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In the Matter of AMENDMENT OF PART 74, SUBPART K, OF THE COMMISSION'S RULES AND REGULATIONS RELATIVE TO COMMUNITY ANTENNA TELEVISION SYSTEMS; AND INQUIRY INTO THE DEVELOPMENT OF COMMUNICATIONS TECHNOLOGY AND SERVICES TO FORMULATE REGULATORY POLICY AND RULEMAKING AND/OR LEGISLATIVE PROPOSALS

 

Docket No. 18397

 

FEDERAL COMMUNICATIONS COMMISSION

 

39 F.C.C.2d 377

 

RELEASE-NUMBER: FCC 73-80

 

January 31, 1973 Released

 

 Adopted January 17, 1973 

 


JUDGES:

BY THE COMMISSION: COMMISSIONERS ROBERT E. LEE, JOHNSON AND HOOKS DISSENTING AND ISSUING STATEMENTS; COMMISSIONERS REID AND WILEY CONCURRING AND ISSUING STATEMENTS.


OPINION:

 [*377]  1.  On June 24, 1970, we adopted the Second Report and Order in Docket No. 18397, 23 FCC 2d 816, in which we adopted Section 74.1131 -- now Section 76.501 -- of our cable television rules.  Petitions for reconsideration and other pleadings have been filed, and we now address the objections.

2.  Petitions and informal requests for reconsideration of the Second Report were received, during the regular filing period, from --

American Broadcasting Company ("ABC");

Central California Communications Corporation ("CCCC");

Carter Publications, Inc.;

Columbus Cablevision, Inc.;

Fetzer Broadcasting Company;

Gill Industries;

Gross Telecasting, Inc.;

Hazard Television Company, Inc.;

King Broadcasting Company;

Liberty Television, Inc.;

McClatchy Newspapers;

Midcontinent Broadcasting Company;

Monroe Cablevision, Inc.;

Morris, Lloyd P.;

National Association of Broadcasters ("NAB");

National Association of Educational Broadcasters ("NAEB");

National Broadcasting Company, Inc. ("NBC");

Newhouse Broadcasting Corporation;

Post Company;

 [*378]  Stauffer Publications, Inc., and Tribune Publishing Co., filing jointly ("Stauffer");

Susquehanna Broadcasting Corporation;

Triangle Broadcasting Corporation; and

Vincennes University.

Subsequently, late-tendered pleadings were received from Connecticut Television, Inc. ("CTI"), and Broadcast-Plaza, Inc. ("BPI"), and supplementary pleadings were tendered by Columbus, Fetzer, Liberty, NAB, NAEB, Newhouse, and Stauffer.  All of these are accepted for filing, and, in addition we have considered, in this context, a related rule making petition by Roanoke Telecasting Corporation.

SUMMARY OF PLEADINGS

3.  The respondents variously request that the Commission: (1) rescind Section 76.501 entirely, or with particular respect to television networks or stations (all stations, or UHF or educational stations), either permanently or pending further study; n1 (2) postpone the effective date of the rule; (3) rescind or modify the divestiture requirements, or lengthen the three-year divestiture period, or articulate standards for case-by-case waiver of the rule; or (4) with respect to station-system cross-relationships, substitute some other measure (geographic, economic, audience size, et al.) of co-location for the present predicted-Grade-B-contour standard; or (5) expressly preempt the subject of cross-ownership, to prevent States and local governments from adopting standards more stringent than those adopted by the Commission. 

n1 Or let UHF stations hold noncontrolling interests in co-located cable systems.

4.  Full rescission of Section 76.501 is urged by CCCC, Columbus, Fetzer, Gill, Monroe, NAB, and Newhouse.  Monroe and Newhouse contend that, as a matter of law (Section 4 of the Administrative Procedure Act, 5 USC 553(c)) and policy, the record on which the Commission relied in adopting Section 76.501 was inadequate, in that the rule is justified in the Second Report primarily on the basis of theories and speculations unsupported by facts, and that the facts cited in that document are irrelevant.  Specifically, Newhouse contends that the statement therein that 46% of the cable systems started in 1966 were "owned by radio or television stations" is irrelevant because it (i) doesn't indicate what percentage was owned by television stations, and (ii) indicates no trend toward domination of cable by broadcasters when considered together with the fact that, as of the date of issuance of the Second Report, fewer than 400,000 cable subscribers were served by systems within the Grade B contours of co-owned television stations.  Moreover, Newhouse argues, the Commission, having made no determination as to what constitutes adequate communications media competition, cannot properly evaluate the need for remedial, or even preventative, action.

5.  NAB cites the "Seiden Report" ("Mass Communications in the United States," filed in Docket No. 18110 in January 1972, six months after adoption of the Second Report herein) as proof that "there is a very large diversity of media available to the public, in virtually  [*379]  every market regardless of size," to such extent that (apart from unique situations which could be dealt with on an ad hoc basis) "colocated cable television cross-ownership could not and would not significantly affect it." Newhouse and Fetzer cite data regarding some specific cable localities as evidence that adequate media competition exists.

6.  Newhouse contends that, if broadcasters are excluded from cable system operation, other large corporation will move in without the broadcasters' record of public service, and it suggests that certain multiple-system operators favor Section 76.501 because it "[enables] them to increase their share of the CATV market by eliminating a strong source of competition for local markets." In response to the argument that cable-broadcast cross-ownerships of the sorts dealt with in Section 76.501 would encourage subordination of local-interest cablecasting to more profitable broadcast operations, Newhouse cites the voluntary importation of non-Newhouse TV broadcast signals by a New-house system within the Grade B contour of a co-owned television station.

7.  Cross-ownership doesn't conflict with the Commission's "many voices" objective, Newhouse contends, since: (1) a cable system brings so many additional "voices" to the television set that any offsetting effects of local-cross ownership become insignificant; (2) a cable system conducting origination cablecasting will presumably focus on very local news and public service programming, something a TV broadcaster cannot do, and so station and system programming will not reinforce each other but rather concentrate on different subjects; and (3) cable systems can be (and, Gill notes, under the 1972 cable rules, in many cases are) required to provide access channels for programming not under the system operator's control.  Newhouse, Columbus, and NAB assert that the Commission's primary basis for adoption of Section 76.501 was the expectation that cable systems would originate cablecast programming to a significant extent in compliance with the program-origination rule (now Section 76.201(a)), and claim that that basis has been invalidated by the Commission's stay-of-implementation of the program-origination requirement.  n2

n2 The stay was ordered by the Commission after the U.S. Court of Appeals, Eighth Circuit, declared the program-origination requirement null and void.  Midwest Video Corp. v. U.S., 441 F. 2d 1322 (1971). Subsequently, the Supreme Court reversed that Eighth Circuit decision (406 U.S. 649 (1972)), but the Commission has not yet acted to terminate the stay.

8.  The Commission's contention, in footnote 2 of the Second Report, that "Diversification rules would be desirable even if CATV operations were limited to carriage of broadcast signals and common carrier activities, in view of the limited number of broadcast and newspaper media in all communities, and the potential importance of cable facilities in providing many communications services," is disputed by Newhouse and Columbus on the ground that it "represents an arbitrary assumption of antitrust jurisdiction using patently wrong antitrust theories," since (1) cable and broadcasting are different industries in separate markets, and (2) there is an ample supply of media voices.  Moreover, Newhouse argues, the future shape of cable television cannot be foreseen with certainty, and regulatory policies should not be based upon speculative prediction.

