[Senate Hearing 108-934]
[From the U.S. Government Publishing Office]
S. Hrg. 108-934
MEDIA OWNERSHIP
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 13, 2003
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana Carolina, Ranking
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine Virginia
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
MARIA CANTWELL, Washington
FRANK R. LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
C O N T E N T S
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Page
Hearing held on May 13, 2003..................................... 1
Statement of Senator Allen....................................... 7
Statement of Senator Burns....................................... 4
Prepared statement........................................... 4
Statement of Senator Cantwell.................................... 14
Prepared statement........................................... 14
Statement of Senator Dorgan...................................... 2
Statement of Senator Lautenberg.................................. 8
Prepared statement........................................... 8
Article, dated March 25, 2003, by Paul Krugaman, entitled,
``Channels of Influence''.................................. 9
Statement of Senator Lott........................................ 15
Prepared statement........................................... 15
Statement of Senator McCain...................................... 1
Statement of Senator Nelson...................................... 16
Statement of Senator Snowe....................................... 11
Statement of Senator Stevens..................................... 2
Statement of Senator Sununu...................................... 13
Statement of Senator Wyden....................................... 5
Witnesses
Blethen, Frank A., Publisher, Seattle Times...................... 25
Prepared statement........................................... 27
Goodmon, James F., President and Chief Executive Officer, Capitol
Broadcasting Company, Inc...................................... 20
Prepared statement........................................... 23
Karmazin, Mel, President and Chief Operating Officer, Viacom,
Inc............................................................ 16
Prepared statement........................................... 18
Singleton, William Dean, Vice Chairman and Chief Executive
Officer, Medianews Group, Inc.; Immediate Past Chairman of the
Board of Directors, Newspaper Association of America........... 28
Prepared statement........................................... 30
Appendix
Bryan III, J. Stewart, Chairman and Chief Executive Officer,
Media General, Inc., prepared statement........................ 64
Hollings, Hon. Ernest F., U.S. Senator from South Carolina,
prepared statement............................................. 63
Riskin, Victoria, President, Writers Guild of America, west,
prepared statement............................................. 70
MEDIA OWNERSHIP
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TUESDAY, MAY 13, 2003
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:33 a.m. in room
SR-253, Russell Senate Office Building, Hon. John McCain,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. I have been on this committee for 17 years.
This is the first time that the sound system has been disabled
before we have a hearing on the media. I am sure there is some
plot there.
Today, the Committee continues its series of hearings
examining media ownership. This hearing will focus on the rules
currently being reviewed by the Federal Communications
Commission, particularly those affecting television
broadcasters and newspaper publishers.
In the early 1940s and 1950s, the FCC adopted rules placing
limits on the number of broadcast stations one company could
own or control in each market, as well as the number of
stations one company could own throughout the country. In 1975,
the Commission adopted a rule prohibiting one company from
owning a broadcast station and a newspaper in the same market.
Several of these rules were relaxed by the 1996
Telecommunications Act, where Congress set in motion a process
intended to deregulate the structure of the broadcast
television industry. To further this deregulatory trend,
Congress mandated the Commission review its media ownership
rules every 2 years to determine whether they remain necessary
in the public interest. Several recent court cases have
chastised the FCC for failing to justify retention of its
ownership restrictions. I have spoken frequently in the past
about the merits of deregulation in media markets.
Today's media landscape is wholly different from the 1940s
or, for that matter, the 1970s. The average American consumer
can get news and entertainment from one of the 200 cable
television networks or innumerable Internet sites in addition
to a broadcast television station or daily newspaper. So it is
important for the FCC to review its rules to ensure that they
reflect competitive and technological changes, and repeal or
modify them as appropriate.
I recognize, however, that media can have a tremendous
impact in the day-to-day lives of Americans. As a result, we
must approach these issues thoughtfully. Earlier this year,
this committee held a hearing on media ownership in the radio
industry, where serious concerns were raised about vertical
integration. Likewise, the Committee heard testimony last week
about the negative attacks of vertical integration in the cable
industry.
In light of these experiences, the FCC must not approach
these important issues lightly. More than half the members of
this committee have written FCC Chairman Michael Powell to
weigh in on the proceeding. Many have expressed the belief that
the Commission should allow more time for public comment. Yet
some of these issues have been tied up at the FCC for years,
and the Commission has received thousands of comments in this
review.
I have confidence that Chairman Powell will ensure that the
permission fulfills the court's dictates and statutory mandate
in a manner that is thoughtful and consistent with all
applicable laws and the best interest of the American public.
Given the amount of attention these issues have received, I
believe it is important for the Committee to hear from leaders
in the media industry most directly affected by potential
changes to these rules. I look forward to hearing the panelists
explain their views on why the rules should be retained,
relaxed, or eliminated.
I thank the witnesses for being here today. I would also
like to tell members of the Committee that following the ruling
of the FCC, we will have all five members of the FCC before the
Committee so that we can review the process they went through
in that decision.
Senator Stevens?
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Mr. Chairman, thank you. I will be very
short, because I have to leave.
I strongly believe that broadcast/newspaper cross-ownership
bans should be eased. If the FCC arrives upon a compromise when
reviewing the cross-ownership ban, I urge the Commission to
make sure that any compromise will reach down to the smaller
communities, such as Anchorage and Fairbanks in my State,
communities that now need the economies of scale that the ban
now prohibits. However, I really do not think the 35 percent
cap should be lifted at this time.
Thank you, Mr. Chairman.
The Chairman. Senator Dorgan?
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you for holding----
The Chairman. We are losing the sound again.
Senator Dorgan. Mr. Chairman, I think mine is on, so
perhaps I can continue.
Mr. Chairman, I think it is unbelievable we are here at
this moment with the FCC poised to move once again to relax
ownership limits, deal with cross-ownership. I have a chart I
want to put up that shows some concentration. As you know,
since we passed the 1996 Act, there has been galloping
concentration in virtually every area of the media in this
country. I spoke recently about some of the consequences of
that, but it seems to me that it is really hard to make the
case that what we need is more concentration, more opportunity
for concentration, given what has happened in recent years. And
yet here we are, with an FCC poised to march to the rear on
this issue, and I just do not understand it.
Let me also say that I think it will be too late to call
the Federal Communication commissioners to this committee after
they have made their judgment. I would much prefer we do so
beforehand.
And I do want to raise an issue that was raised in an
article this weekend, ``Give and Take, FCC Aims to Redraw Media
Map,'' by Stephen Labaton in the New York Times. And I do not
know what the facts are, but I think the portion of this
article begs for us to ask the question about the facts. And
let me quote from it. ``In one disputed episode,'' I am
quoting, ``on April 7, a group of broadcast executives met with
Mr. Powell at a Las Vegas hotel near the NAB convention. The
executives have tried successfully for more than a year to meet
with him to discuss a petition they had filed against the
networks. According to participants in that meeting, Mr. Powell
listened to the group's opposition to changing national
ownership cap and then posed what he called a hypothetical
question, Would the group support an increase in the ownership
cap to 45 percent if the FCC ruled favorably on some aspects of
their petition?''
Now, there follows from that disputes of who was in the
meeting and what was said in the meeting. One of the witnesses
today is quoted--Mr. James Goodmon, who is before us today, is
quoted as saying or deriding what he calls a climate of,
``Let's Make a Deal.'' The story says there is evidence of Mr.
Powell's hypothetical and other comments from his aides to
executives were read differently by at least one company that
had an impact on the debate.
My point is this. First of all, we should not be--in my
judgment, the FCC should not be relaxing ownership rules at
this point, or ownership caps. And, second, I do not know what
the facts are with respect to this kind of an issue, but I
really think it will be too late to call the Commissioners down
after they have made a decision. I would hope that we might,
based on this, call them down beforehand.
But you, Mr. Chairman, have had a previous hearing and a
hearing today for which I am very appreciative. I think you are
focusing this committee on a significant issue. I mentioned,
the last time we had this discussion, the issue of Minot, North
Dakota, a town of about 50,000 people, has six commercial radio
stations in the City of Minot. They are all owned by the same
owner, all purchased by the same owner. Every commercial radio
station in that town is owned by the same owner. Does anybody
here think that that represents competition, progress, forward
movement in the sake of open markets? I do not think so. Well,
that is just one example, and there are many more.
But, Mr. Chairman, I really hope that we can find a way to
derail what is clearly an effort by the FCC to relax ownership
limits. They talk about there is more variety and more voices.
I made the point a while back that those voices all come from
the same ventriloquist in most cases, and I really hope that we
can convince the FCC to back away, and I hope that we can have
the Commissioners down to talk about it.
The Chairman. Thank you.
Senator Burns?
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman.
And I just want to say that the last two hearings on media
and what is going on in the media is most enlightening. I
congratulate the Chairman, because we are doing more oversight
now than I can remember this committee doing for a long, long
time, Mr. Chairman, and I think that is a step in the right
direction.
This hearing will be particularly interesting, I think, in
its impact on the media. I am deeply concerned about the
impending relaxation of the 35 percent national cap on
ownership. I have been a strong supporter of the broadcast
industry, but I am also a supporter of the current restrictions
that were developed in the 1996 Telecommunications Act. And I
do not think, at this time, it serves the best of public
interest to raise those caps. I think the Chairman had it
right; the majority of this committee has written to the FCC
saying to be very cautious as they approach this, and I am also
a cosponsor of Senator Stevens' bill that would reinforce that
feeling.
We tend to look at the big media markets, but then, you
know, we find that we have still got problems in rural areas
with a host of local broadcasters that has really put a lot of
pressure on the local industry. So we witnessed a remarkable
evolution in the media landscape. We know that, and are also
going to consider cross-ownership one of these days and the
creation of some duopolies and this type of thing, and I think
it gives all of us in Congress a little pause now to think and
rethink of some of the things that are happening in the
industry.
So, Mr. Chairman, I would just put my statement in the
record, and I look forward to hearing from the witnesses and
also their answers to some of the questions that will be posed
to them by this committee. But, again, thank you for having
these oversight hearings. I think they have been very timely,
and this is what this committee should be doing, is bringing to
light some areas in our industry for public awareness.
So thank you very much.
[The prepared statement of Senator Burns follows:]
Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
I thank the Chairman for convening this important hearing. The
changing landscape in the media industry requires that we re-examine
the regulatory framework from time to time, and the subject of media
ownership, particularly with respect to the broadcast television
industry, deserves our full and complete attention.
This hearing is particularly timely given the impact that potential
action at the Commission could have on the future of local
broadcasting. I am deeply concerned about reports of an impending
relaxation of the 35 percent national cap on television broadcast
ownership. As a strong supporter of current restrictions that were
developed in the 1996 Telecommunications Act, I do not believe that a
relaxation of the cap is in the public interest. Many of my colleagues
on the Committee share my concern. For this reason, I am cosponsoring
Sen. Stevens' bill which would maintain the national caps at the
current, reasonable 35 percent standard. I believe that any further
movement from this level of ownership would tip the balance and risk
giving excessive leverage to the networks, turning local broadcast
affiliates into mere passive distribution outlets for national
programming.
In recent years we have witnessed a remarkable evolution in the
media landscape--technological advances have changed the way in which
we access information and services. This transformation has also
brought about an undeniable increase in video programming choices
available to the consumer--direct satellite, cable services, on-demand
video programs over the cable or Internet, are all options that have
contributed to this tremendous growth.
It is important to remember, however, that the vast majority of
these services are produced and marketed at a national level. There is
little room, if any, to cater to programming of local interest. Local
broadcast television has filled this important niche, and we must
ensure that any change in policy not jeopardize this valuable
programming content for our citizens. The situation is even more
critical in rural communities, where the absence of local broadcast
television would mean only a choice between different national
distribution networks.
Those in favor of relaxing the national broadcast ownership caps
yet again argue that nearly all consumers have access to local
programming over cable or DBS. The situation in rural America could not
be more different, however. While consumers in Manhattan have a wide
variety of local programming alternatives, my state of Montana has a
cable penetration rate of barely over 50 percent, which is among the
lowest in the Nation. Furthermore, unfortunately the average income in
Montana is among the lowest in the Nation and a lot of Montanans simply
can't afford cable even if they have access to it. As for other
alternatives, the majority of Americans in rural areas still don't have
access to their local stations over direct broadcast satellite
services. Large numbers of citizens across rural America rely on free,
overthe-air broadcast television to receive important local, weather,
and community information.
Networks strive to increase their share of the national viewing
audience. They must recognize, however, both the need for local
programming as well as the sensitivities of viewing audiences in
different parts of the country. Some degree of local ownership is the
key that strikes the balance between such competing demands.
Whatever changes are contemplated, we must ensure that affiliates
continue to have flexibility in providing local programming without
fear of retribution from the networks. Some have argued in favor of
fewer regulations on ownership coupled to a greater oversight of
network behavior. However, the task of developing benchmarks that
measure network behavior is not easy and would prove even more
difficult to regulate.
Thank you, Mr. Chairman. I look forward to the testimony of today's
witnesses.
The Chairman. I thank you, Senator Burns.
Senator Wyden?
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden.Thank you, Mr. Chairman. And I want to
commend you for holding these hearings and also commend Senator
Stevens for really leading this committee on these
concentration questions with respect to the 35 percent
ownership rule.
I believe, Mr. Chairman and colleagues, that if what has
been reported today is correct and it goes forward unchanged, I
believe that this policy is going to serve as a glide path for
the big media conglomerates to gobble up scores of small,
independent stations, and our country is going to be the worse
for it. And I think I want to talk just for a moment about some
of the implications of this.
The cover story of this week's Time magazine is about the
new Matrix movie that is coming out. Now, some may just say
this is a coincidence that the movie and the magazine are owned
by the same company. And suffice it to say we are talking here
just about a movie review and, I would be willing to
acknowledge, not the most serious question. But supposing we
are talking about breaking a story about accounting
irregularities, which obviously is a big deal for our country
and our economy, but somebody in the news side is reluctant to
blow the whistle with respect to accounting irregularities
because they know it may have some implications for the big
media conglomerate they are a part of. So I am very troubled
about the idea that a local newspaper and a local TV station
are going to speak with one voice, sort of two branches of the
same company and speaking together.
And I want to associate myself with the last comment made
by Senator Dorgan. I think it is critical that we have Michael
Powell up here before this decision is made, because I want to
hear somebody make the case, Mr. Chairman, that the Federal
Communications Commission has been holding the reins too
tightly. Concentration is already on the rise in TV and radio,
cable, and newspapers. And, sure, some of the big interests in
this country are going to chafe from time to time, but it seems
to me that we ought to be having Government, from time to time,
tighten these reins, and we ought to make sure that there is
more to this than just the efficiency argument that is made by
these media conglomerates, and I hope we will have Michael
Powell up here before the decision is made.
The Chairman. Could I say to my friend from Oregon, I
understand his desires and his frustration, along with that of
the Senator from North Dakota, and the importance of this
issue, and that is why we continue to have these hearings.
I would remind my friend from Oregon that the FCC is an
independent agency. They are an independent agency and were set
up to be so, and I always want to be very careful in our
relations with the Federal Communications Commission as to how
we treat them, under what circumstances, and the appearance of
trying to interfere unwarrantedly and our oversight
responsibilities is a very careful balance. And I hope that the
Senator from Oregon understands that, because I think that
there are quasi-judicial agents, and my friend points out----
Senator Wyden. Would the Chairman just yield very briefly
on that point?
The Chairman. Yes, I appreciate the patience of the
witnesses. I do not want to get too much----
Senator Wyden. I will be very brief.
The Chairman. Go ahead.
Senator Wyden. I share the Chairman's concerns. But suffice
it to say when the Chairman of the Commission is talking at
length today in the newspaper about the policy issues, I think
we ought to try to find a way, in a generalized kind of fashion
so as to be sensitive to the point that you are making, and
correctly so, that we do have a discussion about these issues.
And I would just like to work with the Chairman so as to be
sensitive to the point the Chairman is making, but at the same
time continue the dialogue that the Chairman of the Commission
is plenty willing to do on the front pages of our papers.
The Chairman. I think your point is well made, Senator
Wyden.
We have Senator Allen, Senator Lautenberg, and Senator
Snowe.
Senator Allen?
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. I also want to
thank all our witnesses for appearing today and offering
testimony on the important media-ownership issues. The current
analysis of media-ownership regulations, I think, is one of the
more important proceedings in recent memory for the FCC.
The key goals of all of this is public interest, but the
specific proposals or guiding principles are localism,
competition, and diversity. Those have been the core principles
since the 1930s, and today, with cable and satellite and
Internet, there are more consumer-driven options, there is more
diversity, and there is more competition, in my view, than ever
before.
I would just incorporate, by reference, Chairman McCain's
facts, insofar as the number of stations and opportunities
currently available. This committee has, I would say to my
friends, Senator Wyden and Senator Dorgan, certainly
communicated with the FCC and Chairman Powell on their need to
follow the law in their 2-year review, and they are going
forward with that 2-year review.
The witnesses here, some are going to focus on the 35
percent limit, two others are going to be talking about the
cross-ownership issue, and I think that is an important matter
for consideration for deregulation. The markets that are
smaller or mid-sized markets, their costs are increasing, but
their resources are scarce, and they have less than the--for
mid-sized markets or the larger markets.
