A Consumer View on the FCC’s New Consolidation Rule

Q&A: Mark Cooper on cross-ownership

Tuesday, in a party line vote, the Federal Communications Commission issued a rule allowing certain newspapers and television stations to share the same ownership. In a November New York Times op-ed, Kevin Martin, a Bush-appointee and the Commission’s chair, argued that the move could forestall the erosion of local news coverage by salving the economic woes of newspapers. Public interest media watchdogs—and Democratic FCC appointees Jonathan Adelstein and Michael Copps—have warned that the rules are a dangerous step down the path of media consolidation.

A previous attempt by Republican FCC Chairman Michael Powell to do away with the longstanding cross-ownership ban was struck down in 2003 by the federal Third Circuit Court. Tuesday’s ruling was an attempt to operate within that decision.

CJR asked Mark Cooper, director of research at the Consumer Federation of America, to explain what the ruling means, whether it will help or hurt journalism, how it came to be, and what his organization—which opposed the move—might do to stop it.

Clint Hendler: What they were voting on seems at first glance to be a fairly narrow territory, since it affects only 20 cities. Is that a correct reading?

Mark Cooper: No, it’s not. It’s not a narrow territory. How you view the scope of the ruling is really a function of two things: one, what you think the Third Circuit Court of Appeals said about the old media ownership ban; and two, what you think a future commission would do under this new approach. It’s very up in the air.

Mike Powell proposed a rule back in 2003 that was a very, very, bright line test. It basically said that cross-ownership mergers in markets that had a certain set of characteristics—and it was only a very small set of markets that didn’t have those characteristics—would be in the public interest. Slam dunk, no questions asked, in our view. Basically in 170 markets across the country—there are only 210 total—newspapers could buy television stations.

CH: That would have been the Powell rule?

MC: That would have been the Powell rule, which would have scrapped the absolute ban on TV-newspaper combinations in the same city. The 2003 court ruling said that absolute ban is not in the public interest, and regulation of cross media ownership is in the public interest—but that the way that the FCC went about writing their regulations was not supported in the record.

So the court said the old ban is out the window, and a new rule could have been implemented, but the FCC just bungled it.

The rule it voted on Tuesday clearly says, “There is no ban.” And then it asks, “Where will we allow mergers to take place?” And instead of drawing a bright line, it draws a fuzzy line. Unlike Powell’s rule, which said that “mergers in these markets will be approved,” this rule says, “mergers under some circumstances will be presumed to be in the public interest, and under others, they will not be presumed to be in the public interest.” However, you can challenge the presumption.

Under the new rule, for a merger to be presumed to be in the public interest, it must fit four conditions: first, that the media outlets in question be in the top 20 markets (New York, L.A., etc., down to Sacramento—serving, in all, about half the country); second, that the television component not be one of the market’s four highest-ranking stations; third, that the merger will still leave eight independently-owned media outlets in the market with at least 5 percent of market share; and fourth, that the outlets in question will maintain independent editorial boards.

Now, to challenge a merger’s public-interest presumption, you would have to show that the merger would not increase the diversity of news outlets, or wouldn’t increase competition.

CH: So there is something built in to this presumability standard that allows challenges on a case-by-case basis?

MC: Yes, it’s called the “rebuttable presumption.” It can be rebutted. There are four factors, which are different from the four conditions I just described, which would come to bear on whether or not I could show that the presumption the merger was in the public interest was wrong. The big one from my point of view would be the market concentration analysis. If I could come in and show that the number-one newspaper merging with the number-five television station was going to create a very big media entity, I might be able to convince the Commission that it was concentrating the market, and therefore not acting in the public interest.

CH: So this stands in direct contrast to what Powell had done?

MC: Absolutely. Powell had drawn a bright line.

Now, we’ve discussed the top 20. Let’s look at the bottom 190 media markets. Under the new rule, media mergers in those markets would be presumed to not be in public interest.

But the media corporations could try to rebut that presumption. They could look at the market concentration. They could promise that they’d do more news. They could show that the newspaper or TV station they’re after is in financial distress. They could show that they’ll promise to have separate editorial boards. So they could use the same four conditions to rebut the presumption against the merger.

But the irony is that the four conditions that were used to get you the positive presumption in the big markets don’t apply to the little markets. Obviously, this is an individual, case-by-case determination.

So the question is, are these four conditions filters, or are they sieves?

A lot of people, public interest folks, are very concerned that a future Commission—and even Mr. Martin’s commission might have a whack at it—would approve many mergers under these tests, which are very murky and unclearly specified. Other people say, “I lost the ban, and you know what, I’m going to have a Democratic commission in 18 months.” And if Michael Copps were chairman of a 3-2 commission with democrats in the majority, he’s not going to approve lots of mergers. He doesn’t have to under this test.

So to say that it’s better or worse than Mike Powell’s proposal? Eh, it’s just different.

CH: Just to be clear, these rebuttal decisions are to be made by the five commissioners themselves, on a case-by-case basis?

MC: That’s right. They’d vote on them themselves.

CH: Don’t they already do that?

MC: Oh, they certainly do. They voted to extend the waiver for Tribune [which owns newspapers and TV stations in the same markets] by a 3-2 vote.

CH: So how different is this from the preexisting ad hoc waiver system?

