In one of the most anticipated court decisions in recent memory to involve the FCC‘s media ownership rules, a three-judge panel serving in the Third Circuit of the U.S. Court of Appeals has decided to vacate and remand “the bulk of its actions” taken over the last three years with respect to “sweeping rule changes” and their impact on ownership of broadcast media by women and racial minorities.
As such, the Pai Commission has to go back to the drawing board on deregulatory policy allowing for cross-ownership “modernization” designed to erase a mid-1970s law while abandoning the “Eight Voices” test.
The case features familiar petitioners and foes of the Commission, namely Prometheus Radio Project.
But, in this installment of Prometheus Radio Project v. FCC, several familiar entities active in the radio industry wound up on opposite sides of the legal fight.
The NAB and Cox Media Group were intervenors challenging Prometheus, while the Multicultural Media Telecom and Internet Council (MMTC) and National Association of Black Owned Broadcasters (NABOB) were joined by Bonneville International Corp. and The Scranton Times in serving as intervenors challenging the Commission.
At issue: the FCC’s media ownership reform order.
On November 16, 2017, the FCC took a bold step in its GOP-fueled rule “modernization” efforts by voting 3-2 to eliminate its cross-ownership rules for newspaper and broadcast media and for radio and TV, respectively. The “Eight-Voices Test” was also erased.
Prometheus wasn’t going to let that stand, and took the Commission to Court.
In a 2-1 vote, the Third Circuit remanded the rules.
Writing for the Court, Circuit Judge Thomas Ambro slammed the Commission, noting that after its last encounter with the periodic review by the FCC of its broadcast ownership rules and diversity initiatives, “the Commission has taken a series of actions that, cumulatively, have substantially changed its approach to regulation of broadcast media ownership.”
First, Ambro notes, “it issued an order that retained almost all of its existing rules in their current form, effectively abandoning its long-running efforts to change those rules going back to the first round of this litigation.”
Then, Ambro writes, “it changed course, granting petitions for rehearing and repealing or otherwise scaling back most of those same rules.”
The FCC also created a new “incubator” program designed to help new entrants into the broadcast industry — something groups including the MMTC have been actively in support of over many years.
“Its actions unsurprisingly aroused opposition from many of the same groups that have
battled it over the past fifteen years, and that opposition has brought the parties back to us,” Ambro said, noting the parties along with Prometheus fighting the FCC: Free Press, United Church of Christ, NABET-Communication Workers of America and Common Cause.
On Monday (9/23), those groups achieved a victory of sorts. For the NAB and media companies seeking to further consolidate in a world where digital media has poached ad dollar after ad dollar, the words of Ambro were less than pleasing.
Without mentioning the entity making the comment, Ambro mentions that one of the petitioners argues that the FCC did not far enough with its rule changes, and that the same logic that repealed the “eight voices” test, which forbade mergers that would leave fewer than eight independently-owned stations in the market, should also have led it to abolish the “top-four” restriction in the same rule.
The Court says no. “We disagree; this was a reasonable exercise of the Commission’s policy-making discretion, as we held in the first round of this litigation,” Ambro said.
What about claims from petitioners who argue that the FCC’s new incubator program is badly designed, as its definition of “comparable markets” for the reward waivers “was
unlawfully adopted and would create perverse incentives”?
Nope, Ambro and the court ruled.
“We disagree,” he argues. “The ‘comparable markets’ definition for the incubator program was also a reasonable exercise of discretion, and the FCC’s failure to act on the procurement rules proposal is not unreasonable so far.”
The problem for the FCC and for media companies is how the Third Circuit ruled on an argument from a group of petitioners who argue that the Commission did not adequately consider the effect its “sweeping rule changes will have on ownership of broadcast media by women and racial minorities.”
Ambro writes, “Although it did ostensibly comply with our prior requirement to consider this issue on remand, its analysis is so insubstantial that we cannot say it provides a reliable foundation for the Commission’s conclusions. Accordingly, we vacate and remand the bulk of its actions in this area over the last three years. In doing so, we decline to grant the requested extraordinary relief of appointing a special master to oversee the FCC’s work on
What does this mean?