Now, these rules, as far as cross-ownership, were put in
1970s, and I think they are largely unnecessary and they are
outdated, given the increasing number of media outlets, as we
talked about, in satellite, TV, newspapers, cable, the
Internet, and so forth. In my opinion, newspaper cross-
ownership can actually benefit consumers in certain markets
where broadcasters and newspaper owners face financially
challenging conditions. In Virginia, there are some examples of
where this has occurred, where some stations have received
waivers or were grandfathered under the previous rules. And in
those areas, the Roanoke, Lynchburg area, the Tri-Cities, which
is Southwest Virginia and Upper East Tennessee and the Danville
area, have expanded local news coverage and increased program
offerings and better ratings due to this capability. Now, I
think that these are successful examples, and I would like to
see that available not only in all communities in Virginia, but
I think it would help the principles of localism, diversity,
and competition across the country.
The final issue that none of our witnesses, unfortunately,
Mr. Chairman, are going to be really testifying about has to do
with duopoly rules. And I think it is alluded to somewhat by
Senator Burns and Senator Stevens, and I think that the duopoly
rules that we currently have are unfair, that the larger
markets can have combined efficiencies of facilities and
marketing and so forth, whereas the smaller markets that
generally have the same costs, whether it is for the digital
broadcasting and all these costs but have a smaller market,
they are not allowed to combine in that effort. And I am one
who thinks that these duopoly rules should not, should not,
discriminate against smaller markets. And for those where they
do have small markets, I think they ought to be abolished. And
I think it will help keep some of the struggling television
stations afloat in small markets and would actually improve the
quality and diversity of programming currently available to
viewers within those smaller markets.
So I look forward to listening to our witnesses and hearing
about their opinions on the duopoly idea, as well as cross-
ownership, and I think that this hearing is very appropriate,
but it is more appropriate that we update and upgrade our laws
to reflect the realities, the costs, and the opportunities
there are to improve broadcasting for our consumers in all
markets.
Thank you, Mr. Chairman.
The Chairman. Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Yes, thanks, Mr. Chairman.
I will be brief. First of all, I want to ask consent that
my full statement be a part of the record----
The Chairman. Without objection.
Senator Lautenberg.--accompanied by an article written by
Paul Krugman that was in the New York Times, March 25, 2003.
[The information referred to follows:]
Prepared Statement of Hon. Frank R. Lautenberg,
U.S. Senator from New Jersey
Mr. Chairman,
Today's hearing brings to mind Ernie Kovacs' remark that TV is
called a ``medium'' because it is neither rare nor well done.
All joking aside, this hearing is on one of the most important
subjects the Commerce Committee will consider: broadcast media
ownership.
Over the years, Congress established media ownership rules to
ensure that the public would have access to a wide range of news,
information, programming, and political perspectives. The courts have
repeatedly recognized the public interest goals of diversity,
competition, and localism.
Repeal or significant modification of the rules will lead to
mergers that reduce diversity, competition, and local control in the
media.
We have seen that happen with the Telecommunications Act of 1996,
which relaxed the media ownership rules significantly. With regard to
broadcast television the number of companies owning stations has
dropped 40 percent since 1995. With regard to radio, in 1995, the top
radio station group owned 39 stations. Today, Clear Channel owns over
1200 stations.
It's important to remember that the airwaves belong to the public,
and are to be managed in the public interest.
We will hear testimony today about the ``efficiencies of
consolidation'' and the like. With all due respect, efficiencies of
consolidation may benefit Viacom or News Corp and their shareholders,
but they don't necessarily benefit the public interest.
On September 13, 2002, the Federal Communications Commission (FCC)
began a review of the current rules that limit television, radio, and
newspaper cross-ownership. FCC Chairman Powell has announced that the
Commission will conclude its review and vote on proposed changes on
June 2, 2003.
Last month, 15 Senators--including 12 members of this Committee--
appealed to Chairman Powell to give Congress and the public the
opportunity to review the changes beforehand.
Chairman Powell dismissed our appeal, noting that this review is
late and that Congress rebuked the FCC for failing to finish its first
biennial review on time.
I think this is more of an argument for having Congress revise the
biennial review mandated by Section 202(h) of the Telecommunications
Act of 1996 than it is an argument for denying our request. As the
Chairman himself noted, ``getting it right is more important than just
getting it done.''
I think Congress also needs to revisit Section 202(h) because of
the D.C. Circuit Court's ruling that ``Section 202(h) carries with it a
presumption in favor of repealing or modifying the ownership rules.''
There has been revolutionary change in the industry as a result of
the 1996 Act and I think it is very premature to determine whether that
change is in the public interest.
I would submit that the media consolidations and mergers we have
already seen are not in the public interest in at least one crucial
realm, and that's the public's access to fair and balanced news
coverage that reflects a variety of viewpoints.
One of our witnesses, Mr. Karmazin, will argue that ``Americans are
bombarded with media choices via technology never dreamed of even a
decade ago, much less 60 years ago.''
That's true, but misleading. Who owns these media? Viacom, for
instance, owns CBS and UPN; 35 television stations that reach 40
percent of the national viewing audience; Universal Studios; cable
channels such as VH1, MTV, Nickelodeon, Comedy Central, Showtime, and
BET; and--through Infinity Broadcasting--185 radio stations. Viacom
also has substantial ownership interests in several Internet
properties, including CBS.com and CBSMarketwatch.com.
The media empire News Corp. Chairman Rupert Murdoch has put
together is already quite extensive. In the New York metropolitan area,
for instance, it includes two VHF broadcast stations, a daily
newspaper, a broadcast network, a movie studio, a satellite service,
and four cable networks. And now he wants to gain access to the DirecTV
platform.
Consolidating media ownership means that a few large corporations
can exercise considerable control over the news. And as the
distinguished Supreme Court Justice Learned Hand remarked in 1942,
``The hand that rules the press, the radio, the screen, and the far-
spread magazine rules the country.''
Let's look at what has happened in radio. Clear Channel, as I
mentioned, has over 1,200 radio stations, which reach 110 million
listeners in every State and the District of Columbia.
New York Times columnist Paul Krugman wrote an eye-opening column
on March 25, 2003, entitled ``Channel of Influence.'' I ask unanimous
consent that his column appear in the hearing record after my
statement.
In his column, Krugman notes that many pro-war demonstrations
called ``Rally for America'' were organized by stations owned by Clear
Channel, a company ``notorious and widely hated--for its iron-fisted
centralized control.''
Krugman further notes that Clear Channel's top management has a
long--and mutually profitable--history with President Bush. According
to Krugman,
``The Vice Chairman of Clear Channel is Tom Hicks . . . When
Mr. Bush was Governor of Texas, Mr. Hicks was Chairman of the
University of Texas Investment Management Company, called
Utimco, and Clear Channel's Chairman, Lowry Mays, was on its
Board. Under Mr. Hicks, Utimco placed much of the university's
endowment under the management of companies with strong
Republican Party or Bush family ties. In 1998 Mr. Hicks
purchased the Texas Rangers in a deal that made Mr. Bush a
multimillionaire.''
Is there a quid pro quo going on here? One that involves a company
whose radio stations already reach 110 million Americans? Is it really
in the public interest to make it easier for this company--and a few
others like it--to dominate the airwaves and determine what news the
American people will--or won't hear?
I don't think so. So I urge my colleagues to review the broadcast
ownership rules very carefully. We made substantial changes in 1996
that may not be in the public interest. The jury is still out. I don't
think we should be in any hurry to deregulate the industry even more. I
repeat what Chairman Powell said: ``getting it right is more important
than just getting it done.'' Getting it right means serving the public
interest, not boosting profitability. Thank you, Mr. Chairman.
______
Copyright 2003 The New York Times Company--The New York Times--March
25, 2003--Editorial Desk
Channels Of Influence
By Paul Krugman
By and large, recent pro-war rallies haven't drawn nearly as many
people as antiwar rallies, but they have certainly been vehement. One
of the most striking took place after Natalie Maines, lead singer for
the Dixie Chicks, criticized President Bush: a crowd gathered in
Louisiana to watch a 33,000-pound tractor smash a collection of Dixie
Chicks CD's, tapes and other paraphernalia. To those familiar with
20th-century European history it seemed eerily reminiscent of. . . .
But as Sinclair Lewis said, it can't happen here.
Who has been organizing those pro-war rallies? The answer, it turns
out, is that they are being promoted by key players in the radio
industry--with close links to the Bush Administration.
The CD-smashing rally was organized by KRMD, part of Cumulus Media,
a radio chain that has banned the Dixie Chicks from its playlists. Most
of the pro-war demonstrations around the country have, however, been
organized by stations owned by Clear Channel Communications, a behemoth
based in San Antonio that controls more than 1,200 stations and
increasingly dominates the airwaves.
The company claims that the demonstrations, which go under the name
Rally for America, reflect the initiative of individual stations. But
this is unlikely: according to Eric Boehlert, who has written
revelatory articles about Clear Channel in Salon, the company is
notorious--and widely hated--for its iron-fisted centralized control.
Until now, complaints about Clear Channel have focused on its
business practices. Critics say it uses its power to squeeze recording
companies and artists and contributes to the growing blandness of
broadcast music. But now the company appears to be using its clout to
help one side in a political dispute that deeply divides the Nation.
Why would a media company insert itself into politics this way? It
could, of course, simply be a matter of personal conviction on the part
of management. But there are also good reasons for Clear Channel--which
became a giant only in the last few years, after the Telecommunications
Act of 1996 removed many restrictions on media ownership--to curry
favor with the ruling party. On one side, Clear Channel is feeling some
heat: it is being sued over allegations that it threatens to curtail
the airplay of artists who don't tour with its concert division, and
there are even some politicians who want to roll back the deregulation
that made the company's growth possible. On the other side, the Federal
Communications Commission is considering further deregulation that
would allow Clear Channel to expand even further, particularly into
television.
Or perhaps the quid pro quo is more narrowly focused. Experienced
Bushologists let out a collective ``Aha!'' when Clear Channel was
revealed to be behind the pro-war rallies, because the company's top
management has a history with George W. Bush. The Vice Chairman of
Clear Channel is Tom Hicks, whose name may be familiar to readers of
this column. When Mr. Bush was Governor of Texas, Mr. Hicks was
Chairman of the University of Texas Investment Management Company,
called Utimco, and Clear Channel's Chairman, Lowry Mays, was on its
Board. Under Mr. Hicks, Utimco placed much of the university's
endowment under the management of companies with strong Republican
Party or Bush family ties. In 1998 Mr. Hicks purchased the Texas
Rangers in a deal that made Mr. Bush a multimillionaire.
There's something happening here. What it is ain't exactly clear,
but a good guess is that we're now seeing the next stage in the
evolution of a new American oligarchy. As Jonathan Chait has written in
The New Republic, in the Bush Administration ``government and business
have melded into one big `us.' `' On almost every aspect of domestic
policy, business interests rule: ``Scores of midlevel appointees . . .
now oversee industries for which they once worked.'' We should have
realized that this is a two-way street: if politicians are busy doing
favors for businesses that support them, why shouldn't we expect
businesses to reciprocate by doing favors for those politicians--by,
for example, organizing ``grass roots'' rallies on their behalf?
What makes it all possible, of course, is the absence of effective
watchdogs. In the Clinton years the merest hint of impropriety quickly
blew up into a huge scandal; these days, the scandalmongers are more
likely to go after journalists who raise questions. Anyway, don't you
know there's a war on?
Senator Lautenberg. Mr. Chairman, I think the question that
has to be answered is, What was the purpose of the law change
that was made in 1996? What is the mission of the FCC? Is it
not for the public good? And I do not understand what good it
does the public to have these consolidations that are taking
place. And I will not run through the review of how many
stations were owned by Clear Channel and others in those
earlier years and how many they have now.
It is a question, to me, of the principle of, What do we
want to accomplish? And what I see is, we want to accomplish a
delivery to the public of information that is as balanced, as
objective, as you can get. And it is very apparent in some of
these cases that consolidation has resulted in getting a tilt
one way, through lots of stations, lots of channels, and that
is the dominant view that you hear constantly. And I wonder
whether, with the Chairman of the FCC, Chairman Powell's,
earlier announcement, whether there is an interest in
responding to the public through those of us who are here to
serve the public interest. I think it is unfortunate, and I
agree with colleagues who ask for Mr. Powell's review once
again. And I heard the Chairman very clearly about the question
of interference. But it is my understanding, Mr. Chairman, that
the law, the result of the legislation, was a court opinion
that may not have so clearly defined what we wanted to have
come out of that legislation.
So I raise the question about, What good does it do the
public? And I, frankly, do not see this concentration,
expansion of stations and outlets, doing the public any good. I
see it doing the owners, I see it doing the companies, lots of
good. It is more revenues, there are more profits, there is
more control, and, in some ways, I think, is more threatening
to the public good.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Snowe?
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Senator Snowe. Thank you, Mr. Chairman. And I thank you, as
well, for conducting what is three of three hearings on this
issue regarding media ownership rules, and I certainly think
that this hearing is at a pivotal juncture, obviously, with the
FCC prepared to either eliminate or ease some of the ownership
and cross-ownership within the media industry without having
the benefits of being informed, in terms of the impact of these
significant issues that will have, obviously, profound
implications in the future.
And, obviously, it is of great consequence to the public
and could result in an irreversible course of action resulting
in a lessening of the diversity of opinion and voices in the
public, lessening local and community input, reducing community
involvement. So, obviously, this all has significant
implications for the future.
As the New York Times put it the other day, ``In a few
weeks the FCC is going to be voting on what could be the most
significant change in media ownership rules, expanding the
reach of the Nation's largest broadcast and newspaper
companies.'' And here we are 3 weeks out, Mr. Chairman, and we
have no foreknowledge of what types of rules will be proposed
by the FCC.
Now, the biennial review is no secret. It was incorporated
in the 1996 Telecommunications Act. So that was no secret,
obviously, to the FCC, that they are required to meet those
responsibilities and obligations. We understand about the D.C.
District Court action. Again, it does not rationalize and
justify the fact that we are not being informed, at least in
terms of the intent of the FCC, because it does have major
public implications.
We have seen a lot discussed in the media. We have seen
articles after articles talking about diversity index and what
might happen in the 35 percent cap and so on, but we have not
been informed. And that is why I joined the majority on this
committee back in April asking for the Commission at least to
give us a preview of these rules so that we could at least have
an opportunity to weigh the implications and the ramifications.
I think it would be appropriate before these significant
changes that could have a sweeping impact on our society and
how we engage in public debate. We are not talking about a
cursory review. We are talking about a review process that
potentially could open the door to the last barrier of
restrictions to unfettered ownership within the industry. And
when we look at the rate of consolidation--there is a recent
report that was conducted that said five companies or fewer
could control almost 60 percent of the television households.
And, you know, these concerns are well grounded. They certainly
have precedent. I mean, in 1945, Justice Black, in an opinion
that was rendered by the Supreme Court, he stated that the
widest possible dissemination of information from diverse and
antagonistic sources is essential to the welfare of the public.
So what happens, Mr. Chairman, with the diverse and
antagonistic sources if those voices are silenced?
So those have, I think, wide-ranging consequences that have
no benefit, without a public airing of understanding. And that
is why, Mr. Chairman, I do think it is essential that the
Commission justify how any changes in media rules will promote
diversity, will promote localism, will promote competition. And
I would hope that before any final rules are made, that we have
the opportunity at least to have a chance to respond and to
explore those issues. They have obviously been explored in the
media. They ought to be able to be explored before the U.S.
Congress. More than 20,000 filings have been submitted to the
FCC, so obviously there is considerable public interest.
I am not saying that the FCC has not done their job, has
not conducted a thorough review or analysis. The question is,
Do we have an opportunity to have input before these rules are
made final? In 3 weeks, on June 2, they will be made final. And
I think that is the issue before us today.
And I want to also say, Mr. Chairman, that I am very
pleased that you have invited Mr. Frank Blethen, who is the
Publisher and the CEO of the Seattle Times, that is owned by
the Blethen newspapers, which Frank has continued the
longstanding tradition of family media newspaper ownership.
These newspapers serve communities for more than 100 years, and
we, in Maine, came to know Mr. Blethen when the Blethen Maine
newspapers purchased the Portland newspapers that were once
owned by another great family, the Guy Gannett Communications
that owned newspapers for more than 100 years in the State of
Maine. So we were fortunate to have one family owned
institution buying another. And under Frank's leadership, the
Blethen newspapers are continuing longstanding community
involvement, independence, and high standards of journalistic
integrity.
So, Mr. Chairman, I appreciate the opportunity to express
my views.
The Chairman. Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman. And welcome to the
witnesses.
Mr. Chairman, I think as we go through this hearing
process, it is important that we do keep in front of us what
the objectives of this regulation is under this statute.
Senator Allen mentioned, and Senator Snowe, as well, that
diversity and competition, those are important to keep in front
of us at all times.
It was suggested, maybe not intentionally, that one of the
jobs of these regulations was to make sure that the information
the public is getting is fair and balanced. Now, that sounds
like a pretty noble goal. But I do not want the FCC in charge
of deciding what is fair and balanced. I do not want
legislators deciding what is fair and balanced. What is
important is that we have diversity, diversity of ideas and
opinions, whether it is coming from newspapers or radios or
television, and not that we look to somehow shape what is or is
not fair or balanced in the eyes of legislators somehow
controlling what information does or does not get out there.
