The FCC's Sisyphean Task

Sisyphus, you may recall from high school days, was sentenced to an eternity of rolling a boulder uphill only to watch it roll back down.

Section 202(h) of the 1996 Telecommunications Act gave the Federal Communications Commission the Sisyphean task of reviewing all of its broadcast ownership rules every two years (later extended to four) and determining whether each of them continue to be "necessary in the public interest."

Unable to get the Clinton Administration and Congress to agree to repeal the FCC’s ownership limits, lobbyists for Rupert Murdoch’s News Corp. successfully obtained Section 202(h) as a consolation prize. The result has been 15 years of continuous litigation, with the next case starting before the last case ends.

On April 15, the FCC voted to start the latest Section 202(h) proceeding by issuing an order initiating the 2014 Quadrennial Review. Here is a simplified version of part of what the FCC did: since the FCC never completed its 2010 Quadrennial Review, the Commission consolidated the issues and legal filings made in response to the 2010 proceedings into the new 2014 docket. Moreover, because a court decision directed the FCC to redo parts of the 2006 Quadrennial Review, parts of that proceeding are also part of the 2010, and now, the 2014 Quadrennial Review. The 2006 Quadrennial Review, in turn, was revisiting decisions that an earlier court ruling had substantially reversed -- a deregulatory effort adopted at the end of the 2002 Biennial Review (adopted before Congress amended Section 202(h) to ease the burden on the FCC).

As this history suggests, there are many moving pieces. And even though the FCC has attempted to wrap the last Quadrennial Review into the new one, the Commission has already been hauled into court, and more judicial proceedings will take place even as the FCC receives and considers comments from interested parties.

From a public interest perspective, there are positive and negative aspects to what the FCC did, and didn’t do, in starting the 2014 Quadrennial Review. This post will focus on those aspects of the FCC’s action, although it will necessarily touch on related matters along the way.

The easy part, relatively speaking, is what the FCC does not want to disturb. Although it invites comment on changes, the Commission majority (there were two dissents) proposes to leave in place the FCC’s rules on how many radio stations one company can own in a particular community. (In the 1996 law, Congress eliminated all limits on how many stations a company can own nationally.) Nor does the FCC want to alter the “dual network” rule, which prohibits mergers of the four major TV networks. The Commission also wants to retain, with a minor technical tweak, its existing TV “duopoly” rule, which generally allows ownership of two stations in a market only under certain conditions, i.e., when one of the stations is not one of the top four stations in the community and there are eight other independent media “voices”. (In addition, as discussed below, the Commission also starts to address loopholes which have been used to evade this rule.)

What gets more complicated is the Commission’s proposal with respect to newspaper/broadcast cross-ownership (“NBCO”), that is, the common ownership of a newspaper and a broadcasting station in the same market. The Commission tentatively concludes that some kind of NBCO rule is still needed. However, contrary to what most public interest groups have argued, the Commission tentatively finds that the NBCO rules do not significantly influence minority ownership. Although it also asks whether the rule should be completely eliminated, the Commission seeks comment on whether the Commission should keep the basic NBCO rule but adopt a case-by-case waiver process. That is essentially what public interest groups have advocated. Finally, the Commission draws a distinction between newspaper/television cross-ownership and newspaper/radio cross-ownership, and asks whether a radio rule is still needed. This is based on a view that has exasperated public interest groups for some time: the FCC staff appears to believe that since commercial radio is no longer a major source of news and information, there may be no need for a newspaper/radio rule. (In other words, since the effect of prior deregulation has been to make radio a less valuable contributor to the public interest, the Commission asks whether it should care at all about radio.)

The Commission also takes a deregulatory stance with respect to the rule limiting a company from owning radio and TV stations in the same community, also relying on the rationale that radio doesn’t matter anymore. Here, too, the Commission tentatively finds that the radio/TV cross-ownership rule does not impact minority ownership. (Public interest groups argue that the rule keeps deep-pocketed TV stations from outbidding new entrants, including minorities, for available radio stations.)

