Malrite T.V. of New York v. F. C. C., s. 865

• Decision Date: 16 June 1981
• Docket Number: 1284,Nos. 865,s. 865
• Citation: 652 F.2d 1140
• Parties: 1981 Copr.L.Dec. P 25,307, 7 Media L. Rep. 1649 MALRITE T. V. OF NEW YORK, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION, United States of America, Respondents. to 1286, Dockets 80-4120, 80-4160, 80-4202 and 80-4204.
• Court: U.S. Court of Appeals — Second Circuit

Page 1140

652 F.2d 1140

1981 Copr.L.Dec. P 25,307, 7 Media L. Rep. 1649

MALRITE T. V. OF NEW YORK, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION, United States of America Respondents.

Nos. 865, 1284 to 1286, Dockets 80-4120, 80-4160, 80-4202

and 80-4204.

United States Court of Appeals Second Circuit.

Argued March 19, 1981.

Decided June 16, 1981.

Michael S. Horne, Washington, D. C. (J. Geoffrey Bentley, Alex Kozinski, Covington & Burling, Samuel Miller, Miller & Fields, Arthur B. Goodkind, Koteen & Burt, Erwin G. Krasnow, James J. Popham, Jerome C. Shestack, R. Clark Wadlow, Schnader, Harrison, Segal & Lewis, Martin E. Firestone, Stein, Halpert & Miller, Steven A. Lerman and McKenna, Wilkinson & Kittner, Washington, D. C., on the brief), for petitioners Malrite T. V. of New York, Inc., and McGraw-Hill Broadcasting Co., Inc., and intervenors Hubbard Broadcasting, Inc., et al., Taft Broadcasting, Inc., et al., Bahia de San Francisco Television Co., et al., National Ass'n of Broadcasters, Cedar Rapids Television Co., et al., Springfield Television Corp., and National Broadcasting Co., Inc.

J. Laurent Scharff, Mark J. Tauber, Jack N. Goodman, Joseph M. Sellers, Pierson, Ball & Dowd, Lee M. Mitchell, Alan L. Morrison, Tom W. Davidson, Sidley & Austin, Thomas J. Dougherty, Preston R. Padden, Robert A. Beizer, Steven M. Harris, and Schnader, Harrison, Segal & Lewis, Washington, D. C., submitted a brief for petitioner Association of Independent Television Stations, Inc., and intervenors Field Communications Corp., Gaylord Broadcasting Co., Metromedia, Inc., and Tribune Co.

James F. Fitzpatrick, David H. Lloyd, Robert Alan Garrett, Arnold & Porter, Philip R. Hochberg, Vorys, Sater, Seymour & Pease, Thomas C. Williams, and Stanford, Williams & Briggs, Washington, D. C., and Alexander H. Hadden, New York City, submitted a brief for petitioners Commissioner of Baseball, National Basketball Ass'n, National Hockey League, and National Football League.

James A. McKenna, Jr., Vernon L. Wilkinson, Robert W. Coll, Steven A. Lerman, Dennis P. Corbett, and McKenna, Wilkinson & Kittner, Washington, D. C., submitted a brief for intervenor American Broadcasting Companies, Inc.

J. Roger Wollenberg, Joel Rosenbloom, Jonathan Becker, and Wilmer & Pickering, Washington, D. C., George Vradenburg, III, and Harry R. Olsson, Jr., New York City, submitted a brief for intervenor CBS Inc.

Dennis F. Begley, Matthew H. McCormick, and Midlen & Reddy, Washington, D. C., submitted a brief for intervenor The Jet Broadcasting Co., Inc.

Barbara Scott, New York City, submitted a brief for intervenor Motion Picture Ass'n of America.

Victor E. Ferrall, Jr., Brian C. Elmer, John I. Stewart, Jr., and Crowell & Moring, Washington, D. C., submitted a brief for intervenor Omega Communications, Inc.

David J. Saylor, Deputy Gen. Counsel, Washington, D. C. (Robert R. Bruce, Gen. Counsel, Daniel M. Armstrong, Assoc. Gen. Counsel, Jane E. Mago, Jeffrey B. Kindler, FCC, Sanford M. Litvack, Asst. Atty. Gen., Barry M. Grossman, Bruce E. Fein, Dept. of Justice, Washington, D. C., on the brief), for respondents Federal Communications Commission and the United States of America.

Brenda L. Fox, Washington, D. C. (James H. Ewalt and Stephen R. Effros, Washington, D. C., on the brief), for intervenors National Cable Television Ass'n, Inc. and Community Antenna Television Ass'n, Inc.

John P. Cole, Jr., and Cole, Raywid & Braverman, Washington, D. C., submitted a brief for intervenors Allen's TV Cable Service, Inc., et al. and United Video, Inc.

Before NEWMAN and KEARSE, Circuit Judges, and METZNER, ^* District Judge.

NEWMAN, Circuit Judge:

In a major reversal of its regulatory policy, the Federal Communications Commission ("FCC" or "Commission") has decided to deregulate cable television by rescinding rules relating to syndicated program exclusivity and distant signal carriage. Television broadcasting and programming interests have petitioned to set aside the FCC's order and to reimpose the regulations, which have been in force since 1972. On November 19, 1980 we stayed the order pending the disposition of the appeal. We now vacate the stay and deny the petition, thereby permitting the exclusivity and distant signal rules to be repealed.

