280 F.3d 1027 (D.C. Cir. 2002), 00-1222, Fox Television Stations v. Fed. Commun Comm'n & USA

Docket Nº:00-1222 Consolidated with 00-1263, 00-1326, 00-1359, 00-1381, 01-1136
Citation:280 F.3d 1027
Party Name:Fox Television Stations, Inc., Petitioner v. Federal Communications Commission and United States of America, Respondents National Association of Broadcasters, et al., Intervenors
Case Date:February 19, 2002
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1027

280 F.3d 1027 (D.C. Cir. 2002)

Fox Television Stations, Inc., Petitioner

v.

Federal Communications Commission and United States of America, Respondents

National Association of Broadcasters, et al., Intervenors

No. 00-1222 Consolidated with 00-1263, 00-1326, 00-1359, 00-1381, 01-1136

United States Court of Appeals, District of Columbia Circuit

February 19, 2002

Argued September 7, 2001

Corrected

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On Petitions for Review of an Order of the Federal Communications Commission

Edward W. Warren and Paul T. Cappuccio argued the cause for petitioners. With them on the joint briefs were Bruce D. Sokler, Richard A. Cordray, Ashley C. Parrish, Ellen S. Agress, Diane Zipursky, Michael D. Fricklas, Mark C. Morril, John G. Roberts, Jr., Stuart W. Gold, Laurence H. Tribe, Jonathan S. Massey, Arthur H. Harding, R. Bruce Beckner and Henk Brands. Jay Lefkowitz entered an appearance.

C. Grey Pash, Jr., Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Jane E. Mago, General Counsel, Daniel M. Armstrong, Associate General Counsel, James M. Carr, Lisa S. Gelb and Rodger D. Citron, Counsel, Mark B. Stern and Jacob M. Lewis, Attorneys, U.S. Department of Justice. Christopher J. Wright, General Counsel, Federal Communications Commission, Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, entered appearances.

Robert A. Long, Jr. argued the cause for intervenors National Association of Broadcasters and the Network Affiliated Stations Alliance. With him on the brief was Jack N. Goodman.

Harold J. Feld, Andrew J. Schwartzman and Cheryl A. Leanza were on the brief for intervenors/amici curiae Consumer Federation of America and United Church of Christ, Office of Communication, Inc. Wade H. Hargrove, Jr. entered an appearance.

Before: Ginsburg, Chief Judge, Edwards and Sentelle, Circuit Judges.

Opinion for the Court filed by Chief Judge Ginsburg.

Ginsburg, Chief Judge:

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Before the court are five consolidated petitions to review and one appeal from the Federal Communications Commission's 1998 decision not to repeal or to modify the national television station ownership rule, 47 C.F.R. s 73.3555(e), and the cable/broadcast cross-ownership rule, 47 C.F.R. s 76.501(a). Petitioners challenge the decision as a violation of both the Administrative Procedure Act (APA), 5 U.S.C. s 551 et seq., and s 202(h) of the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56. They also contend that both rules violate the First Amendment to the Constitution of the United States. The network petitioners -Fox Television Stations, Inc., National Broadcasting Company, Inc., Viacom Inc., and CBS Broadcasting Inc. -address the national television ownership rule, while petitioner Time Warner Entertainment Company, L.P. addresses the cable/broadcast cross-ownership rule. The National Association of Broadcasters (NAB), the Network Affiliated Stations Alliance (NASA), the Consumer Federation of America (CFA), and the United Church of Christ, Office of Communications, Inc. (UCC) have intervened and filed briefs in support of the Commission's decision to retain the national television station ownership rule.

We conclude that the Commission's decision to retain the rules was arbitrary and capricious and contrary to law. We remand the national television station ownership rule to the Commission for further consideration, and we vacate the cable/broadcast cross-ownership rule because we think it unlikely the Commission will be able on remand to justify retaining it.

I. Background

In the Telecommunications Act of 1996 the Congress set in motion a process to deregulate the structure of the broadcast and cable television industries. The Act itself repealed the statutes prohibiting telephone/cable and cable/broadcast cross-ownership, 1996 Act ss 302(b)(1), 202(i), and overrode the few remaining regulatory limits upon cable/network crossownership, id. s 202(f)(1). In radio it eliminated the national and relaxed the local restrictions upon ownership, id. s 202(a), (b), and eased the "dual network" rule, id. s 202(e). In addition, the Act directed the Commission to eliminate the cap upon the number of television stations any one entity may own, id. s 202(c)(1)(A), and to increase to 35 from 25 the maximum percentage of American households a single broadcaster may reach, id. s 202(c)(1)(B).