MC: Well, let’s be clear. The preexisting system was not much of an ad hoc waiver system for a long time. From ’75 to ’98 or so, there were not a lot of waivers issued. It’s only in the last decade that you’ve gotten a lot of these big deals: the Tribune deal, where they bought up a bunch of TV stations and newspapers, and Murdoch has come forward and bought a newspaper when he owned two TV stations in New York.

Some people would argue that the economics of the industry is driving them to look for the economic efficiencies of the mergers. Other people will say, I among them, that the challenge to journalism, certainly print journalism, is not in physical space, so much as cyberspace—so the solution to the problem is not in physical space. It’s figuring out a business model that looks at online distribution.

If you look at the troubled newspapers in America, they’re predominately in the larger markets, and their problem is that they are competing with online advertising and online sources, and they have to solve their online problem. Which they’ve started to do. In the last year, almost every paper has signed two deals for online advertising, one for general advertising and one for classified advertising. So after ten years, they’ve figured out the Internet matters.

CH: So you’re saying this physical solution, as you described it, isn’t really a solution, it’s just a stopgap.

MC: In my opinion, yes. When you merge a TV station and newspaper, they think they can repurpose the news, and they think they can save some money on the cost side. And they do. They lay people off. But their real problem is on the revenue side. Their real competition is in cyberspace. And newspaper Web sites already beat the pants off of TV Web sites. So it’s entirely unclear how this new rule is the solution to newspapers’ financial problems.

As the rule was written Tuesday, it had two “get out of jail free” cards. One is—and this has been an exception in the past—if the merger involves a failing firm, and the merger would not otherwise be approved, that merger can be approved, since the dieing firm is exiting the market. The post-merger market would be no different, since the firm would have been eliminated anyway.

The second is if you are merging with a TV station that doesn’t already do news—and only about half the TV stations in the country do local news—and you commit to providing local news. Because then its hard to see how that’s against the public interest, because you’re getting a new news voice.

So then, of course, the debate becomes “how much local news? What do you mean by local news?” Do we mean at least half an hour of local news each night? Or an hour a day, with a morning show?

No one has confidence about how these factors will be applied. It’s up to the five commissioners, whoever they happen to be.

The other thing is that there’s a big brou-ha-ha over the process by which this rule was brought into existence in the first place.

CH: Tell me more about that.

MC: Well, our view is that the people have to have the opportunity and fair notice to comment on and react to the rules under which they will live. That’s a good definition of democracy. So we have the Administrative Procedure Act, which says the Commission is supposed to give proper notice—and opportunity for comment—to the public.

In the 2003 case, the interveners, Consumer Federation among them, complained that the public never actually saw the rule. Powell held hearings and looked at evidence, but he never actually showed the rule he was going to apply to the public. He sort of said, “I’ve thought about this, and this is what I’m going to do.” The public never got a chance to comment on the specific rule Powell was going to propose.

To us, that was a violation of the Administrative Procedure Act. And then last month, Chairman Martin did what someone has called “a further notice of press release.” Instead of giving a notice of the actual rule, and putting it in the record, and publishing it in the Federal Register, and giving a fair comment period, he put out a press release with these vague ideas, and said, “Give me your comments.” This was the chairman’s personal action.

CH: So that was November 13? The day he wrote the op-ed in the Times?

MC: Your first question reflected the deception the chairman engaged in. The deception was that the new rule is limited to 20 markets. Because that’s what he said on the op-ed page. But that’s not what he said in the rule.

CH: Because the rule provides all sorts of ways…

MC: That’s right. And there are other inconsistencies in the piece of paper that they put out. If he’d really intended, as he said in the op-ed piece, to limit it to the top 20 markets, he could have easily done so. But he didn’t. And when you get the piece of paper and compare it to what he said in the op-ed, it looks very different.

CH: So when was the actual plan made public? Tuesday?

MC: No. On November 13, he published another press release, which had a page attached to it, which looked liked a rule. But he never published it in the Federal Register. And if you look at the page, it’s got all these uncertainties. That’s not a real “rule.”

CH: Did the Commission pass the same language?

MC: No, they actually changed it. The “get out of jail free” cards didn’t exist on November 13. They also added language that said the goal of reversing any presumption is to increase competition and diversity among outlets. That didn’t exist in the original proposal. There’s a process here. And we were denied due process.

CH: Going forward, what sort of challenges do you plan to this rule?

MC: There will clearly be a court challenge. I’m certainly going to complain about the process. Then I’ll read his explanation. It’s possible he’ll write an explanation that makes sense, but I’ll point out all of the evil mergers that would slip through his sieve, and contend that those mergers are not in the public interest, and that he’s adopted a rule that would fail to meet the legislative obligation that would promote the public interest in merger decisions. So there will be a procedural challenge, and also a substantive legal challenge, both in the courts.

You may well get legislation in the Congress now that either tells the FCC it disapproves of its rule, or specific legislation that says “Here’s what the rule should look like.” Congress can take the decision out of the hands of the FCC. In some senses, decisions about media are so vital to democracy that they ought to be made by elected representatives of the people, and not by executive appointees at some agency.

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Clint Hendler is the managing editor of Mother Jones, and a former deputy editor of CJR.