 [*380]  9.  NAB contends that, as a result of our adoption of the Cable Television Report and Order in Docket No. 18397 (37 Fed. Reg. 3251, February 12, 1972), enough is now known about the future shape of cable to warrant rescission of Section 76.501.  Specifically, NAB says, under the new rules: (1) the TV broadcast signal carriage by cable systems is now predetermined more than ever by detailed rules, and hence the cable operator is, for the most part, unable to favor a co-owned local television station (or disadvantage a competing local TV station) by his distant-signal-carriage choices; and (2) the emphasis is now on access rather than origination cablecasting (with the cable operator rewired in the top 100 markets to provide at least three access channels beyond his programming control).

10.  Newhouse contends that the provisions of Section 76.501 lie beyond the Commission's statutory authority.  It argues that nothing in the Communications Act prohibits a broadcast licensee from engaging in any proper type of business; cites a judicial decision for the proposition that the Commission lacks statutory authority to adopt a rule barring newspaper publishers from broadcast station ownership; and from that infers that the Section 76.501 ban on television cable cross-ownership also exceeds the Commission's statutory authority.  Newhouse further argues that the Commission's power to regulate cable is limited to that reasonably ancillary to regulation of broadcasting, and questions whether cable system ownership may be included under that rubric.

11.  Rescission of Section 76.501(a)(1), regarding cross ownership et al. of cable systems with national television networks, is urged by two of the three national TV broadcast networks, ABC and NBC.  In support of this request, they argue that: (1) Absent evidence of illegality or wrongdoing, adoption of the network cross-ownership ban is unfair to the networks and contrary to legal tradition in that (i) without good cause it bars an industry from experimenting with or adopting a new technology in developments related to its normal function of program distribution, and (ii) it is unheard of in American law (under such circumstances) to impose per se disqualifications from future business interests and require divestiture of a business lawfully acquired or engaged in (NBC).  (2) The Commission's Notice... in Docket No. 18397 did not inform parties that the question of network ownership of cable systems would be decided, and thus the rule making "notice" requirements in the Administrative Procedure Act have not been met; although some respondents to the notice commented on the network question, only the month (April 3-May 12, 1969) was allowed for reply comment; and the question of TV broadcast network cross-ownership with cable systems is a major one which warrants full investigation and full opportunity for comment (ABC).

(3) The Commission's fear that television network ownership of cable systems might inhibit cable development is contradicted by the fact that the television industry itself was developed to a large degree by radio broadcast licensees and networks, and newspaper and theatre owners (ABC, NBC).  And (4) the prohibition against network ownership of cable systems is premature, and could hamper cable growth, since (i) only a few cable subscribers are served by network-owned systems (ABC, NBC); (ii) cable television is at too early a stage of  [*381]  development, and its expansion and innovation needs and risks are too great for the Commission to deny ownership to those whose natural interest and communications innovation history may be the greatest; (iii) exclusion of TV network investment in cable systems will be without any justification if cable systems become essentially common carriers as a result of the Commission's rule making decisions designed to promote program diversity; and (iv) there is no problem of over-concentration of network ownership in cable television now, and there will be time enough to deal with the problem, if it is one, when the Commission knows what the role of cable is to be (ABC).

12.  Rescission of Section 76.501(a)(2), regarding cross ownership et al. of cable systems with co-located television broadcast stations, is urged specifically by BPI, Carter, Columbus, CTI, Gill, McClatchy, and Midcontinent; and implicitly by Fetzer, Hazard, Liberty, and Monroe.  Monroe objects to the local station-system cross-ownership ban on the ground that it prevents station licensees, who receive no compensation from cable systems for television broadcast carriage, from at least getting indirect compensation via ownership of cable systems in their own areas.  Monroe further contends that the station system cross-ownership ban reverses the Commission position expressed in Docket No. 15415; that the Commission's rationale for that reversal (i.e., that its previous view had not taken local cable casting and other potential non-broadcast communications services by cable systems) since, during the pendency of Docket No. 15415, the Commission could not have been unaware of these potentialities; and that the Commission's attempt, via Section 76.501(a)(2), to foster competition between cable systems and co-located TV stations, is inconsistent with its claim of jurisdiction over cable on the ground that cable regulation is necessary to protect TV stations from cable system competition.

13.  CTI contends that the station-system cross-ownership ban is insufficiently supported in the record because it is based not on allegations or evidence of any existing pattern of abuse, but rather on unjustified fear of potential anti-competitive abuse and unwarranted expectations that cable would play a pivotal role as an opinion molder; Liberty notes that the Second Report contains no findings regarding the degree of local cross-ownership in the United States; and Gill notes that no showing was made of any abuses in system operators' control of origination cablecast channels.  McClatchy states that, as of January 1, 1970, fewer than 150 operating cable systems, serving 380,000 subscribers (6% of the number of systems, and 8.4% of the number of subscribers, at that time) were owned by parties with an interest in a co-located system, and that these 380,000 subscribers constituted only 0.6% of the then 62,213,900 TV homes in the United States; and concludes, in the light of these figures, that the alleged problem is deminimis.  CTI contends that the station-system local-cross-ownership ban reflects a mere mechanical transference of existing broadcast principles to the emerging cable industry, as evidenced, it says, by the across-the-board application of the ban to UHF and VHF stations, commercial and noncommercial stations, and majority and minority interests, all without regard to the number and kinds of communications media serving a particular area.  Such  [*382]  "mechanical transference" is inappropriate, CTI says, because of the "fundamental technical and competitive distinctions between broadcasting and cable communications."

14.  Such alleged "mechanical transference" is particularly inappropriate, CTI argues, in the light of developments subsequent to the issuance of the Second Report.  In particular, CTI contends, it is becoming increasingly unlikely that cable operations will play a significant role in the influencing of opinion.  Rather, it asserts, there is a growing probability that cable operators will have little control over their systems' non-broadcast programming, and that even major systems may not be required to originate cablecast programming at all.  This last point raises an important threshold question, CTI says, in that the Commission's adoption of Section 76.501 was strongly influenced by the expectation that most major cable systems would be under a regulatory obligation to act as significant programming media.  Monroe asserts that, in any event, cable operators have no interest in opinion influencing, and that their cable origination would affect public opinion mainly by providing access to multiple voices in the community.  Gill comments that a cable system's ability to influence its subscribers' opinions is restricted by, inter alia, the existence of competing media, the limited amount of cable origination (as a result of cost considerations), and the application of "political broadcast" and "fairness doctrine" rules to origination cablecasting.  BPI urges the Commission to permit TV broadcasters to take part in the development of co-located systems, both because doing so would be consistent with the Commission's desire to foster cable growth in the nation's largest market areas and because it would benefit viewers for television broadcasters who know their own areas' needs and interests, and who know how to do programming, to have a role in local cable development.

15.  Exemption of UHF television stations from the scope of Section 76.501(a)(2) is favored by CTI and Roanoke n3 and apposed by BPI.  In support of an exemption for UHF stations, CTI states that: (1) over the years, the Commission and Congress have adopted several measures to foster UHF in view of the technical and competitive disparities between UHF and VHF television, and the courts have regularly viewed such actions as valid exercises of Commission and Congressional discretion; (2) but UHF and VHF are still far from competitive equals and there is continuing a need to foster UHF development; and (3) exemption of UHF television stations from the purview of Section 76.501(a)(2) would materially foster the development of UHF television and would be fully consistent with regulatory policies previously adopted for that purpose.  (As alternatives, if necessary, to full exemption of UHF stations from the local-cross-ownership ban, CTI urges that Section 76.501(a)(2) be amended to permit a financially marginal UHF station to hold a minority interest in a co-located cable system, and to provide that UHF station-cable system cross-ownerships shall be dealt with on a case-by-case basis.) Roanoke urges the Commission to allow UHF stations to have ownership  [*383]  interests in co-located cable systems on the grounds that (4) a UHF station with an ownership interest in a co-located cable system can supply it with program origination facilities and expertise, and, (5) if the cable system is successful, it can bring added revenues to a financially straitened UHF station which has an interest in it. 

n3 Also, in July 1972, the All-Channel Television Society filed a rule making petition requesting amendment of Section 76.501 to permit a UHF station to hold an ownership interest in a co-located cable system.

