Lawyer Article

The 3rd Circuit of the United States Court of Appeals has finally issued its decision on the FCC's ownership rules. The decision clarifies little, and sends most of the new ownership rules back to the Commission for further justification. The Court states that "the Commission gets another chance to justify its actions".

The decision upholds the right of the Commission to adopt ownership limitations on broadcast stations, but severely rebukes the Commission for not sufficiently justifying its numerical ownership limits for each of television, media cross-ownership and radio.

The decision criticizes the Commission in particular for its assumption that each media interest of the same type makes an equal contribution to diversity and competition in a local market. The Court suggests that the specific market share of various media must be taken into account in fashioning numerical restrictions on ownership.

In a nutshell, here is what the Court decided:

• The use of Arbitron market definitions for the purposes of the local radio ownership limits is upheld.
• The retention of the existing numerical limits on radio station ownership (i.e. limits such as 3 FM and 2 AM stations) was inadequately justified.
• The retention of different limits between AM and FM station ownership was inadequately justified.
• Counting non-commercial stations in the total number of radio stations in a radio market was justified.
• The existing contour overlap methodology, if retained by the Commission for smaller markets, may not be upheld by this Court in the future.
• The grandfathering of existing radio combinations so as not to require divestiture is upheld.
• The ban, with the small business exception, on selling existing over-the-limits radio station combinations intact, is upheld.
• Regarding JSAs as attributable interests for the radio ownership limits is upheld.
• Challenges to the national television ownership cap are now moot as Congress has set it at 39%.
• The UHF discount is valid but the Commission has the authority to eliminate it.
• The elimination of the outright ban on newspaper/broadcast station cross-ownership was sufficiently justified.
• The numerical cross-ownership limits (newspaper/broadcast station and AM/FM/TV) are based upon irrational assumptions and inconsistencies, and are not justified.
• The local television ownership rule top-four station restriction is upheld but otherwise the television ownership numerical limits are inadequately justified.
• The repeal of the "Failed Station Solicitation Rule", requiring notice to out-of-market buyers before a failed, failing or unbuilt television station may be sold to an in-market buyer, was not justified as there was no consideration of declining minority station ownership.  

For broadcasters, the question is what happens next. The Court may be asked to re-hear the case or the case could be heard by the Supreme Court which if done will add another six months to a year to any eventual resolution. In the interim, the Commission's ownership rules which were in place prior to June 2003 remain in effect.

As the Commission is instructed by the Court to hold further proceedings to justify its numerical limits, any such FCC proceedings once commenced can be expected to take many months if not years. Assuming that further FCC decisions on the ownership limits are reached with a new administration in the White House, the decision could look radically different than the decision rendered last June, and could be just as subject to further court challenge.

If the media ownership limits are to be changed, it may be that they are changed by Congressional action. Broadcasters need to keep in mind, however, that any Congressional action will take into account the current blame that is being placed upon media concentration for a variety of ills such as indecency and violent programming, and such Congressional action may result in more stringent ownership restrictions rather than the reverse.

Assuming that the Commission does go forward with the task of either trying to justify its ownership limits, or setting new limits, it faces a daunting task. The resolution of what are the appropriate governmental limits on media ownership, if any at all, remains as unsettled today as the day that the Commission commenced its present ownership proceedings.