Concerns were raised about, you know, The Matrix being on the
front of a magazine and having a company that owns the magazine
also having rights in the movie. Now, that is not something I
lie awake at night worrying about.
And if you go out to any newsstand right now, The Matrix is
on the front of every magazine. And the week before, SARS was
on the front of every magazine. And why would that be? It is
because magazine owners want to sell magazines, and I think
nothing more and nothing less. I think we have to be careful
about seeing, sort of conspiracies where none exist, because if
we focus on, sort of, the emotionalism of the issue, we are not
going to do a good job in supporting or helping to shape a good
policy or good regulation.
Two final points. First, I think it is important that the
FCC act on these issues in a timely way. There have been a lot
of efforts to slow the process down, to delay the process, to
say, ``Well, you know, there are 3 weeks to go. That cannot
possibly be enough time to really do a proper job here.'' These
regulations have been on the books for decades, and the media
industry, the telecommunications industry, and the broadband
industry are changing at a very, very fast pace, and I think it
is fair to say that these regulations deserve a hard look, if
nothing else.
Second, we have had months, if not years, to collect
information, to review information. And I think to suggest that
the FCC does not have enough information to make an intelligent
decision is simply wrong. They may not make a decision that
every Member in this room will agree with or that every
industry representative will agree with, but I think they have
had ample time to collect information and make a good decision.
And, to that end, I think it is also important that they
have a sound basis for this decision. If, ultimately, these
ownership criteria are arbitrary, we are going to go to court,
and if recent cases are any precedent, they are going to be
struck down. You need a sound basis for maintaining these
regulations that are rooted in the principles of diversity and
competition and locality. And if there is any message that the
FCC should take from these hearings and these discussions, it
is that you have got different opinions, but if you do not have
a sound basis for the regulation, it opens itself up to
litigation, and the public is not well served, the markets are
not well served, and I think that would be a mistake.
I look forward to the testimony and appreciate the time of
the witnesses.
Thank you, Mr. Chairman.
The Chairman. I, too, look forward to the testimony, and I
would ask my remaining colleagues to make their opening remarks
brief.
Senator Cantwell?
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Mr. Chairman. I will make mine
brief. I will submit them for the record and just say that I
also welcome one of the panelists, Frank Blethen, from the
Seattle Times. As far as localism and diversity, it is kind of
interesting that Mr. Blethen has newspapers in two states,
Washington and Maine, and that both those states are
represented by two women Senators. So something is working well
on the diversity side.
With that, Mr. Chairman, I will submit my remarks.
[The prepared statement of Senator Cantwell follows:]
Prepared Statement of Hon. Maria Cantwell, U.S. Senator from Washington
Thank you, Mr. Chairman.
Ownership of the broadcast and print media touches some of our most
core American values: freedom of speech, open and diverse viewpoints,
vibrant economic competition, and local diversity. I am pleased to
welcome our witnesses today to talk on such important matters, and I
want to welcome in particular Washington State's own Frank Blethen,
whose family owns the Seattle Times.
Washington State has a long and rich history of quality local news
and broadcasting, and a strong commitment to highlighting the local
angle.
A similar attention to diversity and localism has served America
well by expanding economic opportunities and energizing civic
discourse. Diversity and localism promote competition and choices for
advertisers. They create opportunities for small companies, minorities,
and women. They allow innovative programming to find an outlet. They
ensure the flow of information necessary to inform the democratic
process. They guarantee that the interests of each community are
served.
If we are to continue to benefit from this freedom of the press,
the Federal Communications Commission will need to answer some tough
questions about the balance between the public interest and the
economic efficiencies that result from consolidation. Since 1934, when
Congress first charged the FCC with regulation of the public airwaves,
its directions have been to regulate ``consistent with the public
interest, convenience, and necessity.''
Because the airwaves are a public resource, Congress required that
the Commission go beyond mere economic analysis and above the bounds of
traditional antitrust analysis. For most of the past sixty years, the
FCC has worked to promote the diversity of owners and viewpoints, to
ensure public access to multiple sources of information, and to meet
the needs of local communities. Indeed, in this pending media ownership
rules docket, the FCC has specifically recognized its mission as
``promoting diversity, competition, and localism in the media.''
While economic efficiencies may be available from relaxation of
these media rules, any benefits must be measured against, and held up
to, the standard of the ``public interest.'' As a Senator who cares
about the citizens of my state, I am concerned that these rules benefit
the radio listener in Cowlitz, the newspaper reader in Burien, and the
television viewer in Methow, not just allow achieving a certain market
share. Economic efficiencies may promote the public interest, but these
efficiencies must be tested against the public interest standard.
These rules must consider the ability of a local public to get
urgent information, and they should not restrict the ability of new
artists to reach listeners. They should not allow one provider to be
the owner of every media source a viewer sees. They should not cause
local advertising rates to skyrocket. If this is the result, it comes
time to question whether relaxation is in fact in the best interests of
the American people.
Broadcast media in all its forms, print, electronic, over-the-air,
have continuing and real obligations to inform and serve Americans.
These media are often licensees of a public good, and are the
``voice'' of news and ideas for many Americans. The FCC must ensure
that these media are responsive to, and representative of, the
political, educational, and entertainment needs of Americans. I hope
that the witnesses today can enlighten us on the ways the FCC can
structure its rules to meet those obligations.
The Chairman. Senator Lott?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. Thank you, Mr. Chairman. I also would like to
ask consent that my statement be put in the record and just
make this one comment.
I think our media-ownership rules are working well. It
makes good sense to review them, but basically I think we
should leave them as they are.
With that, I would like to hear the witnesses.
[The prepared statement of Senator Lott follows:]
Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
Mr. Chairman, thank you for holding this important hearing today on
the media ownership rules which are currently under review by the
Federal Communications Commission. Media ownership is a topic which has
always been of great interest to me, and I have been following the
status of the biennial review at the FCC very carefully. I am
particularly interested in those rules which apply to the broadcast
television industry. Since the public airwaves belong to the American
people, I believe that the Federal Government has an appropriate and
proper role to play in overseeing the ownership arrangements which are
permitted for the broadcasting companies which operate over our public
airwaves.
I am especially interested in the 35 percent National TV Ownership
Cap which protects the careful balance of interests in programming
between national and local interests. I am concerned about permitting a
single company to own more local affiliate stations, so that such a
company could control the programming to a share of the national
audience which is greater than 35 percent. I believe that the Nation is
in danger of losing the localism and diversity of viewpoints that are
offered under the current ownership cap structure if the current cap is
raised.
I also believe strongly that network affiliates should have great
freedom to preempt programming when the station management deems it to
be offensive under community standards, and preemption should also be
allowed when local station managers decide that a program of local
interest such as an important ball game would be better programming for
that particular community in that time slot. I am concerned that such
decisions regarding preemption would be curtailed if these decisions
are made even more often in national headquarters offices rather than
by those who work in the local stations. Some participants in this
debate argue that the tremendous growth in the media marketplace in
recent years through options such as cable, DBS, and the Internet
supports a relaxation of broadcast ownership rules. As refreshing as it
is to have more media options for American consumers in the
marketplace, for the most part these options are national in scope,
rather than local.
The Newspaper/Broadcast Cross-Ownership Ban is also of interest to
me. I have heard strong arguments that the ban should be repealed
across-the-board--thus allowing one company to freely pursue the
acquisition of a daily newspaper or broadcast television station,
depending on which of the two the company already owns in that market.
Despite the strong arguments for repealing this ban, I am worried about
the effect that lifting the ban would have in smaller markets, such as
the ones in my home State of Mississippi. If one company were allowed
to own both a newspaper and a TV station in one of the small markets in
my state, and that company proves not to be fair, accurate, and
balanced in it's coverage of local news, the detrimental impact of such
news coverage would be multiplied significantly.
I regret that the FCC has not provided more information to Congress
regarding the biennial review that is taking place on media ownership
rules, since major changes in our media marketplace--especially the
change of a number of rules at once--could have a far-reaching impact
on the careful balance of the diversity of voices in our country. It
would be helpful to know more about the diversity index which is being
created by the FCC in order to better assess the effect that various
possible rule changes could have on the media marketplace, and I wish
that we had this information to weigh along with the testimony which is
being provided today. Mr. Chairman, I do look forward to hearing the
testimony of the witnesses who have joined us as this Committee
exercises its oversight responsibilities regarding media ownership
rules.
The Chairman. Thank you.
Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. And I, will just say that I think we all
know common sense tells us that local content helps bring
communities together, that diverse perspectives makes our
democracy work, and that competition ensures that consumers
will get a fair shake.
Thank you.
The Chairman. Thank you, Senator Nelson. I thank my
colleagues.
Our first witnesses are Mr. Mel Karmazin, President and
Chief Operating Officer of Viacom; Mr. Jim Goodmon, President
and CEO, Capitol Broadcasting Company; Mr. Frank Blethen, the
Publisher of the Seattle Times; and Mr. William Dean Singleton,
Vice Chairman and CEO of the Media News Group and Publisher of
the Denver Post and Salt Lake Tribune. Welcome to the
witnesses. Thank you for your patience.
We will begin with you, Mr. Karmazin.
STATEMENT OF MEL KARMAZIN, PRESIDENT AND CHIEF OPERATING
OFFICER, VIACOM, INC.
Mr. Karmazin. Thank you, Mr. Chairman. My voice is gone, so
I will try to do the best I can.
I assume I have about an hour for my opening comments, so I
was going to deliver this testimony. But based on what I heard,
there is no chance I will deliver that. I would rather address
some of the issues that I have heard.
First of all, I was here 2 years ago when the process
started for us to review the biennial, which the 1996 Act
required. It is now 2 years later, and I am still hearing that
we ought to be delaying it because we have not had enough time.
Trust me, we have had enough time to review it. And I agree
with what the Senator said; I may not like everything that
comes out, but clearly June 2 has been too far into the future
for where this issue has been dealt.
I saw an extraordinary chart of a company that showed that
five companies appear to be controlling the world based on that
chart. Viacom is the largest company in the advertising
business. Viacom's revenues in advertising are $12.5 billion.
The advertising pie is $300 billion. We are not Microsoft as
far as what we have. The media business is a very
extraordinarily fragmented business with so much competition
out there that if you take a look at these charts, it has no
semblance of the reality that is taking place in the
marketplace.
Then I heard a story about how one radio operator owns all
of the radio stations in a market. I do not think that is the
way it should be. I would absolutely not endorse that. I
certainly think that diversity and localism and all of those
things are important. I have been a broadcaster for 30 years. I
loved the days when there were only three broadcast networks,
when there was no FM radio, when there was no satellite, when
there was no cable.
In New York City, Senator, there are over 100 radio
stations. Why is it right and what makes anyone believe that
the courts are going to be able to say that eight is the number
that you could have in New York? If you could have six in a
small market, like you described, then in a big market like New
York there really ought to be room for a whole lot more.
Decide how many different owners you believe is
appropriate. Do you believe that in radio in New York you want
five owners, six owners, seven owners? Whatever you feel, the
FCC feels, the courts support, then that would mean maybe one
company should be able to own 10 percent, 15 percent of the
stations in a market, not 100 percent? 15 percent? That would
mean, in New York City, one company would be able to own 15
radio stations, not the eight that is currently mandated.
We agree on the subject of duopoly. We think that local
ownership rules should be expanded. We believe that in some
markets, smaller markets, there should be less expansion than
in bigger markets where there are far more choices. So I think
it is a local issue based on the number of voices, based on the
amount of competition. That should be determined. But this
should be, even though we do not have a horse in that race, we
think in smaller markets there really ought to be expanded
local ownerships so the industry can compete.
We have heard an extraordinary amount of talk about the 35
percent cap. As I understand, the reason, in part, the
Commission is looking at it is the courts determined that the
35 percent cap would not pass muster. We report to the FCC, at
Viacom, CBS, and we report one segment, the network and the
stations. We do not break out our network, we do not break it
separately; it is one segment. And the reason for that is the
network television business is not a very good business. Proof
of it is if you take a look at who is in the broadcast-network
business, the only people who are in it are people who also own
television stations because the television-station business is
a great business, which is why, in part, a lot of the station
operators are against the expansion of the 35 percent cap. In
order for us to preserve.
So why is the Commission looking at this? Because someone
should have an interest in preserving free, over-the-air
broadcasting, because if somebody does not have an interest,
then what would happen is content, sports content first and
then other content, would find its way migrating onto cable,
where you can charge the consumer $2 for a cable channel.
So if the premise behind not giving relief on the 35
percent cap is so that you do not want to encourage free, over-
the-air broadcasting by the networks, then what you will do is
you will encourage the networks, us, to put more of our content
on cable and charge the consumer for that; whereas, today all
they need to do is watch our commercials.
So I have about another hour, but you are looking at me
like I should stop, so I am going to stop.
[Laughter.]
The Chairman. I was not doing that, Mr. Karmazin. Really.
If you want to continue, go ahead.
Mr. Karmazin. That is OK. Hopefully I will get a few
questions.
The Chairman. I am sure you will.
[Laughter.]
[The prepared statement of Mr. Karmazin follows:]
Prepared Statement of Mel Karmazin,
President and Chief Operating Officer, Viacom
Good morning, Chairman McCain, Senator Hollings, and members of the
Committee. I am Mel Karmazin, President and Chief Operating Officer of
Viacom. Thank you for the opportunity to testify today about the FCC's
ownership proceeding and the important review that agency has
undertaken pursuant to Congressional and judicial directives.
Viacom has a well-known position of asserting that fulsome
deregulation of the Commission's outmoded broadcast restrictions is not
only warranted but long overdue. It is utterly unsupportable and
unrealistic that broadcasters should be handcuffed in their attempts to
compete for consumers at a time when Americans are bombarded with media
choices via technologies never dreamed of even a decade ago, much less
60 years ago when some of these rules were first adopted.
The current proceeding has had more focus and public attention than
almost any review in the agency's history. There have been thousands of
comments filed; an official FCC hearing took place in Richmond; and
countless ad hoc hearings have been held in San Francisco, Chicago, Los
Angeles, Seattle, Phoenix, New York and Burlington, Vermont, to name
but a few venues. Letters also have poured into the FCC from both sides
of the aisles in the U.S. Senate and House of Representatives. Little
new can be said on this topic. Any hard evidence to be had is already
on the record and, as many in Congress and the Administration have
said, it is time for the Commission to do its job and complete this
biennial review. The public interest is not served by delay.
Anyone who has read the vast number of submissions in the FCC
ownership proceeding will see that Viacom argues for deregulation of
broadcasting rules across the board--even the ones that have no effect
on us. Conversely, some big and powerful companies, along with their
trade associations, have been arguing that the networks should receive
no relief from the national ownership rules--particularly, the
television cap. At the same time, these companies have been zealously
advocating for relief on all of the local rules so that they can enjoy
the efficiencies of consolidation. At Viacom, there is no talking out
of both sides of our mouth when it comes to arguing for deregulation.
We do not own newspapers, and despite the fact that newspapers are
formidable competitors for ad dollars in local markets, we favor
elimination of the newspaper-broadcast cross-ownership ban. We do not
own television stations in small markets, where unhealthy consolidation
is more likely to occur, but we support relaxation of the local
television ownership rule across all market sizes. For there to be a
robust broadcasting industry, all broadcasters need deregulation of all
broadcast ownership rules.
In the 1996 Telecommunications Act, Congress mandated that those
wishing to preserve the broadcast ownership rules must prove that the
rules are still necessary in light of competition. Viacom has joined
with FOX and NBC in submitting substantial and compelling economic and
factual evidence that cannot be ignored or refuted by proponents of the
status quo. Those who favor maintaining the regulations have failed to
carry their burden. The Commission, therefore, must repeal or modify
the broadcast ownership rules--that's what the statute says.
Let's focus on the national television station cap, the most
vigorously debated rule under consideration. This rule, which limits
ownership to TV stations serving 35 percent of the nation, is supported
most ardently by network affiliates, the Network Affiliated Station
Alliance, and their trade association, the National Association of
Broadcasters. The arguments they have come up with against deregulating
this rule are woefully lacking.
First, NASA/NAB argue that affiliates, as opposed to stations owned
and operated by the networks--known as O&Os--are ``local'' and,
therefore, better understand and know their viewers. This is simply not
true. Most television stations in this country are held by multi-
station groups owned by large corporations headquartered in cities
located far from their stations' communities of license--Hearst-Argyle
and the New York Times in New York, Tribune in Chicago, Cox in Atlanta,
Belo in Dallas, Post-Newsweek in Detroit. What does it matter that
Viacom's main offices are in New York? The corporate group owners are
no more ``local'' in the cities where they own TV stations than is
Viacom. Yet, like Viacom and all good broadcasters, group owners work
hard to know what viewers want in each market where it has a media
outlet. Localism is just good business.
Networks invest billions of dollars in that programming, but most
of the return on their investment is realized at the station level.
Only two of the so-called ``Big Four'' networks are profitable in any
year, operating on low, single-digit margins. Compare the networks to
television stations--run by networks and affiliates alike--which
operate on margins anywhere from 20-50 percent. If networks are
precluded from realizing more of the revenue generated by stations,
networks' ability to continue their multi-billion dollar programming
investments will diminish, and more and more programming will migrate
from broadcasting to cable and satellite TV, where regulation is less
onerous. More Americans then will have to pay for what they now get for
free.
