Media ownership is in the news again as the Federal Communication’s Commission’s latest modifications to its media ownership rules have been affirmed in part and remanded in part by a three-judge panel of the U.S. Court of Appeals for the 3rd Circuit.  Most significantly, while most of the rules were affirmed, the FCC’s changes to its newspaper/broadcast cross ownership rule (“NBCO”) and its revenue-based “eligible entity” definitions were remanded for further consideration.  

The decision retains the status quo for most of the media ownership rules and does nothing to resolve the NBCO rule – to the contrary, the regulatory uncertainty that clouds the troubled newspaper industry’s ability to combine operations with local broadcasters will continue until the FCC adopts a new NBCO rule. 

Similarly, the decision to remand to the FCC for further consideration changes in the media ownership rules to promote diversity in ownership for minorities and females fails to provide guidance on what criteria are necessary for any rules to survive Constitutional scrutiny. 

The only certainty provided in the decision is that the FCC’s media ownership rules for television and radio remain largely unchanged from almost a decade ago despite the radical changes that have reshaped the media marketplace.  And, most likely, significant changes to those rules will not occur in the foreseeable future. 

In light of this action, many commenters have focused on picking winners and losers.  If only it were that simple, given the recent history of the FCC’s efforts to modify its broadcast ownership rules (click to enlarge):

The panel's decision focused on the 2008 NBCO rule, the Diversity Order and the FCC ownership and cross-ownership caps for radio and television.  The Court vacated and remanded the 2008 NBCO rule, finding that the FCC provided inadequate notice of and time for the public to comment on the new NBCO rule in violation of the Administrative Procedure Act.  The Court expects the Commission to address the court’s concerns and provide proper notice and allow comment in the context of the ongoing 2010 Quadrennial Review of the Commission’s media ownership rules.  The judges refused to consider challenges to five permanent waivers of the NBCO rule granted in 2008, concluding that the parties had not yet exhausted their administrative appeals before the FCC and that the appropriate venue for appealing any such decision is the U.S. Court of Appeals for the D.C. Circuit and not the 3rd Circuit.

The Court rejected various appeals challenging the Commission’s decision to retain the pre-2003 rules with regard to ownership caps for radio and TV stations in local markets and cross ownership of TV and radio stations in the same market.  The appeals sought to increase or eliminate the ownership caps altogether.  The Court held that the FCC’s authority to adopt ownership caps did not infringe upon First Amendment rights because the rules are rationally related to substantial government interests in promoting competition and protective viewpoint diversity.  Further, the judges found that the FCC had provided sufficient reasons for the ownership caps in its 2003 order. 

The Court rejected the definition of eligible entity adopted by the FCC in the Diversity Order, finding that the agency did not show how the new definition would increase broadcast ownership by minorities and females.  The judges concluded that most of the proposed expansion of eligible entities was focused either on small businesses or reinforcing existing prohibitions against discrimination.  The Court noted that the correlation between ownership of broadcast stations by small businesses and minorities and women were approximately the same, suggesting that most small business owners were minorities or females.  The Court instructed the FCC to consider other proposed definitions (such as socially or economically disadvantaged business) that might expand broadcast ownership by minorities and women.  The Court instructed the FCC to complete this review within context of the ongoing 2010 Quadrennial Review. 

As is often the case in life, the Court's decision represents a partial victory and partial defeat for all interested parties.  Critics of media consolidation should be pleased with the remand of the NBCO rules.  Because the remand is based on procedural deficiencies, however, the FCC could adopt new rules that allow the same or greater flexibility for NBCO in the future.  Proponents for amending the media ownership rules to reflect the current economic and market place realities cannot be surprised with the Court's decision to leave in place the Commission’s pre-2003 media ownership rules.  On the other hand, proponents of reducing the ownership caps cannot be pleased either, since the panel left intact the Commission’s media ownership caps and cross-ownership rules in effect prior to 2003 (see our Comparison of Changes in the FCC's Media Ownership Rules). Even the remand on the Diversity Order, while encouraging to proponents of increasing media ownership for minorities and women, does not guarantee that meaningful rules can be implemented that will pass constitutional muster.  In other words, while the adoption of gender and race neutral proposals most likely would survive a constitutional challenge, it is difficult to see how such neutral proposals would achieve the objective of advancing minority and female ownership in the broadcast industry rather than provide additional window dressing.

It is uncertain how the Commission will revisit these issues in the 2010 Quadrennial Review.  The Commission must address the 3rd Circuit’s remand of the NBCO rule and the Diversity Order.  After the 3rd Circuit rejected the media ownership rules the Commission adopted in 2003, the Commission in 2008 decided to retain the pre-2003 rules.  The Commission could adopt a new NBCO allowing for ownership of newspapers and broadcast stations or retain the pre-2008 rules and not allow any cross ownership.  

Most likely the Commission will adopt new rules to assist minorities and women in participating in ownership of broadcast stations.  The challenge for the Commission will be to adopt new rules that are beneficial while remaining race and gender neutral.  For example, it is unclear whether reintroducing the tax certificate policy for the sale of broadcast stations to minorities and females would withstand Constitutional scrutiny, though tax certificates can be helpful in promoting diversity by giving small businesses leverage in a negotiation. 

The biggest challenge will be for broadcasters seeking to relax the Commission ownership caps.  Broadcasters should file comments in the 2010 Quadrennial Review urging relaxation of the ownership caps, for example.  Presumably the Commission will issue a public notice in the future inviting comment on the issues raised by the 3rd Circuit’s decision.  We have blogged previously that application of the duopoly rules for television stations in medium to smaller markets, without the safety net of “small market” waivers, undermines localism.  

At the same time broadcasters must recognize that, once again, the media ownership rules are in a state of uncertainty and litigation, which likely will remain unresolved for the near future.