I.

The television broadcasting industry, transmitting video signals free to viewers, is dominated by the three national networks, which contract with local station affiliates to carry network programming, most of which the networks purchase from independent producers. In addition, there are unaffiliated, independent stations which obtain most of their programming in the syndication market. ¹ The cable television industry consists of various local systems, which transmit broadcast video signals from a central station to individual homes by closed circuit, coaxial cable. Cable subscribers pay a monthly fee to receive a basic set of channels plus an optional fee for special channels (pay cable).

Each of the 1,000 broadcasting stations, affiliate or independent, operates along an electromagnetic frequency established by the FCC on either very high frequency (VHF) or ultra high frequency (UHF) channels. The VHF range produces a higher quality viewing signal than UHF for most viewers. Though the FCC had avidly supported the expansion of UHF channels as a means of providing increased program diversity and expression of local interests, UHF stations have been plagued with financial difficulties due to small audiences and low revenues, stemming in part from their inferior reception, and comprise the least profitable sector of the television industry. See R. Noll, M. Peck & J. McGowan, Economic Aspects of Television Regulation 79-129 (1973) (hereafter "R. Noll, et al."); Revised TV Broadcasting Financial Data 1978, FCC Memo No. 30037 (July 17, 1980). The networks and their affiliates, which operate primarily in the VHF range, account for the largest audience shares and the vast majority of industry revenues and profits. See R. Noll, et al., supra at 3-5, 16-18; Revised TV Broadcasting Financial Data 1978, supra.

Cable television mitigates some of the disadvantages faced by UHF stations by making possible improved reception; to a cable subscriber, the reception quality of a UHF signal is indistinguishable from a VHF signal. But cable provides an additional service by increasing the number of stations available to a viewer through the importation of signals from distant geographic areas using microwave relays or orbiting communications satellites. Cable increases viewers' program choices, offering greater content and time diversity, and consequently it diverts some portion of the viewing audience away from local broadcast stations to more distant ones.

After an initial period in which the FCC declined to exercise regulatory authority over cable television on the grounds that it did not have jurisdiction under the Communications Act, see Frontier Broadcasting Co. v. Collier, 24 F.C.C. 251 (1958), reconsideration denied in Report and Order in Docket No. 12443, 26 F.C.C. 403, 428 (1959), the FCC began to regulate the cable industry directly in 1966. ² See Second Report and Order in Docket Nos. 14895, 15233 and 15971, 2 F.C.C.2d 725 (1966). The Supreme Court upheld the FCC's jurisdiction over cable in United States v. Southwestern Cable Co., 392 U.S. 157, 178, 88 S.Ct. 1994, 2005, 20 L.Ed.2d 1001 (1968), insofar as the particular regulations were "reasonably ancillary" to the Commission's performance of its statutory duties. These 1966 regulations initiated close to a decade of regulation that can fairly be described as hostile to the growth of the cable industry, as the FCC sought to protect, in the name of localism and program diversity, the position of existing broadcasters, and particularly, the struggling UHF stations. See Besen & Crandall, The Deregulation of Cable Television, 44 Law & Contemp.Prob. 77 (1981); Chazen & Ross, Federal Regulation of Cable Television: The Visible Hand, 83 Harv.L.Rev. 1820 (1970). These rules severely restricted the expansion of cable television services by permitting cable operators in the top 100 markets to import distant signals only after showing in an evidentiary hearing that to do so would be in the public interest and not harmful to UHF broadcast services. ³ While the cable industry continued to grow in the 1960's in spite of these restrictions and other costly operating requirements, such as mandatory program origination, access, channel capacity, and other equipment regulations, it entered the 1970's as a small industry, relegated primarily to rural areas and small communities due in large part to the FCC's policies. Besen & Crandall, supra at 79, 93.

In late 1971, the Commission began to consider relaxation of the cable television regulations. See Commission Proposals for Regulation of Cable Television, 31 F.C.C.2d 115 (1971) ("Letter of Intent" to Congress). Shortly thereafter, the 1972 regulations emerged from an industry-wide Consensus Agreement negotiated by the White House and the affected industry interests broadcasters, cable operators, and program producers (copyright owners). Cable Television Report and Order, 36 F.C.C.2d 143 (1972). Though the 1972 rules eased the 1966 restrictions and permitted limited cable expansion, broadcasting interests were still strongly protected. The Report and Order challenged on this appeal, Report and Order in Docket Nos. 20988 and 21284, 79 F.C.C.2d 663 (1980) (hereafter "Report and Order"), abolishes the core of the 1972 regulatory structure by repealing the two main methods of broadcaster protection, the distant signal carriage and syndicated program exclusivity restrictions on cable retransmissions.

The distant signal rules, 47 C.F.R. §§ 76.59(b)-(e), 76.61(b)-(f), and 76.63 (1980), limit the number of signals from distant stations that a cable system can transmit to its subscribers, the limit varying according to market size...