16.  BPI, on the other hand, contends that a special exemption for UHF stations would be unsound because: (1) It would confer an undue competitive advantage upon certain UHF stations (e.g., profitable network-affiliated stations in such top-50 markets as Hartford-New Haven, which is served by only two VHF stations).  (2) Even in the case of marginal UHF stations, it is not clear that cable system local cross-ownership would improve the UHF station's financial condition or public service compatibility; indeed it is equally likely that the cable system adjunct would be a drain on the UHF station's resources.  (3) An exemption predicated on the plight of struggling UHF stations would in no way further the Commission's cable television objectives, and should therefore not be allowed.  BPI argues that: (i) The case for relaxing the cross-ownership ban rests largely on the contribution that broadcasters can make to the development of cable in their service areas.  (ii) Judged in that light, a rule which would permit the class of TV stations with the least to contribute to enter cable business locally, but which would preclude entry by those TV licensees with the most to contribute, is hardly calculated to maximize the benefits of cable service to the public.  (iii) To the extent that UHF stations are in a position to provide such assistance to cable television in an ownership capacity, they stand on no different footing than profitable VHF stations, and there is no reason why such UHF stations should be accorded preferential treatment.

17.  Exemption of educational television stations from the scope of Section 76.501(a)(2) is urged by NAEB, Vincennes University, n4 and an individual educator, Mr. Lloyd P. Morris, of Elmwood Park, Illinois.  Their arguments are analogous in many respects to those contained in comments on the subject filed in response to the Notice of Proposed Rule Making and of Inquiry in Docket No. 18891, (35 F.R. 11042, July 9, 1970) pursuant to footnote 1 of the document.  NAEB asserts, first, that the original Notice... in Docket No. 18397 did not discuss the need for or desirability of a prohibition against educational television station-cable system local cross-ownerships, and that the Second Report sets forth no reasons for such a prohibition.  However, NAEB continues, it is clear that the thrust of the Commission's comments and attention, with respect to TV station-cable system, concerned commercial stations.  Second, NAEB cites the Commission's acknowledgment (in footnote 1 of our Notice... in Docket No. 18891) that cross-ownership with a cable system may be financially beneficial to an ETV station.  These financial opportunities alone warrant deletion of the present ETV-cable local-cross-ownership ban, NAEB urges, because "most of the difficulties confronting educational television stations are directly traceable to the lack of adequate funding...." In response to the Commission's observation that other potential sources of funds are available to ETV stations, NAEB  [*384]  replies that the operation of a local cable system would (i) be directly available to a local ETV station, (ii) be based on its own industry and initiative, and (iii) avoid the "oftentimes tortuous delays involved in securing funds from more traditional sources." Third, NAEB argues, ETV stations, as owners of cable systems, would make good use of cable's potentialities for educational and public service programming, in that: (i) they would make full use of the cable's broadband and two-way capabilities; (ii) they could coordinate the programming activities of the ETV station and the cable system so that (a) imported signals would not have an adverse effect on the ETV station's offerings, and (b) distant ETV signals could supplement local ETV station offerings but harmful duplication would be avoided; and (iii) ETV stations have good knowledge of local tastes, needs, and desires by virtue of their deep and broad-ranged roots in the community.  Fourth, Vincennes notes that the Commission used a "multiple voices" argument in support of its adoption of both Section 76.501(a)(2) and recent amendments to the broadcast multiple-ownership rules (in the First Report and Order in Docket No. 18110, 22 FCC 2d 306, released April 6, 1970), but that it specifically excluded ETV stations from the applicability of the Docket No. 18110 amendments.  (Also, some of the comments filed in Docket No. 18891 argue that the "multiple voices" argument does not properly apply to ETV stations because, in the typical case, ETV station governing boards memberships have been deliberately chosen to represent a broad range of community interests.)

n4 Licensee of ETV Station WVUT, Vincennes, Indiana, and operator of cable systems at Vincennes and Washington, Indiana, and Bridgeport and Lawrenceville, Illinois.

18.  A stay of implementation of Section 76.501 is urged by Gill, Hazard, NAB, and Triangle.  Gill, Hazard, and Triangle contend that it is unfair to single out TV broadcast-cable cross-ownership for early disposition because the Commission cannot logically isolate the questions pertaining to such cross-ownerships from the questions pertaining to cross-ownerships of cable systems with other mass-communications-media entities.  The NAB urged deferral of the effective date of Section 76.501 until the true nature of cable is clarified and until pertinent questions raised in the Commission's broadcast-multiple-ownership docket (No. 18110) are clarified.

19.  Rescission or modification of the divestiture requirement: Most of the petitioners urge (1) rescission of the divestiture requirement of Section 76.501, either (i) totally, or insofar as that requirement applies to (ii) networks of (iii) television stations; (2) extension of the present three-year divestiture grace period; or (3) enunciation of appropriate standards for (i) general exceptions to, or (ii) case-by-case waivers of, the divestiture requirement.

20.  Rescission: NAB, urging total rescission of the divestiture requirement, cites a series of Commission actions which, in NAB's view, encouraged a number of broadcasters to enter the cable television field in the mistaken belief that subsequent divestiture would not be required.  In the light of that history, NAB believes, the imposition of a divestiture requirement constitutes "a lack of elemental fairness." NBC criticizes the divestiture requirement, insofar as it applies to the networks, as unfair, invalid, and contrary to the public interest in view of an absence of findings of wrongdoing, illegality, or monopoly,  [*385]  and failure to consider the networks' contributions to cable television during cable's experimental period.

21.  Re co-located television stations: Several of the petitioners (CCCC, Carter, Columbus, CTI, Fetzer, Gill, Liberty, McClatchy, Midcontinent, Newhouse, NAB, Post, and Stauffer) urge rescission of the divestiture requirement insofar as it applies to co-located television broadcast stations.  In support of such rescission it is argued that (i) procedural requirements have been violated; (ii) Commission precedent has been ignored; (iii) the divestiture requirements is injurious to present owners; (iv) the record is insufficient to justify the requirement; (v) mandatory divestiture is an extreme and unlawfully harsh remedy; (vi) it is discriminatorily ill-timed; and (vii) this timing forces cable operators to make "gambling" decisions regarding divestitures.

22.  The procedural requirements of Section 316(a) of the Communications Act were violated in the adoption of the mandatory-divestiture requirement, according to Columbus, McClatchy, Midcontinent, and Newhouse.  They argue that: (1) The Commission asserts, in paragraphs 17 and 18 of the Second Report, that, in banning certain crossownerships with cable systems, it is exercising a licensing function with respect to cable; but (2) Section 316(a) prohibits modification of "Any station license... by the Commission... until the holder of the license... [has] been given reasonable opportunity to show cause why such order of modification should not issue, and Section 316(b) provides that the burdens of proof and of proceeding with the introduction of evidence are on the Commission; and yet (3) cable operators with interests in co-located television stations have been afforded an opportunity for a public hearing.  Although (4) it is conceded that the Commission through rule making change the operating requirements of existing licensees ( California Citizens Ass'n v. U.S., 375 F 2d 43 (9th Cir. 1967), (5) that does not mean that the Commission may use the rule making to negate the provisions of Section 316(a) ( id., p. 51), e.g., by the adoption of a rule which is (as in the case of the mandatory-divestiture provisions of Section 76.501) individual in impact and condemnatory in purpose.  (6) The divestiture provision modifies the existing license of certain television stations by conditioning the continuance of that license upon their divestiture of co-located cross-owned cable systems.  (7) The individual impact character of this is heightended by the fact that only 400,000 homes, fewer than 0.07 percent of all TV homes, are served by cable systems within the predicted Grade B contours of co-owned TV stations.

