve local needs.  But, as in a recent license renewal case we wrote about here, the Commission rejected a Petition to Deny against a station based on its alleged failure to do much local public affairs programming as, without specific quantitative program requirements, the Commission cannot punish a station for not doing specific amounts of particular programming. If the Commission adheres to this precedent, it will not be able to fine stations for the information that they put on the Form 355, but only for not filing it or not completing it accurately.  Thus, unless the Commission adopts specific programming requirements, the form will be nothing more than a paperwork trap for the unwary or overburdened broadcaster.  And, as is usually the case with such obligations, the burden will fall hardest on the small broadcaster who does not the staff and resources to devote to otherwise unnecessary paperwork.

We are certainly not advocating the adoption of such programming requirements.  In fact, we believe that such standards would be constitutionally suspect and would end up forcing all stations into cookie-cutter images of each other - at a time when the plethora of media choices now available demands that each station adopt a targeted identity catering to the needs of a unique and specific audience.  And in tailoring its service to specific audiences, a station cannot be constrained by specific program percentages, as each audience may have the same needs - some will not sit still for traditional news and public affairs programming, while others will demand it.  Forcing all stations to provide the same program choices simply leaves some audiences unserved.  While this may be most evident in radio, television will adapt too as there are more and more outlets for video programming.   TV will have to seek out the niches at which it will direct its programming.  Mandating a specific percentage of news, public affairs, election coverage, religious programming or anything else simply will not serve the public's interest in receiving wide and diverse programming choices.  For the individual consumer, having the programming that he or she wants when they want it is more important than insuring that some percentage of that station's programming is made up of local news.

As one broadcaster observed to me, these rules may have made some sense when broadcasters were all mass market stations, providing "full service" programming to their communities.  That was a time when there were few media outlets in each market, and to maximize audience, each station had to try to serve all elements of the community.  Now, as broadcast stations compete against programming coming from cable, satellite, Internet, mobile and other platforms, there really are few if any full-service stations, particularly in large broadcast markets.  Even broadcasters themselves, as they adapt to the multicast opportunities that are presented by digital transmission, will provide more competition in a marketplace, and hasten the need for focusing on the superserving the needs of particular audiences.

For now, the NAB is challenging in Court the implementation of the Form 355.  How the Commission will justify its retreat from the deregulation of the 1980s when it admits that this form currently serves no regulatory purpose is hard to imagine.  In the interim, comments on the potential for the adoption of specific quantitative programming obligations, as part of the Localism proceeding (see our summary here), are due on April 28.  Broadcasters should file comments to make sure that the Commission understands the current competitive marketplace, and how their programming will be constrained if they were all forced to adhere to the same arbitrarily set programming obligations for various categories of various types of programming.  It is a crucial proceeding that could determine the future of the broadcast industry - be sure to participate.
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