NASA/NAB's second argument, that affiliates provide more local news
than do network-owned and-operated stations is, again, false. In a
study commissioned by Viacom, FOX and NBC, Economists Incorporated
found that the average TV station owned by a network provides more
local news per week--37 percent more--than does the average affiliate--
a finding consistent with the FCC's own independently conducted study.
Third, NASA/NAB contend that affiliates preempt network programming
substantially more often than do O&Os in order to substitute
programming more closely attuned to the interests of local viewers.
Wrong again. In another study, Economists Incorporated found that
preemption rates for both O&Os and affiliates in 2001 amounted to less
than one percent of prime time programming, with affiliates a bit
higher than network-owned stations. But the difference in preemption
time cannot be attributed to affiliates caring more about their local
viewers than their own bottom lines. Rather, as the study found, any
difference between the preemption levels of O&Os and affiliates is
largely due to higher rates of economic preemptions by affiliates (that
is, for paid programming and telethons), not local public affairs
programs and high school football, as they would have you believe. Nor
is it true that affiliates stand as the bulwark against allegedly
inappropriate network programming. The fact of the matter is that
preemptions based on content are rare. But in the handful of cases over
the past years when an affiliate has determined that a program's
subject may be too sensitive for its market--as was the case last week
with our Providence affiliate with respect to the ``CSI: Miami''
episode dealing with fire hazards at nightclubs--we understand and
accommodate. Our own stations would do the same thing for their
market's viewers.
Finally, NASA/NAB argue that raising the cap will leave affiliates
in need of protection in their network relationship. Companies like
Cox, Hearst-Argyle, Gannett, the New York Times, and the Washington
Post hardly need protection. Instead, networks and their affiliates
need each other. Broadcast networks rely almost exclusively on
advertising revenues for their survival, and a prominent feature of the
pricing that broadcast networks can still charge despite declining
audience levels is that they provide advertisers access to all U.S.
households in 212 television markets virtually simultaneously. If a
network cannot maintain affiliations in all of those markets, it loses
its uniqueness in the advertising sales marketplace. Despite the
inevitable tensions in the network-affiliate relationship, no network
can afford to risk losing affiliations in even one market, much less 10
or 20 or 50.
Through this proceeding, the networks are seeking the opportunity
to invest even further in the broadcasting industry. Doing so is a vote
of confidence for all broadcasters: It will only serve to increase the
value of television stations, and it ensures that free, over-the-air,
quality programming will continue to be available to American
households.
I'd like also to address radio ownership, because in the last few
months, radio consolidation has become the poster child against
deregulation, the so-called ``canary'' signaling trouble in the mines
of ownership rules relaxation. It's time for a reality check. It's true
that the 1996 Telecom Act eliminated the limit for ownership of radio
stations nationwide. But that doesn't mean the radio market is
concentrated. There are 3,800 separate owners of commercial radio
stations across the country. While the largest radio owner nationwide
owns about 1,200 stations, that number constitutes only about 11
percent of the nearly 11,000 commercial radio stations in this country.
Viacom does not even rank among the top three radio owners. After Clear
Channel, the second largest radio owner is Cumulus Broadcasting, with
258 stations. Third largest is Citadel Communications, with 210
stations.
Through its Infinity Broadcasting, Viacom is the fourth largest
radio station owner, with 185 stations nationwide, a mere 1.7 percent
of all commercial stations. Further, our stations are located in only
42 of the 286 radio markets in the United States. That means that
Infinity has no radio station in 85 percent of the Nation's markets.
Even in the smallest market where we operate--Palm Springs, California,
ranked 162--Infinity owns a single radio station out of a total of 21
commercial radio stations operating there. Yet, despite the fact that
Infinity lags behind the largest group owner by more than 1,000 radio
stations, we rank second to it in terms of revenues. This attests to
the fact that competition is, indeed, alive and well in the radio
industry. In 1992, 60 percent of all radio stations were losing money.
Thanks to Congress and its wisdom, the radio industry is healthier
today.
The single biggest complaint of those opposing radio deregulation
is that diversity has been lost and that the same songs are played on
every radio station across the country. Just not true. The FCC's study
found that song diversity has remained largely unchanged since 1996.
And format diversity has also increased since that time, according to
studies by Bear Stearns, Katz Media Group and others. Most importantly,
listeners are happy. An Arbitron study released earlier this year found
that radio listeners are ``very pleased'' with the programming choices
available to them. More than two-thirds, or 69 percent of those
surveyed, said their local stations do a ``very good'' or ``good'' job
of providing a wide variety of programming. And nearly 75 percent of
listeners think that their local radio stations do a ``very good'' or
``good'' job of playing the music they like.
Deregulation at the national and local levels has not changed the
fact that Infinity, like any serious broadcaster, continues to operate
the old fashioned way--by managing and programming all of its radio
stations at the local level. Excellence in service to our customers--
that is, the local listeners--is critical to our stations' financial
success. In order to attract advertisers, who are the sole source of
revenue for radio, we must lure listeners with programming they want.
Moreover, our station managers live where their radio stations are
located, and they care about their communities.
Once you look at the radio facts, you will see that deregulation
has made the canary a happy fellow.
In conclusion, the FCC must move forward now and complete its
review based on the realities of today's competitive media marketplace.
That's what the public interest demands.
Thank you.
The Chairman. Mr. Goodmon?
STATEMENT OF JAMES F. GOODMON,
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CAPITOL BROADCASTING COMPANY, INC.
Mr. Goodmon. Well, good morning, Mr. Chairman.
My name is Jim Goodmon. I am President of Capitol
Broadcasting Company in Raleigh. It is a family-owned company.
We own television stations in the Carolinas, and some radio. I
am the third-generation president of my company. The fourth is
now the program director of one of our stations, and the fifth
would be working there, my grandson, if it did not violate the
child labor laws. We are a family business.
I also consider myself the best CBS affiliate in America. I
hope Mr. Karmazin thinks that. We have worked very closely.
[Laughter.]
Mr. Goodmon. We were the first digital television station
in the United States, the first high-definition, and all that
was through our work with----
The Chairman. Let us not get into that one.
Mr. Goodmon.--CBS.
[Laughter.]
Mr. Goodmon. No, I am going to mention that. And then I am
very proud of the progress that CBS has made. We are a proud
CBS affiliate.
Having said that, I need to suggest that I basically do not
agree with anything that Mr. Karmazin said.
[Laughter.]
Mr. Goodmon. And let me go through that. I am here to talk
about, specifically, the 35 percent cap.
Now, the law says that when the Commission considers
ownership, it should consider the public interest. And in the
Commission's rulings, they consistently say, ``OK, what is that
public interest?'' It is localism, diversity, and competition.
Now, I would suggest that there is not any way you can say that
allowing these large companies to own more television stations
improves localism, improves diversity, or improves competition.
I mean, it is intuitive. It does not happen.
If you go by the law and if you look at the rules the
Commission wrote, localism, diversity, and competition, there
is no way you could say we should have fewer owners, we should
have these large companies owning more TV stations. Well, now
how do they get to it? Because that is what the Commission has
said they are going to--how do they get to this localism,
diversity, and competition is not important?
Well, the first way they get there is they say, ``Wait a
minute. These rules are old-fashioned. What are you talking
about? We have got all these cable channels, we have got all
this satellite stuff, we have got the Internet, we have got
TiVo, we have got wireless. These rules do not make a
difference anymore.'' Senator Allen, your point is that we have
got all this diversity. OK? My suggestion is that when you look
at that, you need to consider that in all those things I talked
about, the only industry, the only group, the only
organizations that are specifically charged with local service
are local broadcasters.
I would suggest to you, you could have 500 cable channels
and you will never hear the name of your town mentioned. Those
are national services--national cable, national satellite.
There is no local requirement on the Internet.
So I do not think there is a substitute. I would not agree
with you that can substitute cable, satellite, the Internet for
local broadcasting stations. Now, remember, there is a fixed
number of these things, that there is a fixed number of these
stations. It is very dangerous, when you have a fixed number of
things, to let large groups own more and more of a very fixed--
it is fixed--this is not open market, free market. This is a
fixed number of stations.
So the first thing they say is, ``Well, diversity--these
rules do not make any difference because we have got all this
other stuff.''
The second issue is that the broadcasting industry somehow
needs economic assistance. I would suggest that any study you
do would show that broadcast television stations are the most
profitable business in the history of the United States. The
head of Fox just announced a 54 percent cash-flow margin for
his O&Os. I mean, these are the most profitable things you can
have. Now, I am having trouble with--we are going to change
this localism-diversity-competition notion for an economic
reason. I mean, this is a very profitable industry.
Now, and then the last is, ``Wait a minute, the R-word has
left Washington. The R-word is gone. There is going to be--we
are going to get rid of regulation.'' Deregulation. Let the
free market decide here. I would just point--it is not a free
market. There are a limited number of television stations. And
anytime you study that kind of market, you fight very hard
against concentration because you and I cannot start a TV
station. You cannot. I mean, there is a limited number of them.
You cannot do that.
So the reason that the Commission is giving for avoiding
localism and diversity and competition are not right. I mean,
they do not--I cannot make it compute.
Two other things. What you are going to do when you allow
the networks to own more and more local affiliates is, you are
basically saying, OK, we are going to let you program those
local stations. I want to give you two examples quickly.
Fox announced they want to do ``Marry a Millionaire.'' They
paraded 25 or 30 women across the stage in bikinis. There was a
guy behind the microphone. He picked the one he liked, and they
got married. I mean, a legal marriage.
OK, now, we said, at our Fox affiliate, ``We are not going
to do that.'' You know, we are taking all this reality stuff.
It is really tough to take all that. But we said we are going
to stop a demeaning marriage and the family. We did not take
it. Fox got upset with us about it, but we got through it.
Now, the point I am making, and this is a very important
point, it is--I am not saying I did the right thing. People
were mad we did not take it; people, you know, wanted to
congratulate us for doing it, but I said I did something. I
tried to make a local decision. I tried to make a decision that
had something to do with where I lived and what my community--
there is no manager of a Fox station that would not clear that
program. As a matter of fact, if you look at the record, in
history there has never been a network-owned station that
preempted a network program for content reasons. That has never
happened.
So what you are doing now when you raise these caps is you
are saying, ``OK, this is fine. We are going to let them decide
what the program is in L.A. We are going to let them put it on
their network, and then we are going to let them put it on the
local station.'' Now, that does not have anything to do with
the way local broadcasting is supposed to work, in my view.
One other--we can talk about--there are two or three other
programs, but I do not have the time to do that. Let me suggest
this. What you all are saying, Senator Allen and Senator
Sununu, you all are saying we have got all this diversity; and,
therefore, these rules are not important. I would take it a
step further. I would say that because the networks have the
most popular cable channels, because the networks have the most
popular Internet sites, these other mediums we were talking
about, they also dominate those mediums, that we have less
diversity. We have got a whole lot more channels, but we do not
have a whole lot more voices. I mean, it is not even--well, you
can tell what I am working on. I mean, I just do not buy this
diversity business.
And, finally, I am having the worst time getting people to
talk to me about this. We have a 35 percent rule, which says
stations can own 35 percent of the country. We do not have a 35
percent rule. We have a 70 percent rule, because a UHF station
only counts half. So you can own 70 percent of the country
under the current rule. We raise it to 45, then you would be
able to own 90. So the suggestion--I do not get this. It is not
a 35 percent rule; it is a 70 percent rule. And the notion that
we are supposed to raise a 70 percent rule, I cannot get them
interested in this at the Commission.
And one final factor. We are now in the middle of--I am
getting back to what you told me to not talk about--we are now
in the middle of an enormous transformation in broadcasting
from analog to digital. We are right in the middle of this.
Right? Why in the world would we change ownership rules?
Because we do not know what in the world the digital future is.
On one station, I can run five channels, or I could run HD. Why
are we doing this now? I mean, it does not make sense to
consider ownership changes right here in the middle of the
digital transition.
And if you are interested in the future economics of the
broadcasting industry, please make some rules for digital.
Listen, I have been on the air 7 years, and I still do not have
the rules for the digital transition. That is the economic help
that we need in broadcasting.
So I want to thank--it looks like it is lost in FCC, the
position that we are taking. I wanted to thank Congressmen
Burr, Dingell, Deal, Markey, and Price, for H.R. 2052, which
will codify the national cap. My understanding is that there
will be a--the same bill will be introduced in the Senate, and
I really urge you all to take a look at that. I really urge you
to take a look at codifying the 35 percent cap.
And, by the way, the recent poll that was published says 72
percent of your constituents do not even know we are talking
about this. This is sort of inside baseball to 75 percent of
the country. And you are not going to find anybody--I have not
seen anybody who says it is a good idea to let the big
companies own more stations. It just does not fit.
I will say, again, that I am the best CBS affiliate in
America, and I love CBS, and it was very hard for me to oppose
my Chairman.
And thank you very much.
Mr. Karmazin. He should have been sworn in.
[Laughter.]
[The prepared statement of Mr. Goodmon follows:]
Prepared Statement of James F. Goodmon, President and Chief Executive
Officer, Capitol Broadcasting Company, Inc.
Chairman McCain, Senator Hollings and members of the Committee, I
appreciate the opportunity to appear before you in support of the
public interest and its core values--localism, diversity and
competition. I am Jim Goodmon, President and Chief Executive Officer of
Capitol Broadcasting Co., Inc., which launched the Nation's first
digital broadcast station 7 years ago. Capitol owns and operates five
television stations and one radio station--all in the Carolinas.
Although we own the facilities and equipment, the airwaves are valuable
public property--property that deserves our respect. As a third
generation broadcaster, I am concerned that we are no longer adequately
guarding the airwaves. That is why I believe that it is imperative that
we retain the national television ownership cap at 35 percent. I want
to quickly address four issues and concerns: the uniqueness of
broadcasting as a medium; the attack on localism; the myth of
marketplace changes creating more diversity; and the reality of today's
35 percent rule being a 70 percent rule.
The Uniqueness of Broadcasting as a Medium
First, broadcasting is a unique medium--distinct from all other
media. Our licenses are granted by the Commission to serve ``the public
interest, convenience, and necessity'' of a local community. It does
not matter if you own a station in New York City or Glendive, Montana.
It does not matter if you own one station or 50. Our duty is the same.
We must serve the public interest and reflect local community
standards. No other medium is charged with this responsibility.
Due to spectrum scarcity creating a significant barrier to entry, a
free market analysis simply does not apply to the broadcasting
industry.
And there is no substitute for local broadcast television. It is
free and available to all the Nation's economic levels. It is the
primary source for local news, weather, public affairs programming, and
emergency information. Two hundred national cable and satellite
channels cannot replace a single local news and information signal.
The Attack on Localism
Broadcasting's uniqueness begins with localism, which is the second
issue I would like to address. Your predecessors wisely made localism
the bedrock upon which broadcasting in the United States was built, but
today large media giants are trying to replace localism and community
standards with financial opportunity and corporate objectives. Since
the national television cap was increased from 25 percent to 35
percent, we have seen significant consequences, including a shift in
the delicate balance of power between the networks and local affiliates
resulting in many local programming decisions being made in New York
and Los Angeles, not Phoenix or Columbia or Juneau or Baton Rouge or
Topeka.
At Capitol, we made the decision not to air several FOX reality
programs, including ``Temptation Island,'' ``Who Wants to Marry a
Millionaire'' and ``Married By America'' because we thought they
demeaned marriage and family. Managers at stations owned by the Fox
network could not have made those decisions. The record at the
Commission does not include a single example of a network owned and
operated station pre-empting a program based upon community standards.
I am not saying we made a right or wrong decision--I am simply saying
we made a local decision reflecting our view of local community
standards in Raleigh-Durham, North Carolina. Promos are also an issue
of concern. During last year's World Series, we ran alternate network
promos due to the violent and explicit promos FOX planned to air to
promote its new line-up of network shows. Why? Because we believe the
World Series should be family-friendly programming. The right to reject
or preempt network programming must remain at the local level for
stations to discharge their duty to reflect what they believe is right
for their individual communities, whether it is to reject network
programming based on community standards or whether it is to preempt
national network programming in order to air a Billy Graham special,
the Muscular Dystrophy Telethon or local sports.
I can't imagine that anyone in this room really wants to take away
local control over television programming. The Parents TV Council says
that American families are ``disgusted'' by the ``raw sewage . . . that
is flooding into their living rooms day and night through the
television screen, and poisoning the minds of an entire generation of
youngsters.'' The Christian Coalition, Family Research Council, and
others joined in a call to reinstate the family hour. And in my own
state, the North Carolina Family Policy Council recently spoke out in
favor of the 35 percent cap to maintain local control.
In the early days of broadcasting, there were three checks and
balances--the content providers as producers, the networks as
wholesalers and aggregators of programming, and the local affiliates as
the distributors. Independent producers no longer provide checks and
balances because the networks now produce much of their own programming
thanks to vertical integration, and as the networks are allowed to buy
more local stations, they are becoming the distributors as well--
dissipating the final check and balance. Can you imagine only having
one branch of government? In effect, that is what is happening to
broadcasting.