23.  The divestiture requirement is contrary to Commission precedent, argued Columbus, Fetzer, McClatchy, Newhouse, and Stauffer; and (Fetzer adds) it is particularly harsh treatment of broadcasters who had been led to expect otherwise, acted in reasonable reliance thereon, and are now threatened as a result with great financial loss.

24.  NAB urges the Commission to "grandfather" local cross-ownerships in being prior to the adoption of Section 76.501 on the ground that the economic losses and uncertainties resulting from the divestiture requirement are of a far higher magnitude than damage caused by a prospective application of the rule.  Several of the petitioners  [*386]  (CCCC, Carter, Columbus, Gill, Newhouse, and Post) cite the impact of the divestiture requirement on their own business operations as examples of the injury broadcasters with local cable interests.  They refer to the long lead-time between capital investment and fully profitable operation, and the unlikelihood of recovering their investments in disposing of cable systems which have not matured to the point of fully demonstrating their potential profitability.  The express little confidence in the Commission's hope that broadcasters will be able to negotiate exchanges of cable systems with broadcasters in other areas.

25.  Petitioners contending that the evidence in the record is insufficient to warrant mandatory divestiture of cross-relationships between co-located cable systems and television systems state essentially the following: (1) The record includes no evidence of abuses of existing such cross-ownerships; nor is there any evidence of anticompetitive effects of existing cross-ownership situations, or of a reduction in the number of opinion-influencing voices available to people in communities served by cable systems within the Grade A of B contour of a jointly owned television station.  Moreover, cable systems will have "access" channels over which diverse opinions may be expressed without the control of the cable operator (Columbus, McClatchy, Midcontinent, Newhouse).  (2) The Commission adopted the cross-ownership ban on the basis of its "expertise" and in the light of its new requirement of program origination (id.).  However, "expertise" is not an adequate basis for requiring divestiture of investments made in reliance upon previous (Commission policies (Midcontinent), and the Commission's hope that it may foster program origination by means of the divestiture requirement is purely speculative since (i) most cable systems (whether station-owned or not) do not engage in program origination, and (ii) the program-origination rule provides no standard as to the types and amount of origination required (Fetzer).  (3) The lack of record evidence supporting divestiture is all the more glaring when compared with the Commission's approach in adopting rules restricting broadcast-ownership combinations: (i) The broadcast duopoly policy gradually developed case by case.  (ii) The chain-broadcast rules were adopted following a six-year process, including extensive hearings before a five-member special committee (Columbus, McClatchy, Midcontinent, Newhouse).  (iii) In the present proceeding, the Commission did not give affected parties a reasonable opportunity to supply data, unlike broadcast Docket No. 18110, in which the Commission gave parties six months additional time for filing of comments (Stauffer).  (4) The Commission made no effort to demonstrate that the alleged problem is not de minimis.  It fails to ascertain and show (i) the extent of broadcast-cable cross-ownership, and (ii) the impact of the Second Report within Grade B contours of cross-owned stations (it has given no indication whether the new cross-ownership prohibition will affect 10% or 90% of the cable systems and/or subscribers in the United States.  In contrast, in Docket No. 18110, the Commission published an exhaustive abstract, "Newspaper-Broadcast Joint Interests as of November 1, 1969". (Id.) (5) In fact, the available data (see paragraph 13 supra) indicates that the "problem" is, at most, de minimis (id.).

 [*387]  26.  But, even assuming the existence of a problem, several petitioners argue, mandatory divestiture is a harsh remedy which is unwarranted where, as here, lesser remedies would do.  In Timken Roller Bearing Co., v. U.S., 341 US 593, 603 (1951), they note, the U.S. Supreme Court ruled that "divestiture... is not to be used... without regard to the type of violation or whether other effective remedies, less harsh, are available".  How, they ask, can the Commission impose mandatory divestiture upon cable operators who are innocent of misconduct in light of the Supreme Court's indication in Timken that it would not require divestiture in most cases in which actual wrongdoing was shown?  They suggest, as less drastic measures sufficient to serve the Commission's purposes: (1) application of the broadcast "fairness doctrine" and "political election" rules to cablecasting; (2) mandatory operation of a "common-carrier" cablecast channel; and (3) reliance upon prospective application of the cross ownership ban, since future sales of stations and systems would gradually eliminate "grandfathered" cross-ownerships.  (CCCC, Columbus, Fetzer, McClatchy, Midcontinent, Newhouse, and Stauffer.)

27.  Finally, petitioners contend that the divestiture requirement is discriminatorily ill-timed in that (i) the Commission "prematurely" ordered a break-up of the "most insignificant" of the media combinations, cable-broadcast, just after postponing action on other cross ownership proposals in Docket No. 18110 to permit further study (McClatchy and Midcontinent); and (ii) it is inconsistent and unfair to require the licensee of a TV station in a community to dispose of his interest in a cable system there while permitting the owner of a newspaper and AM and FM stations in that community to acquire a cable system there (Gill).  Gill also argues that this non-simultaneity of Commission action on the various cable cross-ownership questions unreasonably complies an entrepreneur with cable, TV, and AM and FM radio interests in the same area to gamble in deciding whether to divest himself of his TV station or the cable system -- in that subsequent Commission rule making decisions may force him to divest himself of more of these interests than he would have had to if he could have anticipated those later decisions.

28.  Modification of the divestiture requirement: CCCC notes that the Commission has mentioned the possibility of divestiture-requirement waivers, but has not generally articulated its criteria for grant os such waivers; and it urges the Commission to reduce the time and expense involved in the waiver process by public announcement of specified waiver criteria.  Gill urges a stay of the divestiture requirement in view of the little time remaining of the originally specified three-year divestiture period, and the Commission's inaction to date on petitions for reconsideration.  Without such a stay.  Gill argues, "a cross-owner must soon determine which of his properties he will divest, and diligently seek a buyer, notwithstanding his lack of firm knowledge as to whether divestiture will be required after the Commission's reconsideration".  If a specified divestiture period is deemed necessary, Gill says, it should be of five years duration beginning when the Commission has resolved all of the communications media cross-ownership questions -- five years duration to avoid needless injury to present owners and to be consistent with Commission decisions in other, comparable  [*388]  situations, and the delayed starting time for reasons indicated in paragraph 27 supra.  In addition, Gill urges that a cable operator be allowed to complete development of his cable facility pursuant to his pre-July 1970 plan even if that involves franchises acquired after July 1, 1970, because failure to do so will prevent numerous communities islanded within a cable facility's general service area from obtaining cable service for some time and will needlessly depress the resale value of the cable system, and because, "So long as it is understood that expanded portions of the system are to be divested along with the rest, there is no reason why the operator should not be permitted to... construct and operate newly franchised segments of his system until such time as the whole system is sold."

29.  Cross-interest: The Commission is requested by CTI, n5 King, and Post to permit television station licensees to have a minority interest in co-located cable systems, on the grounds that prohibition of such cross-relationships is unprecedented and unnecessary to achieve the Commission's purposes (Post, King), that it denies a source of revenue that financially marginal stations may need in order to continue their broadcast service (CTI), and that it deprives cable systems of investment funds from television licensees who may wish to assist a cable capable of increasing their station's audience.  If the Commission aim is arm's-length competition, King asks, would it not suffice to limit the "any interest" ban to the primary area and omit the secondary area? 

 

n5 With particular reference to financially marginal UHF stations.