Finally, and most important to this case, in s 202(h) of the Act, the Congress instructed the Commission, in order to continue the process of deregulation, to review each of the Commission's ownership rules every two years:

The Commission shall review its rules adopted pursuant to this section and all of its ownership rules biennially as part of its regulatory reform review under section 11 of the Communications Act of 1934 and shall determine whether any of such rules are necessary in the public interest as the result of competition. The Commission shall repeal or modify Page 1034

any regulation it determines to be no longer in the public interest. The Commission first undertook a review of its ownership rules pursuant to this mandate in 1998. This case arises out of the resulting decision not to repeal or to modify two Commission rules: the national television station ownership rule and the cable/broadcast cross-ownership rule.

A. The National Television Station Ownership (NTSO) Rule

The NTSO Rule prohibits any entity from controlling television stations the combined potential audience reach of which exceeds 35% of the television households in the United States.[x] As originally promulgated in the early 1940s, the Rule prohibited common ownership of more than three television stations; that number was later increased to seven. Amendment of Multiple Ownership Rules, Report & Order, 100 F.C.C.2d 17, p p 14, 16 (1984) (1984 Report). The stated purpose of the seven-station rule was "to promote diversification of ownership in order to maximize diversification of program and service viewpoints" and "to prevent any undue concentration of economic power." Id. p 17.

In 1984 the Commission considered the effects of technological changes in the mass media, id. p 4, and repealed the NTSO Rule subject to a six-year transition period during which the ownership limit was raised to 12 stations. Id.

p p 108-112. The Commission determined that repeal of the NTSO Rule would not adversely affect either the diversity of viewpoints available on the airwaves or competition among broadcasters. It concluded that diversity should be a concern only at the local level, as to which the NTSO Rule was irrelevant, id. p p 31-32, and that "[l]ooking at the national level [the Rule was unnecessary because] the U.S. enjoys an abundance of independently owned mass media outlets," id. p 43. The Commission also concluded that group owners were not likely to impose upon their stations a "monolithic" point of view. Id. p p 52-54, 61. With respect to economic competition, the Commission considered the markets for national and for local spot advertising and concluded that neither would be made less competitive by repeal of the NTSO Rule. Id. p p 66-71.

Implementation of the 1984 Report was subsequently blocked by the Congress. See Second Supplemental Appropriations Act, Pub. L. No. 98-396, s 304, 98 Stat. 1369, 1423 (1984). The Commission thereupon reconsidered the matter and prohibited common ownership (1) of stations that in the aggregate reached more than 25% of the national television audience, and (2) of more than 12 stations regardless of their combined audience reach. Amendment of Multiple Ownership Rules, Mem. Op. & Order, 100 F.C.C.2d 74, p p 36-40 (1984). These limitations remained in place until 1996, when the Congress (in s 202(c)(1) of the Act) directed the Commission to eliminate the 12-station rule and to raise to 35% the cap upon audience reach, both of which actions the Commission promptly took. Implementation of Sections 202(c)(1) and 202(e) of the Telecommunications Act of 1996 (National Broadcast Television Ownership Page 1035

and Dual Network Operations), 61 Fed. Reg. 10,691 (Mar. 15, 1996).

B. The Cable/Broadcast Cross-Ownership (CBCO) Rule

The CBCO Rule prohibits a cable television system from carrying the signal of any television broadcast station if the system owns a broadcast station in the same local market.1

In conjunction with certain "must-carry" requirements, 47 U.S.C. ss 534-535; 47 C.F.R. s 76.55 et seq., to which cable operators are subject, see Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 630-32 (1994) (Turner I), the Rule has the effect of prohibiting common ownership of a broadcast station and a cable television system in the same local market.

The Commission first promulgated the CBCO Rule in 1970 along with a rule banning network ownership of cable systems. Amendment of Part 74, Subpart K, of the Commission's Rules and Regulations Relative to Community Antenna Television Systems, Second Report & Order, 23 F.C.C.2d 816, p p 11, 15 (1970). In 1984 the Congress codified the CBCO Rule but not the network ownership ban. Cable Communications Policy Act of 1984, Pub. L. No. 98-549, s 2, 98 Stat. 2779.

In 1992 the Commission repealed the rule prohibiting network ownership of cable systems. Amendment of Part 76, Subpart J, Section 76.501 of the Commission's Rules and Regulations, Report & Order, 7 F.C.C.R. 6156, p 10 (1992) (1992 Report). The Commission also revisited the CBCO Rule and concluded that "the rationale for an absolute prohibition on broadcast-cable cross-ownership is no longer valid in light of the ongoing changes in the video marketplace." Id. p 17. Because the Congress had imposed a similar prohibition by...

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