The Myth of Marketplace Changes Creating More Diversity
Third, proponents of media deregulation claim that the marketplace
has changed--that there are now 100s of cable and satellite channels
and thousands of Internet sites. Yes, it is true that there are more
outlets, but the voices are the same. The bottom line is that five
companies--four of whom are the broadcast networks--control most of the
so-called new voices in the marketplace. Those five companies own most
of the top-rated cable channels, as well as the most-viewed websites. I
contend that it is a myth that marketplace changes have created more
diversity.
The 35% Rule is Actually a 70% Rule
Fourth, today's 35 percent rule is actually a 70 percent rule due
to the UHF discount, which allows owners to only count 50 percent of
the TV households in markets in which they own UHF stations. This rule
is outdated with over 85 percent of all viewers receiving their local
signals via cable or satellite. And when the digital transition is
complete, the rule will be obsolete with 94 percent of all digital
stations being located in the UHF band.
Conclusion
Three final thoughts in conclusion, the economic arguments offered
by those proposing increasing the cap are ludicrous. Free over-the-air
and network television is a very profitable business with tremendous
margins that other industries envy. With deregulation comes a flood of
investment bankers, the people that stand to gain the most from the
Commission's proposed action. And with the digital transition, now is
not the time to make major ownership changes. The technology and its
multiplicity of uses are changing daily. With digital it is technically
possible to broadcast four or five channels on a single station. My
point is that after 7 years of operating a digital television station,
and experimenting with a number of ideas, we still don't know where the
transition will lead. To open the gates at this point is dangerous. We
need to know more before making decisions that could have dramatic
impact on a communication future still to be determined. Finally, I am
concerned, as we all should be, that deals are going on between certain
members of the Commission and a few large media groups. A letter from a
major broadcast group to Chairman Powell offers to ``trade'' increasing
the ownership cap for other concessions. Deal making should not be
taking place between a few media giants and a government agency with
appointed, not elected, officials.
Let's honor the system that has served our democracy so well in the
past and require that the airwaves be used for the ``public interest,
convenience, and necessity'' on a local basis, like your predecessors
envisioned. We must retain the national television ownership cap to
preserve localism that reflects local community standards. I am
grateful to Congressmen Burr, Dingell, Deal, Markey and Price for
introducing H.R. 2052 on Friday to codify the national cap at 35
percent. I urge the Senate to introduce a companion bill. One poll
shows that 72 percent of your constituents are not aware that media
ownership restrictions may be relaxed, so I am grateful this committee
is giving this issue attention. Thank you for allowing me to testify.
The Chairman. Mr. Blethen, welcome.
STATEMENT OF FRANK A. BLETHEN, PUBLISHER,
THE SEATTLE TIMES
Mr. Blethen. Good morning. Thank you for having me.
I am Frank Blethen, the fourth, family publisher of the
fourth-and-fifth generation private family-owned Seattle Times.
I appreciate the comments from the Washington Senator, where my
family has 107-year connection, six generations.
The Chairman. Pull the microphone just a little bit closer,
please, Mr. Blethen.
Mr. Blethen. Is that OK?
And from the Senator from Maine, where my family has a 12-
generation connection. But, Chairman, I think only you know
that I am probably the only Sun Devil that is testifying today.
[Laughter.]
The Chairman. Thank you.
Mr. Blethen. There is, in freedom, a variety of voices.
There is, I believe, a fundamental reason why the American
press is strong enough to stay free. That reason is that the
American newspaper, large and small and without exception,
belongs to a town, a city, at the most to a region.
``The secret of a free press is that it should consist of
many newspapers, decentralized in their ownership and
management, and dependent for their support on the communities
where they are written, where they are edited, and where they
are read.'' These eloquent words were from noted journalist
Walter Lippman, more than 50 years ago. Today, we live in the
America of Mr. Lippman's worst nightmare, an America whose very
democracy is at risk because we are on the verge of losing our
free press.
When I began my career, American democracy appeared secure.
Its foundation was the 1,700-some newspaper voices deeply
connected to the communities that they served. Today, there are
fewer than 280 of us independents left, and most in small
communities.
Recently, we saw the L.A. Times fall to a Wall-Street-
driven conglomerate. We are about to witness the same fate for
the Orange County Register. Imagine that by the end of the
year, L.A. will no longer have a newspaper owned and managed by
people who care about or are a part of the city. This is our
future if you permit repeal of the cross-ownership ban and
other FCC restrictions on monopolization.
This committee gave us a peek into this bleak future with
your recent hearings on the abuses of radio concentration and
cable rates. Less localism, fewer voices, less access, less
original information, and higher advertising rates and consumer
subscription rates. If cable rates and Clear Channel made you
nervous, just wait for the monopolization feeding frenzy if
cross-ownership is repealed.
More than 200 years ago, Thomas Jefferson said he foresaw
battles, ``between rapacious capitalism and democracy.''
Jefferson understood that power and size, left unchecked, would
invite abuse and would crowd out civic values and overwhelm the
public interest.
It is instructive that the only entities that want these
rules repealed are large, Wall-Street-driven conglomerates.
They claim they need less competition and more monopolization
to compete, yet these are very lucrative businesses. They brag
about newspaper profit margins of 30 percent or greater, and up
to 50 percent on their broadcast houses. These are hardly
businesses that need to worry about new competition.
Ownership matters. Lippman's variety of independent voices
gave us the structure for the press' critical watchdog
function. Media concentration and Wall Street ownership has
turned the watchdog into a lap dog. It has always been that the
most serious problem in American journalism is not what we
cover, but what we do not cover. When the watchdog stops
barking, we are all in trouble.
The FCC rules discussion has been a big business, special-
interest discussion conducted in dark behind closed doors
without the light of media scrutiny and the enlightenment of
robust public debate. Why? Because the corporate entities that
financially gain from monopolization now control most of what
we read, see, and hear, and how we receive it.
The arguments made for less regulation are false. Yes, we
have the Internet, and we have hundreds of cable channels. But
we all know most reliable news and information on the Internet
or cable is generated from already existing newsrooms almost
always from newspapers. Simply repackaging and repeating
someone else's content is hardly new news. And, besides, the
very corporations who claim this is a new competition have
already monopolized the most visited Internet sites and cable
ownership. There may be more access points, but there are fewer
voices and less competition.
This committee has become the first line of defense in
Jefferson's battle to save our democracy from rapacious
capitalism. There is no business justification that I am aware
of, other than monopolization, for lifting any of the current
rules or allowing any entity to engage in any cross-media
ownership.
As a businessman journalist, as a local independent, my
family knows how to make a profit to survive. We have no
problems with profits. They are essential. But in our family,
we have a saying that we make money so we can practice fiercely
independent journalism. We represent and are beholden only to
the citizens of the handful of communities we are privileged to
serve. We are not beholden to Wall Street or any other powerful
local sources. We are our community's watchdogs. But we are a
fast-dying breed. America needs your leadership to take freedom
of the press off the endangered species list.
Thank you.
[The prepared statement of Mr. Blethen follows:]
Prepared Statement of Frank A. Blethen, Publisher, The Seattle Times
Freedom Is a Variety of Voices
``There is freedom in a variety of voices.''
``There is, I believe, a fundamental reason why the American press
is strong enough to remain free. That reason is, that, the American
newspaper, large and small, and without exception, belongs to a town, a
city, at the most to a region.''
The secret of a free press is, ``that it should consist of many
newspapers decentralized in their ownership and management, and
dependent for their support--- upon the communities where they are
written, where they are edited, and where they are read.''
These eloquent words were from noted journalist Walter Lippman more
than 50 years ago.
Today, we live in the America of Mr. Lippman's worst nightmare.
An America whose very democracy is at risk because we are on the
verge of losing our free press.
When I began my career, American democracy appeared secure. It's
foundation was the 1,700 newspaper voices deeply connected to the
communities they served.
Today, there are fewer than 280 of us independents left.
Most in small communities.
Concentration and Monopolization Feeding Frenzy
Recently we saw the L.A. Times fall to a Wall Street-driven
conglomerate. We are about to witness the same fate for the Orange
County Register. Imagine, by the end of the year L.A. will no longer
have a newspaper owned and managed by people who care about or are part
of the city.
This is our future if you permit repeal of the cross ownership ban
and other FCC restrictions or monopolization.
This Committee gave us a peek into this bleak future with your
recent hearings on the abuses of radio concentration and cable rates.
Less localism, fewer voices, less access, less--information and
higher advertising and subscription rates.
If cable rates and Clear Channel make you nervous, just wait for
the monopolization feeding frenzy if cross ownership is repealed.
Bigness and Power Corrupt
More than 200 years ago, Thomas Jefferson said he foresaw battles
between ``rapacious capitalism and democracy.''
Jefferson understood that power and size, left unchecked, would
invite abuse and would crowd out civic values and overwhelm the
public's interests.
It is instructive that the only entities that want the rules
repealed are the large Wall Street-driven conglomerates.
They claim they need less competition and more monopolization to
compete.
Yet, these are very lucrative businesses.
Monopoly Profit Margins
They brag about newspaper profit margins of 30 percent, and up to
50 percent on broadcast houses.
These are hardly businesses that need to worry about new
competition.
Ownership Matters
Ownership matters.
Lippman's variety of independent voices gave us the structure for
the press' critical watchdog responsibility.
Media concentration and Wall Street ownership has turned the
watchdog into a lapdog.
It has always been that the most serious problem in American
journalism is not what we cover, but what we don't cover. When the
watchdog stops barking we are in trouble.
The FCC rules discussion has been a big business, special interests
discussion. Conducted in the dark, behind closed doors. Without the
light of media scrutiny and the enlightenment of robust public debate.
Why?
Because the corporate entities that financially gain from
monopolization now control most of what we read, see and hear.
False Arguments
The arguments made for less regulation are false.
Yes, we have the Internet and we have hundreds of cable channels.
But we all know most reliable news or information on the Internet
or cable is generated from already existing newsrooms, almost always
from newspapers.
Simply repackaging and repeating someone else's content is hardly
new news.
And besides, the very corporations who claim this is a new
competition have already monopolized the most visited Internet sites
and cable ownership.
There may be more access points, but there are fewer voices, and
less competition.
Action
This committee has become the first line of defense in Jefferson's
battle to save our democracy from rapacious capitalism.
There is no business justification that I'm aware of--other than
monopolization--for lifting any of the current rules or for allowing
any entity to engage in cross-media ownership.
I am a businessman/journalist. As a local independent, I know how
to make a profit to survive. I have no problem with profits. They are
essential.
But in our family, we make money so we can practice fiercely
independent journalism. We represent and are beholden only to the
citizens of the handful of communities we are privileged to serve. We
are not beholden to Wall Street or any other powerful local forces.
We are watchdogs.
We are a fast-dying breed.
America needs your leadership to take freedom of the press of the
endangered species list.
Thank you.
The Chairman. Thank you.
Mr. Singleton?
STATEMENT OF WILLIAM DEAN SINGLETON, VICE CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, MEDIANEWS GROUP, INC.; IMMEDIATE PAST
CHAIRMAN OF THE BOARD OF
DIRECTORS, NEWSPAPER ASSOCIATION OF AMERICA
Mr. Singleton. Good morning.
I am Dean Singleton, Vice Chairman and Chief Executive
Officer of Media News Group, a private, family-owned company
that publishes 50 daily newspapers, from the Denver Post, in
Colorado, to the Humboldt Sun, in Winnemucca, Nevada, as well
as 121 non-daily newspapers. I am also immediate past-Chairman
of the Board of the Newspaper Association of America.
I cannot talk very much today about the bikini-clad women
on TV. We just print news, and we would like to be able to
broadcast it.
I am very pleased to appear before the Committee today to
discuss the compelling reasons for eliminating the FCC's long
outdated and counterproductive ban on newspaper/broadcast
cross-ownership. The newspaper ban is the last vestige of a
series of one-outlet-per-customer local media-ownership
restrictions adopted by the FCC in the 1960s and 1970s. Of
those limitations, only the newspaper/broadcast cross-ownership
rule has remained completely unchanged over the past three
decades. All of the Commission's other restrictions on
broadcast ownership have been either eliminated or
significantly relaxed over the years. Only newspapers have been
completely barred from participating in the broadcast markets
of their local communities.
This inaction on the part of the Commission is not for a
lack of evidence. To the contrary, in four exhaustive
proceedings over the past 6 years the agency has accumulated a
mountain of evidence supporting the repeal of the newspaper/
broadcast cross-ownership ban.
In 1975, when the FCC adopted the ban, hundreds of
newspapers were allowed to keep their broadcast stations. Forty
of so of those grandfathered communities still exist today.
These communities have essentially taken the guesswork out of
eliminating the ban. They have provided the Commission with
illustrative case studies of the substantial public-interest
benefits that will result from repeal of this rule.
Representing the full gamut of market sizes, the record shows
that they have consistently provided their communities with
unmatched levels of service.
At the same time, there is simply no evidence that the
existing grandfathered situations have threatened competition
in their local markets. To the contrary, there is substantial
evidence before the FCC showing that even the smallest markets
containing newspaper/broadcast combinations remain vibrantly
diverse and competitive.
The evidence offered by grandfathered communities further
shows that co-owned outlets generally present diverse
perspectives on news and informational issues. Jointly owned
newspapers and broadcast stations have strong economic and
professional incentives to avoid coordinating their viewpoints.
Local autonomy and editorial freedom is the tradition of
newspapers, and the same principles apply to the operation of
local stations owned by newspapers.
The evidence presented by newspaper publishers and other
parties has been confirmed by several recent studies. A study
commissioned by the FCC specifically found that, and I quote,
``Affiliates co-owned with newspapers experience noticeably
greater success over our measures of quality and quantity of
local news programming than other network affiliates.''
The results of a 5-year study released by the Project for
Excellence in Journalism at Columbia University echoes these
findings. That study concluded that, ``Stations in cross-
ownership situations were more than twice as likely to receive
an A grade than were other stations,'' and that, on the whole,
``these stations were more likely to do stories that focused on
important community issues and more likely to provide a wide
mix of opinions.''
Let me offer what I believe would happen close to home in
my newspaper markets. Fairbanks, Alaska, is perhaps the most
remote, isolated community in America. There are six commercial
television stations in the market. All struggle financially.
Under today's rules, my newspaper thrives with an award-winning
news presentation while the television stations struggle to
broadcast even a small amount of local news. There are no
commercial news radio stations. In Central and Northern Alaska,
many communities cannot get my newspaper delivered because they
are so isolated, but they can get radio and television. They
deserve more.
In Eureka, California, in another remote section of the
country, there are four commercial television stations. The
strongest station has a news staff of 11, and the other 3 do
not produce substantive newscasts at all. Imagine the community
service we could provide by putting our newspaper resources
behind television and radio news, especially if we purchase a
station that produces no news today.
I own a newspaper in Pittsfield, Massachusetts, which
covers the western quadrant of Massachusetts. There is no
television station there and there never has been. If this rule
is changed, we could put a TV station on the air that provides
local television news for the first time ever in that
community.
Newspapers will add new resources to struggling television
and radio enterprises, and those broadcast outlets will
strengthen newspapers as the number of media choices continue
to explode in a changing media environment. If the FCC's
decision is based solely on the record evidence and not on
political emotion, the Commission will be compelled to
eliminate the archaic and wholly unnecessary cross-ownership
prohibition.
Thank you. I will be happy to answer questions.
[The prepared statement of Mr. Singleton follows:]
Prepared Statement of William Dean Singleton, Vice Chairman and Chief
Executive Officer, Medianews Group, Inc.; Immediate Past Chairman of
the Board of Directors, Newspaper Association of America
Good morning. I am Dean Singleton, Vice Chairman and Chief
Executive Officer of MediaNews Group Inc., a private company that
publishes 50 daily newspapers--including The Denver Post, the Los
Angeles Daily News and The Salt Lake Tribune--as well as 121 non-daily
newspapers.
I am also the immediate past-Chairman of the Board of the Newspaper
Association of America. I am very pleased to have this opportunity to
appear before the Committee today to discuss the compelling reasons for
eliminating the FCC's long outdated and counterproductive ban on
newspaper/broadcast cross-ownership.
The newspaper ban is the last vestige of a series of ``one outlet
per customer'' local media ownership restrictions adopted by the FCC in
the 1960s and 1970s. Of these limitations, only the newspaper/broadcast
cross-ownership rule has remained completely unchanged over the past
three decades, with only four permanent waivers of the rule granted by
the FCC over the last 28 years. All of the Commission's other
restrictions on broadcast ownership have been either eliminated or
significantly relaxed over the years. Aside from these four situations
and the newspaper/broadcast combinations that were ``grandfathered''
when the rule was originally adopted, newspaper publishers--alone among
local media outlets--have been completely barred from participating in
the broadcast markets of their local communities.
