The Perversity of the FCC’s Ownership Limits

For decades, rules meant to promote diversity stood in the way of a fourth major television network.

By Preston Padden
November 13, 2017 06:19 p.m. EST

The FCC is re­con­sid­er­ing some of its rules on the own­er­ship of TV sta­tions. These reg­u­la­tions date back to a by­gone era of scarcity—pre­dat­ing ca­ble tele­vi­sion, the in­ter­net, video down­loads, stream­ing, so­cial me­dia and other in­no­va­tions that give con­sumers an ar­ray of com­pet­i­tive op­tions.
I have friends who be­lieve that the pub­lic in­ter­est re­quires the FCC to keep its TV own­er­ship rules. But my per­sonal ex­pe­ri­ence in the in­dus­try for over 40 years has shown me that TV own­er­ship lim­its in­tended to en­hance di­ver­sity of­ten sti­fle com­pe­ti-tion and in­hibit in­no­va­tion and growth in the in­dus­try.
My first job, in 1973, was at Metro­me­dia Inc., a com­pany that had emerged out of the ashes of the Du­Mont Tele­vi-sion Net­work. In the late 1940s, tele­vi­sion pi­o­neer Allen Du­Mont warned the FCC that it must as­sign at least four VHF sta­tions to each ma­jor mar­ket to en­sure the sur­vival of the four tele­vi­sion net­works. The FCC ig­nored his ad­vice and proved Du­Mont right—his net­work folded, leav­ing the na­tion for decades with only three com­mer­cial TV net-works. Read­ing this his­tory was my first les­son in how well-mean­ing FCC rules can have un­in­tended con­se­quences for com­pe­ti­tion and di­ver­sity.
As the Du­Mont Net­work was go­ing out of busi­ness, it spun off to share­hold­ers the TV sta­tions it owned in New York and in Wash­ing­ton. Busi­ness-man John Kluge ac­quired de facto con­trol of the new com­pany and named it Metro­me-dia. Kluge strug­gled to cre­ate a fourth net­work. He ag­gres­sively sought to ex­pand Metro­me­dia’s port­fo­lio of owned tele­vi­sion sta­tions—the in­dis­pens­able foun­da­tion of any net­work. But his ef­forts were thwarted by the FCC’s own rules lim­it­ing own­er-ship. One par­tic­u­larly prom­inent ob­sta­cle was the FCC’s “top 50” pol­icy, which re­quired a “com-pelling pub­lic in­ter­est show­ing” to own more than three sta­tions, or more than two VHF sta­tions, any­where in the top 50 mar­kets. Of course, the three en­trenched net­works owned more than that, but they were grand­fa­thered in.
The first decade of my life in the in­dus­try was con­sumed draft­ing and ad­vo­cat­ing for waivers of the FCC’s TV sta­tion own­er­ship lim­its and its top 50 pol­icy to ad­vance Metro­me­dia’s quest for a fourth net­work. De­spite spend­ing mil­lions of dol­lars on in­no­v­a­tive pro­gram-ming, Metro­me­dia could not over­come the hand­i­cap im­posed by the FCC’s TV sta­tion own­er­ship rules. Kluge failed to ful­fill his ob­jec­tive—and the FCC’s—of cre­at­ing a fourth net­work.
So in 1985, Kluge sold his TV sta­tions to Ru­pert Mur­doch, who also ac­quired the then-bank­rupt 20th Cen­tury Fox film stu­dio. To­gether with Barry Diller and Jamie Kell­ner, Mr. Mur­doch set out to cre­ate the long-sought fourth net­work. Again, FCC rules got in the way. On be­half of Fox, it fell to me to seek waivers of sta­tion own­er­ship lim­its and other rules in­tended to pro­mote di­ver­sity, such as the ban on cross-own­er­ship of news­pa­pers and the Fi­nan­cial In­ter­est and Syn­di­ca­tion Rules. The ef­fort to cre­ate mean­ing­ful di­ver­sity re­quired the FCC to waive its rules that were in­tended to cre­ate di­ver­sity. (Mr. Mur­doch is ex­ec­u­tive chair­man of News Corp, which pub­lishes this news­pa­per.)
Be­cause the ben­e­fits of grant­ing the Fox waiver re­quests were so ob­vi­ous, even sup­port­ers of TV own­er­ship reg­u­la­tion such as Sen. Ted Kennedy (D., Mass.), Gov. Mario Cuomo (D., N.Y.) and Sen. Dan In­ouye (D., Hawaii) sup­ported our waiver re-quests. Fox even­tu­ally suc-ceeded in be­com­ing the fourth ma­jor com­mer­cial net­work. But it is per­verse to keep in place rules in­tended to pro-mote com­pe­ti­tion and di­ver-sity if they have to be waived in or­der to achieve that ob­jec­tive.
I of­fer this his­tory be­cause I lived it. On many oc­ca­sions I thought: Why can’t the FCC see that these sta­tion-own­er­ship re­stric­tions are pre­vent­ing the cre­ation of mean­ing­ful en­ti­ties of scale that could bring to view­ers the ben­e­fits of greater com­pe­ti­tion and di­ver­sity? In to­day’s world—with hun­dreds of ca­ble and satel­lite net­works, the in­ter­net and myr­iad au­dio, video and other con­tent providers—that ques­tion is more com­pelling than ever. And at a time of es­ca­lat­ing TV costs and cord-cut­ting, en­abling the cre­ation of ad­di­tional free over-the-air pro­gram­ming would be a great pub­lic ser­vice.
Some op­pose re­peal of the TV sta­tion own­er­ship rules be­cause one ben­e­fi­ciary of re­peal might be Sin­clair Broad­cast­ing Co., which has con­ser­v­a­tive views. Those crit­ics would be the first to in­sist that fed­eral li­cens­ing de­ci­sions can­not—must not—be based on po­lit­i­cal views. And for all we know, the next ben­e­fi­ciary of dereg­u­la­tion could have lib­eral views. That is what free mar­kets, com­pe­ti-tion and di­ver­sity are all about. My ex­pe­ri­ence with the tele­vi­sion own­er­ship rules leaves no doubt that con-sumers will be well served by their re­peal.

Mr. Pad­den is a con­sul­tant and for­mer me­dia ex­ec­u­tive. This ar­ti­cle is adapted from an Aug. 28 blog post for Broad-cast­ing & Ca­ble. “

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