30.  Replacement or modification of the "predicted Grade B contour" measure of co-location is urged by BPI, Carter, CTI, King, Liberty, McClatchy, and Midcontinent.  In King's view, the Grade B contour marks off a forbidden area which is much too large, and thus may deprive "outlying communities" within that contour of needed cable service even though in such places the cable system and the central-city TV station are not rival outlets.  n6 King recommends the substitution of either a smaller, fixed-mileage area (e.g., the 35-mile zone recommended by McClatchy and Midcontinent) or, where pertinent, the U.S. Census Bureau-determined Standard Metropolitan Statistical Area ("SMSA") in which the station operates.  King argues that a cable system within a small outlying community is not a local rival to a central-city station because the station cannot be a "local outlet" there whereas the system will find it advantageous to focus, in its cablecasting, on the needs and interests of its own community.  Moreover, King notes, that, in communities more than 35 miles from the center of the station's market, distant-signal importation (a form of competition far more formidable than cablecasting) would not seriously affect even marginal UHF and small-market stations.  Midcontinent contends that outlying communities within a cross-owned station's Grade B contour are unlikely to be particularly influenced by that station's current affairs programming because such communities (i) typically receive many "overlapping stations," and (ii) in any  [*389]  event are small-townish in outlook, unlike the orientation of a big-city TV station. 

 

n6 King concedes that there may be outlying communities, in the station's secondary area, which are large enough to support cable systems truly competitive with a cross-owned central-city TV station, but suggests that special rules could be devised to deal with such situations.

31.  King further contends that advertising solicitation by cablecasters would not cause any problems for the central-city station, since local firms in TV stations' secondary zones can't afford TV broadcast advertising, although they can be a good advertising source for cablecasters.  Also, King argues, ownership of cable systems within its service areas does not give a TV station a competitive advantage over other TV stations in the same market since (1) systems are required by Commission rules to carry the signals of all same-market stations and to give them equal rights with respect to channel position, program non-duplication, etc.; and (2) the Commission's control over TV licensees who operate cable systems is more effective than its control over-non-broadcaster operators of cable systems.

32.  Midcontinent and McClatchy Challenge the Commission's assertion, in the Second Report, that use of the predicted Grade B contour as the co-location boundary line Contributes to administrative certainty, by citation of the Commission's statements, in paragraph 48 of the Notice... in Docket No. 18397, that (i) the predicted Grade B contour varies from station to station and may extend as far as 60 miles from the station's transmitter, and (ii) a fixed-mileage standard would be administratively convenient and would provide certainty to those affected since air-mile distance from a specified point could be readily calculated without reference to contour maps in the Commission's offices or the necessity of an evidentiary hearing to resolve disputes.

33.  King n7 contends that a standard resulting in a smaller co-location area than that marked off by the predicted Grade B contour would be consistent with recent Commission actions in other proceedings.  King notes that in the broadcast one-to-a-market proceedings, the Commission adopted as its area-demarcation standard not the Grade B but Grade A contour.  Moreover, King continues, in that proceeding the Commission noted that UHF stations and many FM stations still needed association with other local media to facilitate their growth, and thus built cross-ownership exceptions into the rule regarding such facilities in overlap situations.  Particularly in secondary areas, King contends, cable is in an even less advanced state than UHF and FM, and should receive similar treatment.  King also states that the Commission recently adopted a specific-waiver provision permitting telephone common carriers to provide cable television service to communities that would not otherwise obtain it.  It argues that a broadcaster also has a special motivation to provide cable service to remote communities, can do so more economically than other potential owners, and can cablecast programming at less cost than a telephone company can (and is therefore more likely to).  n8

 

n7 Citing 22 FCC 2d 306, 312 (par. 22), and 318-19 (pars. 45, 47, and 48) (1970).

n8 King contends that this telephone company-cable system cross-ownership exception relies on waiver rather than a general rule for reasons that do not apply in the context of Section 76.501; i.e., (i) the difficulty of establishing a rational border-delineation standard, and (ii) charges of competitive abuse.

34.  CTI suggests n9 that the cross-ownership limitation, if deemed necessary, be limited to those counties in which a station has a net  [*390]  weekly circulation of at least 70% (i.e., those areas in which "the broadcaster may at least arguably be in a position to influence opinion to a significant degree").  BPI, citing its own situation, considers it unreasonable to bar television station ownership of a cable system in a county in which Commission-endorsed data indicates that the station is not "significantly viewed".  Liberty suggests three other alternatives which, alone or together, would in its opinion strike a balance between the goals of (i) insuring substantial program diversity, and (ii) fostering development of cable (as an essentially passive reception facility) in sparsely settled areas.  Specifically, Liberty recommends (1) limitation of the station-system cross-ownership with systems which have more than 2500 subscribers within the station's community of license, SMSA, or Area of Dominant Influence ("ADI"), and (ii) providing that the total number of subscribers to systems which are cross-owned with a TV station and within its Grade B contour shall not exceed 15 percent of that station's NWC, or (3) exemption of systems with fewer than 2500 subscribers from the cross-ownership ban. n10 On behalf of these three proposals, Liberty states: re (1), that the top 100 markets contain the vast majority of TV homes, are the source of most TV revenue, and hold the real promise for program origination by cable systems; that below-top-100 markets offer little opportunity for large systems with potential for significant program origination, but do need cable systems to fill over-the-air signal reception gaps; and that ultimately, cross-ownership of TV stations and cable systems in small markets may be necessary to maintain the viability of local over-the-air TV broadcast facilities there; re (2), that the proposed 15% limitation would prevent a broadcaster from obtaining a subscriber base sufficient to raise a question of undue concentration of control; and, re (3), that TV station cross-ownerships with co-located systems with fewer than 2500 subscribers (i) pose no problems with respect to programming diversity since such systems normally cannot engage in program origination anyway, and (ii) pose no threat of undue concentration of control. 

 

n9 With particular reference to UHF television stations.

n10 In a recently tendered supplementary pleading, Liberty substituted the following alternatives: (1) restrict the general ban on cross-ownership of co-located TV stations and cable systems to the top 100 markets; in smaller markets, limit the ban to systems with 10,000 or more subscribers (in order not to discourage at least limited cable origination); or (2) (i) prohibit TV station-cable system cross-ownership within the community of license; (ii) authorize cross-ownership of smaller systems (i.e., with fewer than 10,000 subscribers) outside of the community of license; but (iii) provide that in no event shall the total number of subscribers of the cross-owned systems within the station's predicted Grade B contour exceed 25% of the net weekly circulation of the cross-owned TV station; or (3) exempt systems with fewer than 7,500 subscribers from the cross-ownership ban.

35.  Preemption: BPI urges that, if the TV station-cable system local-cross-ownership prohibition is rescinded or substantially modified, the Commission preclude State and local authorities from imposing more restrictive cross-ownership limitations than ours.

DISCUSSION OF PLEADINGS

36.  As indicated in the foregoing paragraphs, the respondents favoring rescission of the cross-ownership et al. provisions in Section 76.501 -- either totally or insofar as they apply in particular to national broadcast television networks, or to co-located television stations (all,  [*391]  or commercial UHF, or noncommercial educational) -- argue variously that: the record relied upon by the Commission was insufficient; additional facts submitted by the respondents negate the Commission's conclusions; the Commission lacks statutory authority to impose such restrictions; inadequate notice of proposed rule making was given to network cross-owners; adoption of the rule reverses the Commission's previous position expressed in Docket No. 15415; and (6) developments subsequent to the adoption of Section 76.501 have washed away its foundations.

37.  The question of notice of proposed rule making regarding cross-ownership of cable systems with networks diminishes against the circumstances that: (i) in view of the introduction of the question of notice, we have reviewed ABC's and NBC's substantive arguments regarding network-cable cross-ownership, contained in their petitions for reconsideration, in the same manner, according them the same weight, as if their submissions had been received before the Second Report was issued; and that, (ii) with respect to the relation of this procedural question to the divestiture provisions applicable to networks, the three-year divestiture grace period specified in the Second Report does not expire until this coming August, and we have in any event (in view of the considerable passage of time between the issuance of the Second Report and this memorandum opinion and order) decided to extend the grace period even further in order to avoid hardship to existing cross-owners.