Some notable deals, including one last week involving a radio company’s rescue of a failed daily newspaper in Arkansas, are now on hold.
It was sixteen months ago that brokers, buyers and sellers first put forth deals taking advantage of the cross-ownership rule “modernization.”
In what was one of the first deals to arrive following the FCC’s November 2017 decision to end its 42-year-old newspaper/broadcast media cross-ownership rules, the owner of a daily newspaper serving a city on the western slope of the Colorado Rockies in May 2018 agreed to purchase an FM and its three associated translators for an undisclosed price.
Then, there’s the April 2019 deal that sees Heartland Media intend to sell its KQTV-2 to News-Press & Gazette Company (NPG). This would give NPG control of every broadcast TV affiliate serving St. Joseph’s, Mo., thanks to low-power TV rules that allow a company to own without restrictions. It also owns the daily newspaper.
Are those deals now heading to a long-term hold? It is likely.
“The Commission might well be within its rights to adopt a new deregulatory framework (even if the rule changes would have some adverse effect on ownership diversity) if it gave a meaningful evaluation of that effect and then explained why it believed the trade-off was justified for other policy reasons,” Ambro writes. “But it has not done so. Instead it has proceeded on the basis that consolidation will not harm ownership diversity. This may be so; perhaps a more sophisticated analysis would strengthen, not weaken, the FCC’s position. But based on the evidence and reasoning the Commission has given us, we simply
cannot say one way or the other.”
FCC Chairman Ajit Pai panned the court in response to its ruling.
He said, “For more than twenty years, Congress has instructed the Federal Communications Commission to review its media ownership regulations and revise or repeal those rules that are no longer necessary. But for the last fifteen years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace. It’s become quite clear that there is no evidence or reasoning—newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever—that will persuade them to change their minds. We intend to seek further review of today’s decision and are optimistic that the views set forth today in Judge Scirica’s well-reasoned opinion ultimately will carry the day.”
Pai is referring to Circuit Judge Anthony Scirica, who concurred in part and dissented in part.
“I join several parts of my colleagues’ decision, including their rejection of the challenges to the incubator program’s ‘comparable markets’ definition and the Reconsideration Order’s retention of a modified ‘top-four’ restriction in the Local TV Rule,” Scirica wrote. “But I do not share their conclusion that the Reconsideration Order and Incubator Order are arbitrary and capricious. In my view, the FCC balanced competing policy goals and reasonably predicted the regulatory changes dictated by the broadcast markets’ competitive dynamics will be unlikely to harm ownership diversity. I would not delay the FCC’s actions. I would allow the rules to take effect and direct the FCC to evaluate their effects on women- and minority-broadcast ownership in its 2018 quadrennial review.”
The November 2017 Order as written allowed for the following rule changes. The Sept. 23 Third Circuit ruling effectively tells the FCC to redo these rules:
- Eliminates the Newspaper/Broadcast Cross-Ownership Rule. The GOP majority says it is no longer necessary to promote viewpoint diversity and prevented combinations that would enable both broadcasters and newspapers to better serve the public interest.
- Eliminates the Radio/Television Cross-Ownership Rule. Republicans say this is also no longer needed to promote viewpoint diversity in the modern media marketplace.
- Removes the “Eight-Voices Test” from the Local Television Ownership Rule. Instead, the Commission will use a potentially Media Bureau-clogging “case-by-case review option in the Top-Four Prohibition to better reflect the competitive conditions in local markets.”
- Erases the attribution rule for television JSAs. Why? The GOP leadership at the FCC believes they are “beneficial agreements that serve the public interest by allowing television broadcasters to better serve their local markets.”
- Keeps the disclosure requirement for Shared Services Agreements involving commercial television stations.
- Sees the FCC’s largely welcomed adoption of an incubator program allowing multicultural owners to seek opportunities. The NPRM sought comment on how the Media Bureau should structure the incubator program.