This inaction on the part of the Commission is not for a lack of
evidence. To the contrary, over the past few years, the agency has
accumulated a mountain of evidence supporting the repeal of the
newspaper/broadcast cross-ownership ban. Recognizing the need to review
the cross-ownership restriction in light of the explosive growth among
media outlets that has occurred in the years since the ban was first
adopted, the FCC has initiated no fewer than four proceedings over the
past 7 years to reconsider the ban. In a scaled-back version of the
promise it made to the Court of Appeals to review the rule in its
entirety during its consideration of the ABC/Cap Cities merger, the FCC
in 1996 launched an inquiry regarding its waiver policy for newspaper/
radio combinations. Two years later, the Commission sought public
comment on the rule as well as other media ownership regulations in its
first biennial review proceeding. In 2001, the agency again gathered
evidence by initiating a broad notice and comment rulemaking proceeding
specifically on newspaper/broadcast cross-ownership. Just over a year
later, that rulemaking proceeding was rolled into the FCC's current
omnibus proceeding on media ownership, giving interested parties a
third opportunity in 4 years to submit evidence on the rule. Each of
these proceedings has produced a wealth of record evidence regarding
the extensive public interest benefits--as well as the lack of public
interest harms--that would result from repealing the ban. There is no
substantial evidence or data in the record supporting the ban.
In particular, the evidence concerning the operations of the 40 or
so grandfathered newspaper/broadcast combinations has essentially taken
the guesswork out of eliminating the ban. These combinations have
provided the Commission with illustrative case studies of the
substantial public interest benefits that will result from repeal.
Indeed, the extensive record before the FCC is replete with evidence of
the clear public interest benefits offered by newspaper-affiliated
broadcast stations. Representing the full gamut of market sizes, these
co-owned facilities consistently have provided their home communities
with unmatched levels of service.
At the same time, there is simply no evidence that the existing
combinations have threatened competition in their local markets. To the
contrary, there is substantial record evidence before the FCC showing
that even the smallest markets containing newspaper/broadcast
combinations remain vibrantly diverse and competitive. The evidence
offered by existing combinations further shows that co-owned outlets
generally present diverse perspectives on news and informational
issues. Jointly-owned newspapers and broadcast stations have strong
economic and professional incentives to, and do in practice, avoid
coordinating their viewpoints. It is important to note that, especially
with newspaper ownership of broadcast stations, viewpoint diversity
does not require ownership diversity. Local autonomy and editorial
freedom is the tradition of newspapers, and the same principles apply
to the operation of local stations by newspapers.
The evidence presented by newspaper publishers and other parties
has been confirmed by several recent studies on newspaper/broadcast
cross-ownership. A study commissioned by the FCC in connection with its
omnibus media ownership proceeding specifically found that
``[a]ffiliates co-owned with newspapers experience noticeably greater
success under our measures of quality and quantity of local news
programming than other network affiliates.'' That conclusion was true
even where the newspaper and TV station were located in different
markets, and the results were even greater for combinations in the same
markets. The results of a five-year study recently released by the
Project for Excellence in Journalism at Columbia University echoes
these findings. That study concluded that ``stations in cross-ownership
situations were more than twice as likely to receive an `A' grade than
were other stations'' and that, on the whole, these stations ``were
more likely to do stories that focused on important community issues,
more likely to provide a wide mix of opinions, and less likely to do
celebrity human-interest features.'' In addition, dispelling any
concern that newspaper/broadcast combinations will simply represent
single, monolithic viewpoints, the FCC-commissioned studies also
confirmed the extensive evidence already on the record that existing
newspaper/broadcast combinations do not demonstrate a pattern of
coordinating viewpoints on important political issues.
Those who oppose relaxation of the antiquated newspaper/broadcast
cross-ownership rule usually predict that mass, national consolidation
of the newspaper and broadcast industries will happen if the rule is
changed. I believe those predictions are unfounded. Instead, relaxation
of the rules will result in dramatically improved information flow in
each local market--market by market.
Let me give you some examples close to home in my newspaper
markets.
Fairbanks, Alaska, is perhaps the most remote, isolated
community in America. There are four commercial television
stations in the market. All struggle financially. One station
covers news with a staff of eight, another has six, the third
has two and the fourth has no local news gathering capacity. My
newspaper employs 31 in the news department. Under today's
rules, my newspaper thrives with an award-winning news
presentation, while the television stations struggle to
broadcast even a small amount of local news. There are no
commercial news radio stations. In central and northern Alaska,
many communities cannot get my newspaper delivered, but they
can get television. Imagine how their lives could be improved
if I could put my 31 newsroom personnel behind television
coverage.
In Eureka, California, in another remote section of the country
on the North Coast of California, there are four commercial
television stations. The strongest station has a news staff of
11, and the other three don't produce substantive local news.
My newspaper devotes 23 people to local news coverage. Imagine
the community service we could provide by putting these news
resources behind television and radio news, especially if we
purchase a station that produces no news today.
I own a newspaper in Pittsfield, Massachusetts, which covers
the western quadrant of Massachusetts. There is no television
station there and never has been. But there is a license
allocated to the market. But with 51 newsroom employees at my
newspaper, I could serve this community with television news
for the first time ever. The current restraints, however, do
not allow that to happen.
And let me talk about a larger market . . . Denver, Colorado.
There are at least three radio stations that call themselves
news stations, but they're really not news stations at all.
They are talk stations. The largest two have news-gathering
staffs of about six, and the other has five. Not much news-
gathering resources. But the two newspapers managed by the
Denver Newspaper Agency have combined news resources of almost
500. Imagine the public service we could provide by putting our
news assets behind a real, full-time news station.
There are similar stories to be told in almost every American
market. Newspapers will add new resources to struggling television and
radio enterprises, and those broadcast outlets will strengthen
newspapers as the number of media choices continue to explode in a
changing media environment.
The fact is that the communications world--and the media
alternatives available to our citizens--has undergone a vast
transformation since the newspaper/broadcast cross-ownership ban was
adopted over a quarter of a century ago. Back in 1975, the FCC was
concerned that daily newspapers might dominate the still-fledging
television broadcast industry. Whatever merits that concern may have
had nearly three decades ago, it simply has no place in today's media
environment. For example, there are now 70 percent more radio outlets
and 50 percent more television stations than there were in the 1970s.
Now omnipresent cable and satellite television services were still in
their infancy in 1975, and the Internet--with its vast potential for
delivering news and information--was non-existent when the newspaper/
broadcast rule was adopted. Traditional media thus have been bombarded
with a host of new, multi-media rivals in recent years.
In this vastly diverse, competitive, and ever-growing environment,
the ban on cross-ownership of daily newspapers and broadcast outlets
plainly is not needed. Quite to the contrary, the extensive record
before the agency demonstrates beyond question that the prohibition
frustrates the achievement of significant and vitally needed operating
efficiencies and, most importantly, deprives the public of enhanced
local news and other new and innovative informational services.
Based on that record evidence, the FCC is required by the terms of
Congress' Biennial Review mandate to eliminate the archaic and wholly
unnecessary cross-ownership prohibition.
Thank you. I would be pleased to attempt to answer your questions.
The Chairman. Well, thank you, Mr. Singleton, and thank all
the witnesses already. It has been very interesting.
Mr. Singleton, in your testimony you state that local
autonomy and editorial freedom is the tradition of newspapers
and the same principles apply to the operation of local
stations by newspapers. Mr. Kimmelman, however, provides an
example where this is not the case. ``One thing that has not
changed over time,'' he says, ``is that owners have a bias. For
example, of all the newspapers that have editorialized on the
issue of whether the Government should give digital spectrum to
the broadcasters during the debate in the 1996
Telecommunications Act, every newspaper that did not have an
ownership stake in a broadcast property editorialized against
giving away the spectrum for free, and every newspaper that did
have such an ownership stake editorialized in favor of the
spectrum giveaway.'' Not a small issue either, Mr. Singleton.
About $70 billion worth of an issue. One of the great giveaways
in American history. Do you think that is an anomaly, or do you
think that Mr. Kimmelman has a point?
Mr. Singleton. Well, I cannot speak for other newspaper
owners. I can speak for my newspapers. All of our editorial--
comments on our editorial pages are made by an independent
editorial board of people who live in the local community and
vote their own beliefs on that editorial board. I, as the
owner, do not participate in their editorial decisions.
The Chairman. Well, then, in all due respect, your
comments, ``local autonomy and editorial freedom is a tradition
of newspapers, and the same principles apply to the operation
of local stations by newspapers,'' applies only to your
newspaper.
Mr. Singleton. No, I think that is true of most newspaper
companies.
The Chairman. That is why I go back to my previous
question. If you are talking about your newspaper, if you are
here to testify about your newspaper, fine. But if you are here
to testify as a witness on the larger issue, then it seems to
me you could address this issue, that every newspaper that was
owned by a broadcaster editorialized in favor of a $70 billion
giveaway, every newspaper that was not associated editorialized
the other way. Do you think that is an anomaly?
Mr. Singleton. I do. It is my experience that most
newspaper companies leave editorial comment to their local
editorial boards.
The Chairman. So it was a coincidence.
Mr. Blethen, we have examples of newspapers and television
stations cross-ownership, right? And we have them, in the case
of New York, New York Post and WWR and WNYW, the Tribune, and
the Los Angeles Times, and KTLA Tribune, Chicago Tribune, and
WG and Cox Atlanta Journal, Constitution, and WSV, Gannett,
Arizona Republic, and KPNX, et cetera. Have you seen any
stifling of localism, diversity, or in competition as a result
of these major--and there are many others, but these are major
markets in America?
Mr. Blethen. Well, absolutely, and I would take issue with
my friend, Dean Singleton, that I think ownership does matter.
And if you have Wall-Street-controlled ownership, ultimately
there is a chill over what you comment on and what you do not.
To my knowledge, there has been only one conglomerate newspaper
that has editorialized against a repeal of the cross-ownership
rule, and that is by the Philadelphia Inquirer, who is owned by
a newspaper company that is public but is pure newspaper. I
think if you look at what all the other chain and conglomerate
newspaper editorials have said, you would find the same result
you did in spectrum, that, uniformly, they have been
editorializing for cross-ownership repeal----
The Chairman. But have you seen----
Mr. Blethen.--and relaxing any of the rules.
The Chairman.--any examples of a lack or reduction in
localism, diversity, and competition as a result of this cross-
ownership?
Mr. Blethen. Absolutely. I think any city you go to where
you have this cross-ownership, you have reduced voices. Our
industry, the newspaper industry, has gone through some of the
most massive disinvestment and layoff in the last half-dozen
years that it has ever experienced. Chain-owned newspapers are
smaller, there is less original news. And what they talk about
is not synergism anymore, but how they are going to reduce
expenses by doing cross-ownership.
The Chairman. Mr. Goodmon, a Chicago Tribune article dated
August 14, 2002, discusses local Fox affiliates' discontent
with the network's airing of an episode of action show 24,
commercial free. The affiliates wished to preempt the program;
however Fox Networks Group president and CEO stated in the
article, quote, ``Any station that does that is in violation of
their contract and is in danger of losing their affiliation.''
Have any of the national broadcast networks ever threatened to
pull your or other affiliation due to your decision to preempt
network programming?
Mr. Goodmon. Let me buildup to that. In our Fox agreement,
there is what is called the ``three-strikes rule.'' And that is
if you preempt the network and they do not approve it, after
the third time you do that they have the right to pull your
affiliation agreement.
Now, the preemption that we did for ``Marry a
Millionaire,'' ``Temptation Island,'' and ``Married by
America,'' it took us a little while, but we made those
preemptions under our community-standards part of the contract.
Now, in getting through that, it took Fox a little while to get
to that. I mean, there was some suggestion, and one of the
station reps suggested to us if we did not like their
programming, why did we not sell the station to them? My notion
about that is, ``I didn't say I didn't like Fox or didn't want
to be a Fox affiliate. I'm trying to decide what programming I
think should be in our market.''
But there is, clearly in the contract, if you have three
preemptions that they do not approve that are not community
standards--oh, there was one case where we had the chance to
get the Duke-Maryland game. They were number one and number two
in America. And Fox said, no, it will be the third strike,
because they did not want us to preempt their--that would be,
sort of, what I would call a ``business preemption.''
So I would not say that we have been threatened. I would
say it is in the agreement. I mean, it is part of the network
agreement.
If I may add one thing, Senator, we have, in Raleigh, a
news-sharing agreement with the local paper. We are just
getting into this. They use our weather. We have their reporter
on our 11 o'clock news. My point is, there are a lot of news-
sharing agreements that can come about without joint ownership.
The Chairman. Mr. Karmazin, you should have the ability to
respond. Go ahead.
Mr. Karmazin. First of all, the idea of a fixed number of
stations. We own 35. There are 1,100 commercial television
stations. So what we are talking about is approximately 3.5
percent of this fixed number of stations.
I do not have a horse in the race on newspapers, that we
have no plans that if the broadcast/newspaper----
The Chairman. Mr. Goodmon raised the point that five
companies control 60 percent of news and entertainment
programming.
Mr. Karmazin. Yes, I have no idea where that statistic came
from. I certainly know that there are unlimited number of
choices out there. It sounds to me like not a real number. It
depends upon how you count things. But I think that there is
just--if you include the Internet--the last time I testified,
there wasn't even here a Fox news network. You know, when I
started coming here there was CNN. There are far more choices.
For the first time this year, the cable audiences have exceeded
the broadcast audiences.
The other thing that I agree on is that television stations
are very profitable businesses. So the idea of when Mr. Goodmon
says that it is a very good business, it is. The idea of a
broadcast network is a less-good business. We are not crying
poverty, we are not asking for a collection. What we are saying
is that if there is an interest--if there is an interest--to
keep the NFL on free, over-the-air broadcast television,
because we have seen that there is now a Sunday-night package
that is on cable, how long before we see another package when
the broadcasters are not going to pay for the NFL? We have seen
the NBA migrating more to a cable model.
You know, companies like ours that are involved in a bunch
of different businesses, we have a choice as to where we
allocate resources. We are very committed to this free market.
We believe in localism. Our general managers are in the market.
It is no different than these newspaper companies that own
television stations. They are not sitting all in their local
market. They have got the same local managers that we have
sitting in our local managers.
If you are going to be a good television station, you are
going to do all the things that Mr. Goodmon says. You are going
to serve your community, you are going to serve your
advertisers, you are going to serve the public interest.
Localism is all about that.
We have stations--our affiliate in New York, which is an
owned and operated station, Channel 2, preempts the network to
run the Yankees. They preempt our network to run the Yankees.
Someone has got to pay for the people we are sending into Iraq
to cover the news. Somebody has got to pay for the NCAA
tournament, because the affiliates are not paying. The network
is paying and giving it to them.
And, by the way, including our good affiliate here, we are
paying them. So the fact that Fox might expect them to run
their programming is, in part, because Fox is also paying them
to do that in the form of comp.
The Chairman. Senator Dorgan?
Senator Dorgan. Mr. Karmazin, you are very good. I
followed, almost for the last year, all of the discussions
about the leadership issues in your corporation and the stakes
that were involved for your continued leadership, and I
understand why. You are very good.
You, in response to the chart I put up, seemed to suggest,
``You know, gosh, we are just kind of a mom-and-pop operation,
and mom ain't doing so well, and there are so many voices and
there's so much opportunity out there that--do not worry about
concentration.'' And yet 90 percent of the top-50 cable
channels are owned by the top four television and cable
networks. You know what has happened with respect to both radio
and television concentration. And you talked just a moment ago
about free market and localism. And it seems to me that
concentration and the words ``free market'' and ``localism''
travel in opposite directions, inevitably. Is there a point at
which you think that there are appropriate limits to be placed
on ownership with respect to broadcast stations? If so, what is
that?
Mr. Karmazin. Well, let me give you an example, Senator. We
own, in New York City, a TV station, Channel 2, which has its
own independent local news operation. We also own CBS network.
And, by the way, I love all this stuff about publicly traded
companies. I believe the assumption is that as a publicly
traded company, I am calling Mike Wallace and I am calling Don
Hewitt, and I am telling them what companies to do stories on
on 60 Minutes. Anyone who has ever watched 60 Minutes or got
that famous phone call from Mike Wallace, OK, will know that
that is not the case. There is as much news integrity at
publicly traded companies as anywhere else.
I believe, in the area where we are dealing with today, I
believe there are antitrust laws, I think that there is a role
for Government. All that has happened is----
Senator Dorgan. Do you think there should be limits?
Mr. Karmazin. Ithink that there should be limits when those
limits are justified for good reason.
Senator Dorgan. Can you----
Mr. Karmazin. So, absolutely.
Senator Dorgan.--tell us when they are justified?
Mr. Karmazin. I am sorry?
Senator Dorgan. Can you tell us when they are justified?
Mr. Karmazin. They are justified when one company has six
radio stations out of six in that market. But it is not
justified when one company can only have eight out of 100 in
New York. That is not justified, and I believe the courts will
see our side of that argument more than the argument, if that
rule stayed, that says that.
There is also--the courts have said there is no argument
for the 35 percent cap. So that is why we are here. So if there
is an argument----
Senator Dorgan. Well----
Mr. Karmazin.--make it----
Senator Dorgan. Yes. Let me just say, on the 35 percent
cap, you know, in 1996, when we had the bill on the floor of
the Senate, I am the one that offered the amendment that would
have struck the cap and reverted back to the 25 percent. And I
actually won that vote about 4:30 in the afternoon. And I
thought, this is a pretty big deal, winning a vote on the floor
of the Senate. And then dinner intervened, and several Senators
had an epiphany over dinner, and we came back and had a re-vote
and I lost. So I won----
Mr. Karmazin. Senator----
Senator Dorgan.--for about 4 hours.