38.  Although we have given thoughtful consideration to the petitioners' other contentions, we remain persuaded that the provisions of Section 76.501 prohibiting ownership, operation, control, or interest of a cable television system with a national broadcast television network or a co-located television broadcast or translator station, and requiring divestiture of such prohibited cross-relationships by a date certain, are in the public interest and should continue in force.

39.  Our adoption of these provisions -- designed to foster diversification of control of the channels of mass communication -- was guided by two principal goals, both of which have long been established as basic legislative policies.  One of these goals is increased competition in the economic marketplace; the other is increased competition in the marketplace of ideas.

40.  We did not choose to wait until cable reached maturity before acting to achieve these goals.  Having grappled over the years with the problems of cross-media control of radio and television stations, by national broadcast networks, and by newspapers and other broadcast stations in the same communities and market areas, we had become increasingly persuaded, first, that cross-media control is generally undesirable (although temporary exceptions are sometimes warranted); second, that the evidence of previously developed electronic mass media indicated that, in the absence of regulatory prohibition, considerable cross-media control of cable television could be expected, and that tendencies in that direction had already begun; and, third, that cross-media control of cable would become increasingly difficult to halt and reverse as cable grew if its growth were not accompanied by early-imposed regulations designed to foster diversification of control.

 [*392]  41.  Some of the data leading to the second conclusion were summarized in paragraphs 9 and 10 of the Second Report.  That was not intended to demonstrate that "abuses" of cable system ownership were taking place to any significant degree, or that broadcasters' control of cable facilities had already advanced to major proportions.  What it did demonstrate was that the major broadcast television networks were already such dominant influences in the television field that any further expansion of their ownership or control into the new and growing cable television industry was per se undesirable, and that such network involvement in cable should be stopped and turned around before it became entrenched; and that about 30% of the cable systems in existence in December 1968, were broadcaster-controlled.  n11 Newhouse in its petition for reconsideration indicates that, as of the date of issuance of the Second Report, approximately 400,000 cable subscribers -- close to 10% of the total number of cable subscribers at that time -- were served by systems within the predicted Grade B contours of television stations under common ownership with those systems. 

 

n11 By March 30, 1972, according to Television Factbook (1972-1973 ed., p. 75-a), broadcasters held ownership interests in some 37.9% of the 2,839 cable system operations.

42.  CTI characterizes our adoption of cable cross-ownership rules as a "mechanical transfer" of broadcast concepts to cable not-with-standing "fundamental technical and competitive distinctions between... [them]." Whatever distinctions may exist between TV stations and cable systems, it is nonetheless true that actions taken by cable system operators -- to carry or not carry certain distant stations, to offer program origination or not, to move speedily or at the slowest pace permitted to develop access channel facilities and encourage their use -- all can affect the audiences and earnings of co-located television stations.  In the light of this fact, we remain persuaded that cable systems are more likely to grow, in size and service to their subscribers if they are not under common control with co-located television stations.  We have not been shown that cable growth will be significantly retarded by the unavailability, under our rules, of financial investment by co-located stations.

43.  We do not agree with the contention that new developments have washed away the case for cable-broadcast cross-ownership restrictions.  Our adoption of the Coble Television Report and Order was designed to encourage the growth of cable; to the extent that our efforts in that regard are successful, the time available to us for early preventative action with respect to cross-control of cable and other media is foreshortened.  The assurance we are offered that cable will ultimately become essentially a "common carrier" of mass communications may or may not be correct, but in either event fails to come to grip with the short run, during which origination cablecasting can be expected to play a significant role in attracting, and affecting, cable subscribers.

44.  Our reasons for not exempting UHF television stations from the general applicability of Section 76.501 are well summarized in paragraph 16 supra, and do not require repetition here.  Our reasons for not exempting educational television stations are essentially the same as those previously indicated by us in footnote 1 of the Notice  [*393]  of Proposed Rule Making and of Inquiry in Docket No. 18891 (35 Fed. Reg. 11042 July 9, 1970), released concurrently with the Second Report; the arguments in favor of exemption set forth in paragraph 17 supra do not extend significantly beyond those of which we were aware at the time of issuance of the Second Report and the Notice... in Docket No. 18891; and in certain particulars -- notably NAEB's assertion that ETV cross-owners could coordinate the programming activities of the ETV station and the cable system so that imported signals would not have an adverse effect on the ETV station's offerings -- are uncomfortable reminders of some of the disadvantages of cable cross-ownership with local commercial television.

45.  The question of our jurisdiction to adopt rules concerning diversification of ownership of cable television systems is adequately treated in paragraph 17 of the Second Report, and requires no further elaboration at this juncture.

46.  In the preceding paragraphs, we have (in response to a number of petitions for reconsideration in this matter) set forth our basic present position with respect to the cable cross-ownership provisions in Section 76.501 of our Rules.

47.  Having done so, we must also express our recognition that a requirement of mandatory divestiture of existing such cross-ownerships is more severe in its impact on affected broadcasters -- and hence requires greater justification -- than a rule prohibiting only the subsequent creation of such cross-relationships.  We are well aware of the Supreme Court's admonition, in Timken Roller Bearing Co. v. U.S., 341 US 593, 603 (1951), that "divestiture... is not to be used... [where] other effective remedies, less harsh, are available."

48.  Moreover, it must be conceded that in at least one respect, the need for a prohibition against cross-ownership et al. of co-located stations and systems -- and for mandatory divestiture -- has abated somewhat as result of the Commission's recent adoption of Section 76.251 of the Rules (in the Cable Television Report and Order in Docket No. 18397, 36 FCC 2d 143, released February 3, 1972).  That section provides that all cable television systems operating in major market areas -- where approximately 70 percent of the American people reside -- must, by March 31, 1977, maintain public-access, education-access, and local-government-access non-broadcast channels, and promptly expand their facilities as needed to meet demand for leased-acess non-broadcast channels; and that "Each such system shall exercise no control over program content on any of [these] channels..." Although this recent development is not sufficient to alter our basic view regarding the provisions of Section 76.501, it does suggest that there may be several more station-system local-cross-owner-ship situations than we had previously anticipated in which the balance of relevant considerations now weighs in favor of a waiver of the mandatory-divestiture requirement.

49.  In paragraph 13 of the Second Report and Order in Docket No. 18397 (issued in July 1970), we stated that "we would consider waivers on an ad hoc basis where it is clearly established that a cross-owner-ship ban would not result in greater diversity, and in footnote 6 we added that "There may, for example, be some sparsely inhabited area where no one is willing to apply for an available broadcast channel  [*394]  except a local CATV operator interested in providing CATV- originated programming to a wider area."

50.  It now appears to us that those statements may have actually had the effect of inhibiting, rather than encouraging, the submission of justifiable requests for waiver of the divestiture requirement: there may well be a number of other grounds and circumstances which, if properly argued and substantiated by petitioners, would result in the grant of specific waivers.

51.  Accordingly, we invite the filing -- within 120 days after the issuance of this memorandum opinion and order -- of petitions for waiver of the mandatory-divestiture requirement (fully supported by pertinent facts, views, arguments, and data) from all cross owners et al. of co-located television stations and cable systems who believe that grandfathering would be appropriate in their case.  Upon the receipt of a number of such petitions, they will be carefully reviewed by the Commission to enable us to pick out, on a rational and consistent basis, those situations in which the issuance of a waiver (or other appropriate relief) would both serve the underlying objectives of Section 76.501 and avoid unnecessary hardship.  Where such a waiver is granted, the petitioner's interests in the affected station and cable television facility may not subsequently be transferred to a new joint holder without prior approval of the Commission, upon a showing by the petitioner that such (transfers) would serve the public interest.

