FCC Ordered to Rewrite Rules Easing TV Station Ownership

In a major setback to broadcasters and their government regulators, a U.S. appeals court Thursday largely barred the Federal Communications Commission’s bid to relax media ownership rules.

The 3rd U.S. Circuit Court of Appeals in Philadelphia blocked implementation of FCC regulations that would have allowed companies to own more radio and television stations in the same market, and directed the agency to rewrite the rules.

“The commission falls short of its obligation to justify its decisions to retain, repeal or modify its media ownership regulations with reasoned analysis,” the court said in a 218-page opinion approved on a 2-1 vote.

The decision was a victory for an unusual alliance of public interest groups -- including the National Organization for Women and the National Rifle Assn. -- whose supporters flooded the FCC with more than 2 million letters, e-mails and faxes criticizing the regulations.

The opponents of the rules claimed that the changes in ownership limits would lead to further media consolidation -- and a loss of distinct voices.

The decision also was a defeat for FCC Chairman Michael K. Powell, who had championed the rules governing the ownership of newspapers, radio and television stations only to see them come under relentless attack from Congress. Just this week, the Senate took steps to unravel the ownership rules, passing a measure to block them for one year.

The FCC and the Bush administration must now decide whether to appeal the decision to the Supreme Court and risk further public ire or undertake a lengthy rewriting of the rules that could drag well past the November elections, risking the possibility that the process could be commandeered by a new administration.

Powell called the court’s action “deeply troubling” and said it would throw the media industry into chaos as newspapers and broadcasters seek to compete in an environment that now includes the Internet as well as cable and satellite television and radio.

“This has created a clouded and confused state of media law,” Powell said.

Industry executives and analysts warned that the development would have a chilling effect on media mergers, potentially affecting large companies such as Tribune Co. and Hearst Corp. along with smaller broadcasters such as Raycom Media Inc.

“The door is closed for another year or two for a lot of deals,” said Blair Levin, a telecommunications analyst for the investment firm Legg Mason Inc.

Some of the biggest media conglomerates, including Viacom Inc. and News Corp., are not likely to be greatly affected by the court ruling Thursday. They were more concerned about a measure passed by Congress this year that restricted a single broadcaster from reaching more than 39% of the nation’s viewers, down from the 45% that the FCC had allowed. The 39% cap was not affected by the court’s decision.

“We took our lumps months ago at the hand of Congress,” one Viacom executive said.

Media watchdogs were jubilant over Thursday’s court ruling.

Opponents had been slow to marshal their forces after the FCC formally proposed loosening the ownership rules last year, and they ultimately failed to halt the revisions. That won’t happen again, they vowed. They said the court’s ruling would now provide an opportunity to write rules that would thwart industry consolidation.

“This is a real vindication of the substantial concerns on the part of members of the general public that increased media concentration threatens the democracy,” said Andre Schwartzman, executive director of the Media Access Project, which was among the plaintiffs that filed a court challenge to the FCC rules. “The appeals court acknowledged the public’s concerns today.”

There was also praise on Capitol Hill.

Sen. Olympia J. Snowe (R-Maine) hailed the ruling, saying the FCC “did not have sufficient basis for rewriting those rules that prevent our media outlets from falling under the control of a few large corporations.”

Rep. John Dingell (D-Mich.), top Democrat on the House Energy and Commerce Committee, said in a statement, “The burden is now squarely on the FCC to do what it should have done in the first place -- put forth a set of judicially sustainable rules that will ensure a diversity of voices in the media marketplace and will protect our democracy from further unwarranted media consolidation.”

The FCC rules, adopted a year ago by the commission in a 3-2 vote along party lines, lifted a 1975 ban on owning both a newspaper and a television or radio station in the same market.

The new rules would have allowed a company to own two TV stations in more than 90% of local markets and up to three stations in the biggest markets, such as Los Angeles and New York.

The court’s decision effectively rolls back the station limits to 1975 levels, when a company could own a maximum of two stations if there were eight other independent TV stations in the area.

The court was somewhat less critical of two other media ownership rules. It validated the FCC’s authority to redefine local radio markets to allow greater ownership. The court also said the FCC had the power to lift a ban on newspaper-broadcast cross-ownership. Still, the court said the FCC would have to provide better justification for the radio and cross-ownership rules before implementing them.

The court criticized an FCC “market diversity” formula that provided the foundation for the cross-ownership and radio-market regulations. The formula was set up by the agency to gauge whether a media market had enough different news outlets to permit consolidation.

The court said the formula gave too much weight to Internet websites and small television stations and directed the FCC to come up with better analysis before implementing the rules.

Tribune Co., which owns a group of TV stations and newspapers, including KTLA and the Los Angeles Times, said it was pleased that the court had “recognized the right of the FCC” to lift the ban on newspaper and broadcast cross-ownership. But it said it was disappointed that the media ownership rules were further delayed.

“What our industry needs now is clarity, not further delay,” said Dennis FitzSimons, chief executive of Tribune. “Just establish the rules and let us compete.”

Opposition to the FCC’s media ownership rules was largely galvanized by FCC Commissioner Michael J. Copps, who had voted against the regulations.

The determined Democrat crisscrossed the country, often unaccompanied by colleagues or staff, and begged universities to give him facilities to hold town meetings to debate media ownership policy. Eventually, the issue became something of a cause celebre.

“The court has done what the commission should have done in the first place,” Copps said Thursday.

The FCC, media companies or parties to the case could ask the full appeals court to review the dispute or appeal to the U.S. Supreme Court. But legal experts say they face an uphill battle in seeking Supreme Court review.

Times staff writers Sallie Hofmeister and Richard Simon contributed to this report.