Mr. Karmazin.--if, in fact, it went the way it was supposed
to, had you had a drink after dinner we would have the cap
totally eliminated.
Senator Dorgan. Yes, we do not drink up here.
Mr. Karmazin. OK.
[Laughter.]
Senator Dorgan. You are thinking of New York. We do not
drink here.
[Laughter.]
Senator Dorgan. But let me ask Mr. Goodmon--Mr. Goodmon,
this issue that Mr. Karmazin discusses, we are just bit players
in New York. It is a giant market. We are just bit players.
And, therefore, using that extrapolation, let us relax the
ownership rules. How do you respond to that? He has made that
point twice.
Mr. Goodmon. Right, I would have the--I actually got these
from Fox--of the top 200 channels in New York, program
channels, 189 of them are broadcast channels. I mean, broadcast
is clearly the dominant media. When Bush did one of his
speeches about the war, the broadcast networks had 50 million
viewers, and all the cable networks put together had ten or
eleven. I mean, the horsepower is with the broadcast stations.
And Mr. Karmazin wants to talk about 1,300 and put a number
to that. You have got to see where the stations are. You know,
5 percent of the country is in New York. I mean, the way we do
this is what percentage of the total country do you cover in
people, not in numbers of markets.
And I do want to say this about the court. My reading,
which is just my reading, is the court said, ``Look, this 35
percent rule, you guys did not give us a reason.'' They did not
say, ``You have got a bad reason.'' They said, ``You have to
give us a reason.'' And they further said, and they double-
negatived, it was really hard to understand, ``We do not think
that you cannot establish a cap and make it stick.'' I mean,
the court believes that there should be a cap, and they believe
that the Commission should establish it, and they want the
Commission to defend it. They never said, ``You cannot have a
cap.'' I mean, that is----
Senator Dorgan. All right.
Mr. Karmazin, in order to retain some shred of credibility,
I had better amend my statement when I said there is no
drinking in Washington. Clearly I must have been jesting.
[Laughter.]
Senator Dorgan. But let me ask Mr. Blethen, on this issue
of concentration, you heard the comments about localism and
competition and diversity. I thought your statement and Mr.
Goodmon's statement were particularly effective dealing with
these issues.
What do you think will happen if the FCC takes full measure
of its opportunity and does a kind of a ``Katie, bar the door''
ruling here and we substantially relax the limits and move
ahead? What is the future look like to you in that
circumstance?
Mr. Blethen. Well, you know, one hates to be accused of
being overly dramatic, but I think we see the beginning and the
end of our democracy. All you have to do is look at the
decrease in a variety of voices, an investment in news and
editorial, and the increase in concentration in the last 20
years and project that forward another 10 to 20 years, we have
got no watchdog, we have got no free press left.
For the last 2 years, most of the trade media, at least the
newspaper trade media, has been speculating on all of the
rumored deals that the large companies have been talking about.
They have been planning deals to start swapping newspapers and
TV stations and start having big chains take over small chains.
They have been planning this for 2 years. They have been buying
cross-ownerships in places like Phoenix and L.A. in
anticipation of the rule being repealed, they are so sure it is
going to be repealed.
It is going to be a sad day for America if this happens.
Mr. Singleton. Senator, may I comment on that?
Senator Dorgan. Yes.
Mr. Singleton. Frank, who is a dear friend of mine, likes
to make it look like the world is going to come to an end
because groups own newspapers. In fact, he is a group who owns
many newspapers himself, and the reason he is in Maine and I am
not is he bid more money to buy the newspaper than I did.
But there is not a big concentration in the newspaper
industry. There are 13 public companies that own newspapers in
America, and they account for 22 percent of the daily
newspapers published in the country, which means there are 78
percent of the daily newspapers published in America that are
owned by independent privately owned family companies, like
mine. And this woe that is going to happen because of some
relaxation of the rules belies the fact that 78 percent of the
daily newspapers in the country are owned by independents, like
us and like Frank's family.
Mr. Blethen. I could respond, but I do not think that is
what you want me to do.
Senator Dorgan. Mr. Chairman, I think I am out of time, but
if I could ask just one additional question of Mr. Goodmon, and
ask for a very short answer.
Mr. Goodmon, I asked, when I began my opening statement, I
rhetorically asked about the meeting that I referred to with
Chairman Powell, in which news reports had you quoted as
saying, ``Let's Make a Deal,'' atmosphere. Can you amplify on
that and what you know or what you think you know happened at
these meetings?
Mr. Goodmon. Well, as you know, we have--it is not just the
cap which I am talking about; it is newspapers duopolies, there
are several proceedings in here.
Senator Dorgan. That is correct.
Mr. Goodmon. And what it looks like, what it has been
looking like for some time, is the idea is, you know, I will
support--you know, if you want me to do the ownership, then you
have got to support the newspapers, or I will do the
duopolies--I mean, there is sort of a very bad way--each one of
these things needs to be separate--so they looked to be like
there was some trading. I did not say anything about that until
a letter was released by Belo suggesting that they would change
their position on the cap--they would have been against the cap
for 100 years--in return for the Commission acting--those are
his words--in return for the Commission acting favorably on the
NASA petition, which is not even part of the ownership.
Senator Dorgan. Right.
Mr. Goodmon. So then I had something to bring this up and
say, ``Do we really want to do these ownership rules, you know,
with newspaper duopolies and everybody sort of trading
around?'' And I think there has been some maneuvering in order
to get the votes.
Senator Dorgan. Mr. Chairman, you have put together a
really excellent panel. I think this panel, more than most any
I have seen, shows the contrast in views on these issues. Thank
you for bringing the panel to us.
The Chairman. Thank you. Senator Burns?
Senator Burns. Thank you very much, Mr. Chairman.
Mr. Goodmon, I have more than a passing interest in
Raleigh----
Mr. Goodmon. Yes, sir.
Senator Burns.--North Carolina.
Mr. Goodmon. Yes, sir.
Senator Burns. And you know what that connection is.
Mr. Goodmon. Yes, sir. He told me to tell you hello.
[Laughter.]
Senator Burns. But I am interested in these preemptions.
Mr. Goodmon. Right.
Senator Burns. Even though it may be in the contract that
you have with your network, if you view something that clearly
that your community does not want and finds it runs counter-
culture to their community. Do you mean to tell me that Fox,
that is a one-time--if you exempt them, that is a strike one?
Mr. Goodmon. No. If we invoke the community-standards
clause--that has been done very seldom--then it is not a
strike. A strike is if we decide to run a basketball game
instead of the network or we decide to preempt for some
business or programming reason. That is a strike. A community-
standards is not a strike and--now we had to work on that, but
I think the network now understands that point of view.
Senator Burns. Well, that sort of concerns me. And does
Viacom, with their affiliates, do they have the same kind of a
contract, Mr. Karmazin, as--with their non-owned stations, with
their O&Os--not with their O&Os?
Mr. Karmazin. I understand the question. What we negotiate
when we negotiate an affiliation agreement includes an amount
of preemptions. So in Mr. Goodmon's contract with CBS, he has
an amount of opportunity to preempt for whatever reasons he
chooses to preempt our network. OK? We like it as little as
possible, because we need to have Raleigh covered in our
market. But there is a negotiation by the broadcaster and our
affiliate-relations department on the amount of preemptions one
can do, because you cannot have a network unless you have an
affiliate system. So if the affiliates are not going to run it,
you are not going to have a network.
So I will also tell you that this whole right-to-reject
argument is so bogus as it applies to us--I cannot tell about
Fox, and I doubt it is an issue with Fox--is that the existing
preemption level that exists in the contracts today have not
been approached. The affiliates have the right, but do not, of
preempt. Those facts are available, they are quantifiable, and
we have them.
Senator Burns. Now, you say you own 35 stations in Viacom,
and now is there a difference between the preemption rates with
the O&Os and the independents?
Mr. Karmazin. They are both negligible. My guess would be
that the CBS owned-and-operated stations would be more inclined
to deal with the programs. We do not take our programming
recommendations from our affiliates. That would be chaotic,
because there would be no way to have 212 people in the room in
deciding what programs go on the air. But the CBS owned-and-
operated stations are in the room. So when the decision is made
to air programming and what programming is appropriate, the
person who runs our owned-and-operated stations would
participate in that decision and more inclined----
And, by the way, if you go down the list of who is
preempting, the other networks--so let us forget the fact that
there would be nothing anybody would ever want to preempt on
CBS, but let us assume the other networks. The amount of
preemptions are de minimus. It is a non-issue.
Senator Burns. OK, now, we learned from this business of
concentration, and my good friend from North Dakota, we have
suffered in our States from concentration, and we understand
what it does and what it is going to do to the industry that is
number one in each one of our States. We are seeing three
packers kill 85 percent of the fat cattle in this country. Now,
I know we are not in an Ag Committee meeting here, and maybe
most of you do not know much about that, but some of you do, or
some have got a grain or two. We know that--and also in our
market for our grains.
We see this happening, because there is--and from the
testimony that was offered to this committee in the hearing
that the Chairman on radio concentration, we heard about
outdoor advertising, we heard about venues, we heard about a
lot of--for entertainment--the control; other words, the
horizontal and vertical integration that happens.
Because basically, folks, market power, we are talking
about advertising dollars. Now, we might want to talk about
this great thing about diversity and news and is it balanced
and are they going to endorse me or the other guy or this idea
or are they limiting voices. Basically, we are talking about
advertising dollars, because that is what drives our industry.
That is what keeps us on the air. That is what keeps our
printing presses running. But whenever you get the integration
thing going, then that is market power, and then it is very
difficult for a little independent in Bismarck, North Dakota,
to go against a big conglomerate that comes in and owns maybe
seven stations out of the eight, because that is pretty tough.
So I think what we are talking about here is we have to be
very careful on the impact of especially vertical integration,
because of the market power it gives in a local market, even
though they may be managed from Wall Street. And that is what
we have to worry about more than anything else, especially in
rural areas, and that is why we are concerned about this, and
we will continue to monitor that.
And I thank the Chairman.
The Chairman. Senator Wyden?
Senator Wyden. Thank you, Mr. Chairman.
Mr. Karmazin, let me tell you what happened in Eugene,
Oregon, so we walk through sort of a specific case.
The community very much wants a 10 p.m. news broadcast, and
the network said, ``No, we are not going to do it. It is going
to get in the way of national programming.'' The network sent
to the local affiliate a letter saying, and I will quote here,
what their interest was, was ``to have a consistent national
pattern of distribution.'' Those were their words from the
network to the local affiliate talking about a newscast at 10
p.m. in the evening. Are you telling me that kind of thing is
rare, that we do not see much of that? Because I think, to my
colleagues, what you said was, ``Hey, this business about, you
know, preempting, you know, local coverage hardly ever
happens.'' Well, that is not what the network affiliates, the
local people, tell me in Oregon. And this is a specific,
concrete case of something that is important to the community,
news.
Mr. Karmazin. OK, so I cannot speak for Eugene, Oregon. But
let us assume that in America there is nobody requiring the
owner of that station to be a network affiliate, that if that
station thinks that they can serve that community better by
doing a 10 o'clock news and a 9 o'clock news and an 8 o'clock
news, they do not have to carry the network. So I do not think
it is quite that simple that there is the issue that--in
Eugene, Oregon.
On the other hand, there is still the ability of the people
in Eugene, Oregon, to decide if, in fact, they want a 10
o'clock news. I do not know. I am, unfortunately, a little
naive about the number of TV stations that are licensed or
available in Eugene, Oregon. If you gave me some help----
Senator Wyden. Mr. Karmazin, you are saying that this
particular station could have exercised their constitutional
right to go broke. I understand that.
Mr. Karmazin. I do not believe that that is the----
Senator Wyden. I understand that. They wanted some news,
and I do not think it is rare.
Mr. Karmazin. If you are saying that it is the networks
that are making these stations rich so that they do not go
broke, that is part of the reason that--what we are saying; it
is the network, OK, that is bearing the cost so that the
stations do not have the costs. So, yes, you are getting right
to my point, which is the fact that being an affiliate--when I
die and come back, I want to come back as an affiliate.
[Laughter.]
Senator Wyden. All right.
Mr. Blethen, when the companies talk about efficiencies and
economies of scale as justification for consolidation, I think
we need to look at what that really means in practice. There
was an article in the Columbia Journalism Review that recently
noted that when TV stations in the same market combine, and I
will quote here, ``it often means combining news staffs and
resources, reducing the richness of the community's news
diet.'' What is your sense? Is that as prevalent as this
particular journalism review seems to suggest?
Mr. Blethen. Well, even the people advocating cross-
ownership repeal no longer talk very much about convergence or
synergism, which they used to, because it has been proven not
to be there.
When you look at newspapers and you look at TV, you are
talking about two very different kinds of enterprises, and
there have been these attempts to try to turn reporters and
editors into technicians, carrying cameras and carrying
microphones, and they have not worked. They have distracted
from the journalism that they did, and they have not worked in
terms of enhancing anything. And even the people advocating
this will now admit that there are really two things they can--
three things--they are able to cut costs, because they can cut
the news and public-service presentations because they no
longer have a competitor; they gain market power and eliminate
a competitor; and they can raise rates.
Senator Wyden. All right. One last question for you, Mr.
Karmazin, with respect to this question of conflicts of
interest, because I think, as much as anything, what I am
concerned about is the prospect that it is going to be harder
for people to blow the whistle. I looked, for example, I
mentioned in my opening statement the question of reporters,
for example, being willing to dig into accounting
irregularities at a parent corporation. And you all now own 15
broadcast stations and--excuse me, in 1996 you owned 15
broadcast stations; today, you are at 35. In 1996, you owned
one cable station; today, you own 25. You own Paramount, UPN
Network, Simon & Schuster. The subsidiary, Infinity
Broadcasting, owns 180 stations, not to mention the Internet
interests, CBS.com, PBD.com, MTV.com, CBSSportsline.com, and
you have got the 50 percent interest in Comedy Central.
Now, I think you have made the argument with respect to the
fact that you do not call people up and say, ``Hey, you know,
bag that story.'' I understand that, and nobody thinks that
kind of thing goes on. But are not you a little bit troubled
about the potential for conflicts of interest that are going to
make it a little less likely for people, in areas such as the
question of accounting fraud, to be willing to spend the time
knowing that it is going to be hard to justify to somebody at
the top, at the parent?
Mr. Karmazin. Not the least. And I will point to Fortune
Magazine, which is owned by AOL/Time Warner. And if you ever
wanted to take a look at a magazine who was critical of a
merger, it is Fortune Magazine being critical of its own parent
company. So, no, I have seen countless examples of where that
does not work.
And thank you for the commercial on our assets, but I would
go back to our revenues. So all of those things you have added
together come to $12-1/2 billion in advertising out of $300
billion. What percentage do you feel is so concentrated?
Because we are certainly nowhere there.
Senator Wyden. My time is just about up, and I guess I am
not willing today to pluck a percentage out of the air, but I
do think that the policies that we have today, which have put
basically a tremendous number of eggs in the basket of five
powerful interests, is producing the kind of thing we are
seeing right now in Eugene, Oregon, which you have basically
said, ``Hey, look, if you want a newscast, then, you know, so
be it, and I guess you are going to go broke in the process.''
I think the country deserves better, and I think it is possible
for people to make money and to be profitable, at the same time
be sensitive to local interests. And my concern is we are
draining the lifeblood out of what a lot of communities in this
country want, particularly in my home State, which is 3,000
miles from a lot of these major markets, and that is why you
are hearing a bipartisan point.
Senator Dorgan. Would the Senator yield for just a quick
point?
Senator Wyden. Of course.
Senator Dorgan. Mr. Karmazin's response to you, that if
that station in Eugene, Oregon, says, ``No, we are going to do
this newscast,'' that they would yank the CBS affiliate status,
I mean, that is exactly the opposite of localism, is it not? I
mean, localism would be giving people at home the opportunity
to make local decisions. But saying, ``You go ahead and make
your local decision. We will yank your affiliation with CBS,''
is that not exactly moving in the opposite direction?
Mr. Karmazin. No, I totally disagree. That is not it at
all. The idea is that--and, by the way, I have lived in this
country longer than you, because I am older, so I believe in
the same rights of the people in this country as you do. What I
am saying about a network is when a station--usually the
network relationship has a term, there is a term, and two
people sit down and they decide, ``Do you want to be a network
affiliate, or don't you?'' And if, in fact, you do, then you
are expected to run the network. It means if something local
happens, you want to preempt it, you get a certain amount of
preemptions you are entitled to, but if you decide that instead
of watching 60 Minutes, instead of watching--a local affiliate
says, ``You know what? I do not want it to air 60 Minutes
because it is too controversial, you know, to my community or
something.'' If that is the reason, so be it. But if what they
are saying is they can make more money by preempting 60 Minutes
and running an info-commercial or they can make more money
running something else, that is not what makes a network exist.
You have to have a national coverage. You cannot not have
Eugene, Oregon. So if we cannot clear our program in Eugene,
Oregon, then the advertisers in that program, the performer in
that program--so let us assume it was one of our lower rated
shows, one of our news magazines. Our feeling is the people in
Eugene, Oregon, have a right to see that news magazine, so we
will have to go to another station to find somebody willing to
carry that program. It is not like we want to deprive it from
Eugene, Oregon.