52.  It would be premature for the Commission at this time to specify the grounds for waiver which it will find acceptable, or to list the evidence necessary to support such grounds.  We will certainly be interested in such aspects as (1) the extent (if any) of financial loss the cross-owner would suffer as a result of mandatory divestiture; (2) the impact of the station-system cross-relationship upon economic competition and diversity of control of media of expression in the service areas of the stations and systems in question; and (3) the quality of service which the system has been providing (in terms of broadcast signal carriage, cablecast programming by the system and others, system technical quality and reliability, etc.), and the extent to which it has been enhanced, or impaired, by the cross-relationship.  But this itemization is intended only to be suggestive, and the Commission does not at all assume that it exhausts the possibilities.

53.  We recognize, of course, that this process will further extend the period of uncertainty which has existed during the two-year pendency of the petitions for reconsideration of the Second Report and Order in Docket No. 18397, and accordingly we have also decided to generally extend the grace period for divestiture of prohibited cross ownerships et al. until August 10, 1975.

Accordingly, IT IS ORDERED, That the petitions for reconsideration filed in response to the Second Report and Order in Docket No. 18397 ARE DENIED in all respects except that indicated below.

In view of the foregoing, and pursuant to authority contained in Sections 4(i), 5, and 303(r) of the Communications Act of 1934, as amended, IT IS FURTHER ORDERED, That effective March 2,  [*395]  1973, Section 76.501(b) of the Commission's Rules is amended to substitute "August 10, 1975", for "August 10, 1973".

IT IS FURTHER ORDERED, That the proceeding in Docket No. 18397 IS TERMINATED.

 

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.


CONCURBY: REID; WILEY

 

CONCUR:

CONCURRING STATEMENT OF COMMISSIONER CHARLOTTE T. REID

I was not a member of the Commission at the time of the adoption of the Second Report and Order, 23 FCC 2nd 816, but had I been, in all probability, I would have voted against the adoption of such restrictions of cross-ownership which are now encompassed in Section 76.501 formerly Section 74.1131.  However, the majority did adopt the rule and a number of such cross-ownerships have complied with our divestiture rules.

We now have before us Petitions for Reconsideration of that Second Report and Order.  While I would have preferred to grandfather all such cross-owned systems which were in being prior to June 24, 1970, the date of the Second Report and Order, I am persuaded to concur with the majority's decision since it is clearly evident that there is not a majority favoring grandfathering of such systems.  I want to make it explicitly clear however, that I have joined in this action to retain our general cross-ownership rule with the majority's understanding that we will treat requests for waiver from the affected parties very liberally.


CONCURRING STATEMENT OF COMMISSIONER RICHARD E. WILEY

I concur in the Commission's action denying the petitions for reconsideration of our cross-ownership rules but holding out the possibility of waiver of our divestiture requirement upon a public interest showing.  While I do not favor rescission of our rules at this time, I would have preferred a policy of grandfathering existing cable systems and co-located television stations for the reasons stated by many of the petitioning parties -- not the least of which is that divestiture may be an unnecessarily harsh remedy.  However, there were simply not four votes for my position.  For example, my colleague Commissioner Hooks favored repeal of the rule, but would not support a policy of grandfathering.  Accordingly, under the circumstances, I concur in the hope that a reasonable waiver policy will be implemented by the Commission.


DISSENTBY: LEE; JOHNSON; HOOKS

 

DISSENT:

DISSENTING STATEMENT OF COMMISSIONER ROBERT E. LEE

I was a member of the Commission at the time of the adoption of the Second Report and Order, 23 FCC 2nd 816, and at such time voted against the adoption of such restrictions of cross-ownership which are now encompassed in Section 76.501, formerly Section 74.1131.  Pursuant to such Order a number of such cross-ownership licensee's, in good faith, have complied with our divestiture rules -- perhaps to their economic detriment.

We now have before us Petitions for Reconsideration of that Second Report and Order.  As stated earlier, I prefer to grandfather all such cross-owned systems which were in being prior to June 24, 1970, the date of the Second Report and Order.

I am not persuaded to concur with the majority's decision which would treat this problem by entertaining requests for waiver from the affected parties.


DISSENTING STATEMENT OF COMMISSIONER NICHOLAS JOHNSON

I dissent from the majority's resolution of our reconsideration of   76.501 for the sole reason that I can see no reason for encouraging currently cross-owned systems to file waiver requests.  In view of the obvious diversity of views among my colleagues with respect to this reconsideration report, I wish to make it clear that I strongly favor our current rules prohibiting the cross-ownership of cable and broadcast interests in the same market, and I am opposed to any policy which would have the effect of grandfathering those cross-owned systems which have chosen to "gamble" on the outcome of the instant reconsideration proceeding.

Waivers of our cross-ownership rules should only be granted where -- as in all other waiver request situations -- the applicant carries its very heavy burden of proof.  The majority's "liberal" waiver policy with respect to currently cross-owned systems appears to modify our traditional waiver approach and will, no doubt, result in the eventual Commission approval of numerous existing patterns of cross-owner-ship.  In my view, such an approach does not encourage the diversity of media views which our cross-ownership rules are designed to engender.

Further, such an approach is decidedly unfair to those cable systems which, once apprised of our cross-ownership rules and our consequent divestiture requirements, sought to divest themselves of their offending interests within our three year deadline.  Our current resolution of this reconsideration proceeding thus has the effect of actually penalizing those cable operators who chose to conform to our rules.  I believe that such discriminatory treatment can only be viewed as a reward to those broadcasters and cable systems who preferred to forestall -- rather than to capitulate to -- the inevitable.

 [*396]  This infant industry is still young enough that mere reference to "grandfathers" is a little amusing.  In fairness, I believe all participants should at least start at the same starting line.  Why should some cable operators have a substantial competitive advantage over their competitors in this industry because the FCC, in its discretion, has accorded it to them?  The "burdens" on the industry of equitably enforcing these standards across the board would be minimal in 1973.

I also dissent from the majority's decision to extend -- for two more years -- the time in which currently cross-owned systems may have for divestiture.  Those systems which petitioned for reconsideration of our rules should not now be rewarded for delaying tactics.  I would, therefore, require divestiture by August 10, 1973, as we initially provided when we adopted   76.501.


 [*397]  DISSENTING STATEMENT OF COMMISSIONER BENJAMIN L. HOOKS

As is apparent from the magnitude of attention given to this issue, n1 the Commission was here faced with what I consider a critical question concerning the structure of the broadcast/cable television industry in this country.  That is, whether broadcasters are to be permitted to extend their local communications businesses and expertise into a media that just might supersede broadcasting -- cable television. 

 

n1 The specific issue is pregnant on reconsideration from the Second Report and Order (Docket No. 18397) and focuses on Section 76.501 (originally Section 74.1131) of our Rules, 47 C.F.R. Section 76.501.  In essence, the rule prohibits a broadcaster or cable operator from owning both a cable system and a broadcast station in a geographic area where the predicted Grade B contour of that station and the cable system service area overlap.

Underlying the Commission's decision in this matter are, at least, three arguments which have some very real appeal: (1) the Commission's historical anti "duopoly" n2 sentiments; (2) a desire to leave, to the extent possible, the cable field open to new interests, and particularly minority groups which have heretofore been denied significant participation in the mass media; n3 and (3) strangulation of cable development. 

 

n2 In short, the Commission's "duopoly" (and derivative multiple/cross-ownership rules) prohibit the same party from having two or more broadcast facilities which cover primarily the same audience.  For the rules adverted to, and exceptions thereto, see Sections 73.35, 73.240 and 73.636 of Chapter 47 of the Code of Federal Regulations.

n3 This concern for minorities created somewhat through the efforts of groups like Black Effort for Soul in Television (BEST), is manifested in the cable franchise rules which seek to ensure due process in grants as well as our access channel rules.

