FCC Told to Fix Station Rule

A U.S. appeals court on Tuesday ordered federal regulators to justify a long-standing rule barring media companies from owning more than one TV station in about half of the nation’s television markets.

The court said the Federal Communications Commission’s TV ownership restriction is arbitrary because it does not include newspapers, cable TV systems and radio stations when measuring diversity, competition and the number of “voices” available to an audience.

The court ordered the agency to review its duopoly rule, which allows a company to own two stations in a small or mid-size market. The rule was adopted in 1964 when there were only 649 television stations in the U.S., compared with nearly 1,700 outlets today in 283 television markets.

“We hold that the definition of ‘voices’ in the local ownership rule is arbitrary and capricious,” the three-judge panel wrote.

FCC spokesman David Fiske said the agency was studying the court’s decision and had no comment.

Tuesday’s ruling marked the fourth time in 18 months that federal judges have overturned or set aside FCC regulations limiting media ownership.

And for more than a year, FCC Chairman Michael K. Powell has promised to overhaul its media ownership rules to take into account new technologies, including the Internet and cable TV, that have changed the media industry.

On Feb. 19, the U.S. Court of Appeals in Washington ordered the agency to revise a rule banning a company from owning TV stations that reach more than 35% of all U.S. television households. The appeals panel also overturned the FCC’s prohibition on owning a cable TV system and a broadcast station in the same market. Last year, a lower court also ruled that preventing cable companies from reaching more than 30% of the nation’s households is unconstitutional.

Acquisition-minded media giants such as News Corp. and Viacom Corp. have been pushing Washington to change ownership rules so they can expand their empires.

Consumer groups and some lawmakers, however, have risen up against the prospect of further media consolidation, arguing that this will put greater control over news, information and entertainment into the hands of just a few giants.

Tuesday’s ruling could be particularly beneficial to small broadcasters that have struggled to survive in a business dominated by major networks and a few large station groups. Operating two TV stations in one market is usually more profitable than owning one because the owner can consolidate sales, news and engineering staffs.

Several years ago, Congress relaxed ownership rules, allowing broadcasters to own two outlets in the nation’s largest markets. Since then, Fox network parent News Corp., and CBS parent Viacom have aggressively pursued duopoly station ownership. Today, News Corp. owns two TV stations in seven cities, and Viacom owns two stations in six cities.

The FCC rule lets a company own two stations in a single market when at least eight other independently owned stations are broadcasting.

As a result, there are an estimated 140 small and mid-size markets where TV duopolies are prohibited, including cities as large as Baltimore and Pittsburgh that do not pass the so-called eight-voice test.

Sinclair Broadcasting challenged the FCC’s duopoly rule as unconstitutional and arbitrary. The appeals court on Tuesday rejected the constitutional challenge, but the three-judge panel was troubled by how the FCC defined independent voices in a market.

Sinclair is trying to acquire stations in Sacramento and six other markets where it already owns a television station, said spokesman Mark Hyman.

“We have a lot of clients that want to acquire a second station” in a market, said Richard E. Wiley, a veteran Washington communications lawyer whose firm has represented media giant AOL Time Warner Inc., among others.

“This would allow some small-market stations to combine and compete more effectively,” said Tony Vinciquerra, president of Fox Television Network.

Small broadcasters have been hard hit by the changing economics of television in which many viewers have shifted to cable and their costs have doubled because of a shift to state-of-the-art digital technologies.

The major networks also have asked affiliate stations to chip in to finance expensive sports programming, and the networks have eliminated some fees for airing their schedules that for some small broadcasters have accounted for 80% of their revenues.

Some broadcasters predicted Tuesday that the FCC, led by free-market-leaning Powell, would follow the court’s hints to relax the duopoly rule by counting other media outlets besides TV in a market.

“They’ll change the rule substantially,” said Paxson Communications Corp. Chairman Lowell Paxson. “It will benefit the smaller broadcasters in the smaller markets.”

Experts say it could take up to a year for the FCC to revise its duopoly rule to satisfy the appeals court.

Although Sinclair Broadcasting said the FCC “plucked the number eight out of thin air,” the appeals panel did not take issue with the FCC’s limit but insisted that the agency justify the number or change it to a more supportable figure.

In a partial dissent, Circuit Judge David Sentelle said he concurred with the court’s criticism that the FCC failed to justify its duopoly rule, but he said he would have preferred to invalidate the entire regulation.