Moving even further into the legal weeds, the Commission addressed TV “sharing” agreements, a tactic used to avoid the strictures of the TV duopoly rules. Public interest groups have been complaining for years that the FCC staff (as opposed to the Commissioners themselves) have been blessing these workarounds by treating these arrangements as not creating an “attributable” ownership interest. In “Joint Sales Agreements” (JSAs) the dominant station sells the advertising time for a second station. In “Shared Services Agreements” (SSAs) a dominant station provides much or all of the local programming for a second station. In many cases, these deals allow a station to have a “staff” of as few as two employees, and to use the dominant station’s studios, office and other facilities. First, on March 15, the Commission staff issued a “Public Notice” saying that certain new SSA deals would trigger close “scrutiny.” This infuriated the broadcasters. Then, in its April 15 decision, the Commission said that stations using JSAs would be attributed to the dominant station, and gave broadcasters two years to unwind them. This infuriated broadcasters even more. However, although SSAs are far more troublesome in their eyes, the Commission also managed to infuriate public interest groups by saying that it didn’t have enough information to attribute them to the dominant station and instead asked for further comment. To make things worse, the Commission refused public interest groups’ request that the Commission direct broadcasters with SSAs to make their agreements public, so neither the Commission nor the public can see how many SSAs there are, or know about their terms.

Things get even more complicated when it comes to the FCC’s handling of diversity questions. In 2011, the U.S. Court of Appeals for the Third Circuit reversed portions of an earlier FCC decision because it failed to analyze the impact of its actions on minority and female ownership and for using a standard for defining affected companies by revenue. (The revenue based definition swept in numerous non-minority, non-female owners.) The Court faulted the FCC for “punting on this” and directed it to “justify or modify its approach to advancing broadcast ownership and women during its 2010 Quadrennial Review.” Rather than doing so, the Commission punted again, saying it lacked “sufficient evidence at this time” to come up with a satisfactory test, and simply asked for more comment, including requests for data that will be very hard for public interest groups to provide. Similarly, while the Commission states that it believes that promoting diversity is a “compelling governmental interest” (which is the test employed by the courts for reviewing race and gender based tests), it also finds that it lacks sufficient evidence to support remedial measures.

The most complicated part of all this is just beginning. Whenever the FCC does anything important, somebody takes it to court. Even though, except for the JSA portion of its decision, the Commission only asked questions (which it said it would consider as part of the 2014 Quadrennial Review), the litigation has begun. The first order of business is a fight over which court will hear the appeals.

The National Association of Broadcasters (NAB) sued the FCC over the SSA Public Notice in the U.S. Court of Appeals for the District of Columbia Circuit. The NAB’s suit has many technical deficiencies, and the FCC promptly moved to dismiss it. If the case survives, it has tactical benefits for the NAB; among other things it gives the NAB a foothold in the D.C. Circuit.

Three appeals (technically, they are “petitions for review”) have been filed with respect to the April 15 decision in the District of Columbia. Two broadcasters challenged the Commission’s actions with respect to JSAs, and the NAB broadly appealed the Commission’s failure to repeal or relax all the ownership rules. Meanwhile, a public interest group, Prometheus Radio Project, filed suit in the Third Circuit, in Philadelphia, which has heard earlier cases involving Section 202(h). Prometheus contends that the FCC should have cracked down on SSAs rather than asking more questions about them, and that the Commission has failed to follow that Court’s 2011 directive to act on minority and female ownership.

When appeals of an FCC decision are brought in more than one court, a lottery determines where the case will initially be lodged. In this instance, the D.C. Circuit won the lottery, which was conducted on June 4. That means that the Prometheus case was transferred to the D.C. Circuit. But Prometheus is quickly moving to consolidate (join) the NAB’s SSA case with the other four appeals and to have all the cases transferred back to the Third Circuit.

Once it is finally determined which court or courts will hear the appeals, briefs will be filed, probably by early fall. Then there will be an oral argument, perhaps by the end of the year or early next year. Meanwhile, the FCC will be accepting comments on the 2014 Quadrennial Review, with a decision also likely early next year. Then, depending on what has already happened in the courts, everyone will appeal that decision. After that, everyone can look forward to the 2018 Quadrennial Review, when it starts all over again.

Sisyphus, you have a lot of company.

By Andrew Jay Schwartzman.