While the Commission is to be commended for its sincere and laudable concern over the foregoing problems -- and particularly its sensitivity to the minority situation which, needless to say, is a paramount concern of mine -- I must record that I am not convinced that, in the long run, these rules are necessary or correct to achieve these desirable goals.  I shall attempt to explain my personal reasoning.

Initially, the rules are simply a transposition of the philosophical principle of "duopoly" now applicable to broadcasting.  The patent purpose of the "duopoly" policy is to ensure that no private interests monopolize the vital channels of communications in any given area; and conversely, to promote a multiplicity of news, public affairs and entertainment voices in the community.  Insofar as the "duopoly" rules relate to broadcasting stations -- and particularly those in the same service (e.g., TV service, AM and FM radio service) -- the Commission's objectives can be reasonably supported and I do support them generally.

However, the "duopoly" concept, whatever its merits in the case of broadcast stations, could very well be superfluous where broadcast/cable cross-ownership is involved because of the differing characteristics of the two media.  Firstly, cable systems developed and exist not to deliver the single signal of the operator, but to bring to the community distant signals theretofore unavailable, as well as the local signals.  That is chiefly the nature of contemporary cable systems.  Couple these additional broadcast signals with governmental, public access and perhaps a 50-60 channel capacity delivering everything from television to newspapers to general data and it is clear that the modalities of cable  [*398]  itself preclude the sort of dominance misapprehended by the majority.  n4

n4 The so-called "Seiden Report" ("Mass Communications in the United States") cited in the majority opinion and by those opposing this rule is instructive on the issue of market dominance.  The "seiden Report" states that "there is a very large diversity of media available to the public, in virtually every market regardless of size" and that "co-located cable television cross-ownership could not and would not significantly affect it."

Tangential to the apprehension of "duopoly" is the fear of impediments to the development of cable.  However, short of a categorical ban on local broadcast/cable cross-ownership; the Commission could have prescribed rules which, for example, would have mandated channel availability on free or lease basis; or it could have placed reasonable limits on network or conglomerate ownership; or it could have established a cut-off limit with respect to the number of subscribers served by a single cable interest.  These lesser strictures might have served the necessary purpose and if the experience later demanded more stringent measures such as prohibition and divestiture, they could have been imposed as the operative method of preventing problems which are now purely speculative.  Prohibiting businessmen from engaging in a legitimate enterprise and divestiture of lawfully acquired property is a last-resort sort of remedy rather than a preventative engendered by cautious conjecture.  n5

n5 While I recognize that the cross-ownership prohibition does not go so far as to prevent a broadcaster from going to a distant market and entering the cable business, very few independent broadcasters know enough or care enough about some city where they are not involved in the economic, political, and social affairs to so do.  These are local businessmen who, like all of us, need a home base of operations.

In this connection, it seems to me that the Commission's prohibitions sustained herein are tantamount to some unthinkable federal order which would have decreed, at the turn of the century, that buggy makers could not enter the automobile business even though the technology of the latter business appeared to have the potential to eclipse the former, because of the fear that buggy manufacturers would impede automobile development out of an economic interest to preserve the buggy industry.  Studebaker, for instance, never could have made a car had the government, out of an abundance of concerned caution, imposed such a ban.  This is exactly how some believe that broadcasters would squash cable.  It could be as was remarked by C. J. Darling: "Men would be great criminals did they need as many laws as they make." n6

n6 Scintillae Juris (1877).

Another strong argument in favor of the rule as adopted -- and one which I am acutely attuned to -- comes from those who fear that allowing broadcasters to own cable systems will prevent minority interests from "getting a piece" of this burgeoning communications tool. Correctly believing that they were previously excluded (that is, effectively excluded) from equity in the broadcast industry, they see cable television as a panacea and the only means available to get a foothold in the mass media.  Much as I, too, would like to believe in a panacea, and recognizing that minority cable ownership is desirable and possible, I trust that minorities will continue to plug for a good hold in this new media without abandoning collateral efforts for representation and ownership in conventional broadcasting.  In the relatively short time I have been Commissioner, I have witnessed an increasing awareness on the part of broadcasters of problems relating to minority ownership, employment, and programming.  The Commission is keeping them  [*399]  aware and as far as I am concerned this agency has just begun to fight.  Moreover, I have been encouraged and, frankly, delighted at the increasing number of acquisitions of broadcast properties by minority groups in recent months n7 and I am given to understand that many more are in the works.  Concomitantly, I believe that just as minorities are advancing -- albeit, too tardily -- in the broadcast field, they will obtain ownership interests and meaningful managerial positions in the cable industry.  I further believe that minorities have a misplaced fear about their inability to compete with broadcast interests for cable franchises.  Competent minority entrepreneurs are now competing against local monied interests, large cable operators, and broadcasters willing to enter the cable filed in cities remote from their stations and, in many cases, coalescing with these groups to form new, integrated firms.  The economic dynamics of the market will determine the shape of cable development.  We have and are witnessing the formation of giant cable television firms because of economic incentives and necessity; the "mom and pop" systems we once dealt with are mainly destined for extinction.  Big broadcast interests, if allowed to fairly compete, could have balanced the potential dominance of several large (and still growing) system operators. 

n7 See an excellent chronicle of this phenomenon in West, A Question of Control, Ownership and Role, The Washington Post (Washington, D.C.) January 29, 1973 at B1, col. 1.

In that connection, and despite their inexcusable failure to include minorities in meaningful roles (which failure I have increasingly railed against), I think that large broadcasters have demonstrated a great deal of public responsibility and attentativeness to the business of communications across the years.  Had they been permitted to compete equally for cable we might have had a faster growth of the cable industry.  The fact that many non-broadcast groups have gotten cable TV systems in many areas of the country would have, in itself, provided a competitive spur.  And, neither the public nor the Commission would have allowed a broadcast/cable operator in city "A" to do less with its franchise than a non-broadcast cable interest in city "B".  Marketplace competition, local governments, public interest groups, and the prodding of the Commission would have dictated rapid cable television development in the public interest, convenience and necessity.  Minority groups, using their leverage and influence with all competitors stand a better chance of securing their goals.

Finally, we come to the matter of grandfathering.  It seems to me that once having proscribed broadcast/cable cross-ownership in the same community, and caused already large scale divestiture thereby (e.g., Time-life, Triangle), it would be inequitable to allow those who held on simply because they felt or took the chance that they might later be favored to have an edge on those who, in good faith, divested.  In short, I am against grandfathering of present cross-ownership holdings even though I would not have originally voted for the ban on cross-ownership.  If the reason for the rule is as good as the majority thinks -- and I believe history will record that it is not -- then it should be applied as if we fully believe in underlying policies.  Let us not riddle the rule with automatic "grandfathering" which, naturally, is a clear admission that the policy reasons for the  [*400]  ban are somehow not very important or only important in some cities.  That is not to say that in a compelling situation where the ultimate public interest would be manifest by selective "grandfathering" I would not favor such action.  I would, however, not invite waivers or be loose in granting them.

In conclusion, I would like to repeat some recent remarks of Chairman Dean Burch n8 which, although discussed in a different context, are just as pertinent to the issue here involved.  Mr. Burch observed that "the Commission would always do well to be sure of what it's doing before it does anything at all" and that "if it's a head cold you want to cure, don't tinker around with experimental brain transplants." There is also some sage language about the government's proper role in regulating "other people's [businesses]" that merits consideration. 

n8 Address by Dean Burch, Chairman, Federal Communications Commission before the Hollywood Radio and Television Society (Los Angeles, California, January 11, 1973).


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