Senator Wyden. Mr. Chairman, my time is up. I just want to
acknowledge that I think there will be tensions between the
desire for national coverage and localism. But what has
happened is all the trends now are against localism, and that
is why we have got a significant community in my state without
a 10 o'clock newscast. And that is the bottom line.
Thank you, Mr. Chairman.
The Chairman. Mr. Goodmon, you were eager to comment.
Mr. Goodmon. Yes, sir.
You know, I want to point out that there is not anything in
localism or diversity or competition that has to do with
percentage of advertising. We keep talking about these business
terms. What we are talking about is voices. We are talking
about control.
But, now, there is an obvious conflict between the
affiliate and the network. I mean, it goes on at--CBS pays me
because of the situation I am in. Because I am in another
situation, I have to pay Fox. I mean, everything--there are all
these different situations.
Now, if, if, you allow the networks to own the local
affiliates, then there is no balance. We do not have a chance.
There will be no negotiation. Mr. Karmazin buys a station in
Raleigh, he can own more stations. I am not a CBS affiliate
anymore. I mean, there is a--we have got this very important
national network programming, and we have got this very
important local programming, and we have a great system. And
the deal is to keep it in balance. And what I am afraid is
going to happen is we are going to get out of balance. The
affiliates need to have some--I will point out this--when the
rule changed from 25 to 35, since that happened, preemptions
have gone way down. I mean, we are scared. We are scared. The
balance is in favor of the network, and getting more so that
way. And as they own more stations, it is more in their favor.
Now, I think that this is--it is not one or the other. We
need the networks. We need the local stations. So where is the
balance? And I am suggesting that if you let the networks own
more and more stations, then those stations are going to be
programmed nationally. They are going to make the decision
nationally as to what is on that station. And the local
operators will not get an affiliation.
We just need a balance here. And my suggestion is we have
got a pretty good one.
The Chairman. Senator Sununu? I apologize. I had misplaced
him in the order in the opening statements.
Senator Sununu. And I am enraged.
[Laughter.]
Senator Sununu. And I want you to know that, Mr. Chairman.
Well, Mr. Blethen, how many newspapers do you own?
Mr. Blethen. We own six.
Senator Sununu. Six?
And, Mr. Singleton, how many do you own?
Mr. Singleton. We own 50.
Senator Sununu. Fifty.
Mr. Blethen, how long have you been in the newspaper
business?
Mr. Blethen. My entire life.
Senator Sununu. How many papers did you own, say, 30 years
ago?
Mr. Blethen. Two.
Senator Sununu. Two. Now, you talked about the 1,700
newspapers, and now there are only 280 independents. How many
of those 1,700 do the 280 own?
Mr. Blethen. I am not sure I completely tracked the
question, but I think what the answer is, is when you look at--
--
Senator Sununu. Well, let me be clear. You said there are
1,700 newspaper voices deeply connected to the communities they
serve.
Mr. Blethen. Right.
Senator Sununu. Today there are fewer than 280 left. Are
you saying the 1,700 have gone down to 280 independents?
Mr. Blethen. No, there are about 1,500 newspapers left in
America, and about 280 of them are classified as independents.
And the----
Senator Sununu. Do you consider yourself an independent?
Mr. Blethen. I consider us an independent.
Senator Sununu. But you own six papers.
Mr. Blethen. We own papers in two states where we have, in
one state, 108-year family connection; and, in one state, a
300-year family connection. We have no intention of ever owning
any newspapers outside of states that we deeply care about----
Senator Sununu. But my point is, obviously, that you are
partly responsible for this consolidation, and you suggest that
at the beginning of your career, when there were more of these
papers, American democracy appeared secure because there were
1,700 voices. Today, there are fewer than 280. Does that mean
that, as a participant in this consolidation, you are a threat
to democracy?
Mr. Blethen. No, it is a great question, and you phrase it
very well. The fact of the matter is, I have never taken
objection with some level of size or scale in newspaper
ownership.
Senator Sununu. Is Mr. Singleton a threat to democracy?
Mr. Blethen. Yes.
[Laughter.]
Mr. Blethen. What I object to is----
Senator Sununu. And I appreciate----
Mr. Blethen.--54 newspapers and----
Senator Sununu.--the candidness of your response, but I
think it is an outrageous response. I think to suggest that a
business owner that happens to own 50 newspapers, by virtue of
his ownership of 50 newspapers, is somehow a threat to
democracy, I think that is an outrageous statement. And I will
certainly give you time to amplify it a little bit, but it is a
strong charge, and I think it is an inappropriate charge. But,
please, give your side of the story.
Mr. Blethen. There are two things that matter, whether it
is absentee ownership and whether it is Wall-Street-controlled
ownership. And what we are seeing in the----
Senator Sununu. Which does Mr. Singleton represent?
Mr. Blethen. He represents both. He is not a public
company, but he has financed his newspaper chain through heavy
debt, dealing extensively with bankers and Wall Street folks.
Senator Sununu. Mr. Singleton----
Mr. Blethen. My----
Senator Sununu. Mr. Singleton, who did you----
The Chairman. Senator Sununu?
Senator Sununu. --borrow your money from?
The Chairman. Senator Sununu, please let the witness
respond.
Go ahead, Mr. Blethen.
Mr. Blethen. In the America I talked about that--30 years
ago, most ownership was connected to the city or the region.
Today, that is not the case. And when your newsrooms are run by
people who are absentee owners, in effect, who do not have any
connection with the community that they are involved in, you
get a different brand of commitment and a different brand of
journalism. When you make the next step, and you go to publicly
traded ownership, you only have one fiduciary responsibility,
and that is your short-term stock prices and your short-term
earnings, and it is not journalism, and it is not community
service.
I am going on my 18th year as publisher of my newspaper,
and I have not hit the average yet. The Hearst newspaper we
compete with averages a new publisher about every 5 years.
Senator Sununu. Mr. Singleton, how do you respond to the
charge that your local newspapers are not committed to the
communities they serve, and that because you have borrowed
money, somehow you owe fealty to Wall Street?
Mr. Singleton. I think it is preposterous. Our company is
owned by two families, one family in New Jersey that goes back
in this business to 1852 in this business. We are a privately-
owned company owned by two families that are expansion minded.
Yes, we borrow money. But I suspect my debt ratio is no higher
than Mr. Blethen's debt ratio.
To say that we are a problem because we have 50, but he is
not a problem because he has 6 really makes no sense. And it
gets into the emotional issue that we are talking about.
The facts are the facts. There are 13 public companies that
own newspapers, and they control 22 percent of the daily
newspapers published in this country, and they put out some of
the best newspapers in this country; not just because they are
public. Being public does not get in the way of putting out
good newspapers. But there are only 22 percent controlled by
public companies; 78 percent are controlled--privately-owned,
private families like mine and like Frank's and like many other
private families. And to suggest that private families that own
newspapers are a threat to democracy is not very credible.
Mr. Blethen. Could I respond?
Senator Sununu. Well, I think you already did, and my time
is limited. I mean, I think you responded to the exact point
that was made, which is trying to justify the argument that by
virtue of his ownership of 50 newspapers, he is a threat to
democracy.
Mr. Karmazin, you own local stations? Or you own TV
stations, certainly. How many do you own?
Mr. Karmazin. Local TV stations and local radio stations.
Senator Sununu. How many TV stations?
Mr. Karmazin. Thirty-five.
Senator Sununu. Thirty-five stations. Do you do any local
news on those stations?
Mr. Karmazin. On all but one. Or two.
Senator Sununu. Do you do any other local programming?
Mr. Karmazin. Sure. Yes, obviously in order for our TV
stations to be successful in the market, they have got to serve
their local community. So, obviously, in addition to running
the network, all of our stations do, with the exception of a
couple, local news and local programming and local public
affairs and local fund raising and the same kind of localism
that any good television operator would do in any market.
Senator Sununu. Finally, let me just ask Mr. Blethen. You
talked about cross-ownership. There are, I think, a couple of
dozen, maybe a few dozen, cases where there is cross-ownership
between newspapers and TVs. These have been grandfathered, I
guess, over time or, in some cases, waivers have been given.
You suggested earlier, in response to questioning, that somehow
this cross-ownership results in less local value, less quality
of news, or it somehow weakens the local connection, but you
did not give any specific examples. Can you give an example of
where there is a partnership or a consolidation between TV and
the newspaper and that the quality of service has degraded and
the local interests have not been served?
Mr. Blethen. Spokane, Washington.
Senator Sununu. Thank you.
Thank you, Mr. Chairman.
The Chairman. Would you like to elaborate?
[Laughter.]
Mr. Blethen. Well, I am already at risk of losing one
friend, and I would kind of hate to----
[Laughter.]
Mr. Blethen. I am trying to save a few friends, and I would
rather not elaborate.
The Chairman. In the Committee, we try to stay with a time
clock, but we also think it is most important to make the
record complete. And I appreciate Senator Sununu's questions,
and perhaps, for the record, you could elaborate on your answer
to Senator Sununu's--I think it is an important question.
Mr. Blethen. Well, it is a very good question, but let me
elaborate in a little different fashion. Mr. Singleton referred
to the Committee of Concerned Journalists and the Columbia
study, which took a look at the 40 grandfather stations and
came to the conclusion that they are two-and-a-half times more
likely to have good news. What that does not tell you, though,
is--it does not get under the individual makeup of each of
those 40.
I know in some of the newspaper associations comments, they
have singled out Cedar Rapids, Iowa, as an example of this
quality news. Well, Cedar Rapids, Iowa, is a third-generation
family newspaper and television station that does some of the
best journalism and public service in our country. Ownership
matters. And I think if you get under those 40--and I am not
sure where they all are--but when you get under those 40, what
you are going to find is if you do not have ownership that is
connected to those communities--and increasingly, that is the
case--you get a disinvestment in the news on both the print
side and the TV side.
The Chairman. What happened to Spokane, Washington?
Mr. Blethen. You are going to make me lose more friends,
aren't you? Spokane, Washington, is a grandfather--it is a
family-owned paper, it is a grandfathered situation. The family
that owns the newspaper and the TV station has been involved in
a major city redevelopment that has become very controversial.
Even Editor and Publisher Magazine, which never criticizes the
industry, criticized them for not covering it. The only
coverage that has come out of this controversy, and there is
lots of legal action around it now, has been by a struggling
weekly that has been trying to get their story out.
Senator Sununu. If I may conclude, Mr. Chairman, that
suggests that you do not find cross-ownership a problem as long
as the cross-ownership is not driven by people that uncaring
and cold and do not really care about local content. And----
Mr. Blethen. I find cross-ownership a problem whether it is
public or whether it is private. You are making----
Senator Sununu. But you are----
Mr. Blethen.--35 percent margins--30, 35 percent on
newspaper, 50 percent on TV. Why in the world do you need to
combine your voice?
Senator Sununu. Well, this is not a----
Mr. Blethen. Why not remain a more----
Senator Sununu.--question of who is making money. It should
not be a question of who is making money and who is not making
money and are they making enough money. I am certainly----
Mr. Blethen. Except that is----
Senator Sununu. I do not want the----
Mr. Blethen.--that is the argument the advocates make for
wanting to repeal cross-ownership, that they need it to
compete.
Senator Sununu. I have not heard that argument made, at
least not in this panel. Maybe somebody will step up, maybe in
the next panel, and make that argument. But you certainly have
not refuted the facts of the study that show increased local
content over all of these 40 combinations, and you have
expressed the concern about the personality or the tenor or the
management style of those involved in the consolidation. But I
do not see that. There may be other reasons, but I do not see
that as a basis for sound regulation.
You have been very generous, Mr. Chairman.
The Chairman. Thank you.
Senator Lautenberg?
Senator Lautenberg. Thanks, Mr. Chairman.
This last discourse was kind of interesting, because it was
said earlier that the FCC knows best about what ought to
happen, and we legislators ought not to interfere. But we
legislators can call one person's statement outrageous and talk
about the other person as wanting to make money and all kinds
of insinuation and accusations here.
I would like to modify that a little bit, because what we
should be interested in is encouraging commentary from the
witnesses, to the fullest extent possible, that has relevance
to whether or not we do anything to reexamine the law as it was
promulgated.
Mr. Singleton and I know each other a long time. I have not
seen you. You look well. And, based on what I hear, you are
doing OK.
[Laughter.]
Senator Lautenberg. I would ask you about a comment that
was made apparently while I was out of the room or maybe in
your statement--I did not see it--13 public companies owning
just 22 percent of the newspapers. That was the statement that
you made that----
Mr. Singleton. That is correct.
Senator Lautenberg. OK. I think the more relevant issue is,
What percent of the circulation, percentage of the circulation,
do these 13 companies account for?
Mr. Singleton. Because they tend to own larger newspapers,
they account for somewhere close to 50 percent.
Senator Lautenberg. Wow.
Mr. Singleton. Because they tend to own larger newspapers,
they account for somewhere close to 50 percent.
Senator Lautenberg. Wow. And I think that is really the
issue. The question is--and I asked it in my initial comments--
What good does it do the public at large? What good does it do
to promote interest, values, et cetera? I am not talking about
a cleansing mechanism. I am just talking about--people can hear
what they want. Mr. Singleton, you know very well that there is
a chain in New Jersey that has newspapers around the country,
some of which have very radicalized conservative views, some of
which are more liberal. But the fact is that people are getting
a chance to hear--or to read, rather, what it is that they
choose to read, if there is competition.
And I ask the question, once again, about what good does it
do the public to have these ceilings lifted? Right now, the
prospects are 45 percent. But what happens if we were to get
down to where there were five papers, five media outlets that
had all of the power? What possible good can come out of that
kind, if I can call it, a deregulation of a standard? It is,
after all, a public commodity that we are talking about--the
airwaves, not so much directed at the newspapers, but the
broadcasts over the airwaves. Does the public get better served
as these companies get larger? I am afraid to ask Mr. Karmazin,
because his--why do I not ask you that?
[Laughter.]
Mr. Karmazin. Thank you for asking.
Yes, I do. Before the radio consolidation took place, in
1996, there were about 60, six-zero, percent of all the radio
stations losing money. Legitimate, not funny accounting. Losing
money. The fact is today there are still 3,800 different owners
of radio stations today. In order for you, as a businessman, to
invest in your programming, to invest in your business, to hire
people, you need to have a good business. So what you want to
do--I cannot tell you the number, but what you need to do is
have a healthy, free, over-the-air broadcasting system, because
if, in fact, you did not have it, there would be no investment,
there would be nobody covering the news, there would be nobody
investing in their business, there would be nobody paying--I
assume you listen to some New York radio every once in awhile,
so we are paying Don Imus an awful lot of money to be on the
radio. We think that serves the people of New York and New
Jersey real well. The same, though you probably do not listen
to Howard Stern, but the same thing for Howard Stern.
Senator Lautenberg. Then you are deciding where my taste
begins and ends, huh?
Mr. Karmazin. Yes, I can tell in your phone calls.
Senator Lautenberg. Get me out of that realm. How about
public radio?
[Laughter.]
Mr. Karmazin. We have, as you know, two all-news radio
stations. If we were not healthy, if we were not successful, we
would consolidate the news room of CBS and WINS and have one
all-news radio station. So it is very important, and it is very
important to the public, to have a successful, free, over-the-
air broadcasting system.
And, listen, I do not have a horse in this race, but I
cannot let it go. To say that companies like the New York Times
and Tribune and Gannett, these public companies, you know, are
causing democracy to go away in the United States is bizarre to
me. OK? I do not see it at all.
Senator Lautenberg. Well, you obviously are expressing--I
know it is not a self-interest opinion.
Mr. Blethen. Could I respond to that, please?
Senator Lautenberg. I would like you to.
Mr. Blethen. I did not say the New York Times is making
democracy going away, and I need to clarify. The New York
Times, the Wall Street Journal, and the Washington Post are
publicly companies, but they are controlled by the families.
They are essentially private companies. And thank goodness that
we do have them, because right now they are a beachhead against
the pall that has been created in journalism in America today.
Mr. Singleton. Senator Lautenberg, could I respond to that
question, too?
Senator Lautenberg. Sure.
Mr. Singleton. I do not have a horse in cap rate
percentage, but what we are talking about in newspapers and
owning television in the same market, there are 40 stations
last year who eliminated local news because they could not
afford to produce it anymore, and there will be many, many more
of those as network compensation goes away.
We are saying we are in the news business in our markets.
We do an excellent job with a lot of people covering local
news. Let us use those resources to keep local news in stations
that otherwise would not have local news. That goes by the
wayside in this argument. We are trying to improve or even have
local news in television markets where there is not much local
news in the television markets.
Senator Lautenberg. Mr. Goodmon, you are the only one who
has not commented. Do you have a----
Mr. Goodmon. I am enjoying this.
[Laughter.]
The Chairman. You need the microphone, Mr. Goodmon.
Mr. Goodmon. What we are talking about, again, is localism.
Mr. Karmazin says that broadcasting stations are very, very
profitable. I would suggest there is nothing any more
profitable than that. Next he says is that he has to own more
because his network does not make much money. I cannot connect
it. I mean, I do not know--that is certainly not in the
communications. That is never mentioned network financial
health. We are talking about localism, diversity, and
competition.
We have a fixed market here. The financial problems of
other organizations--you do not want to throw away localism for
that, and I will argue forever--I will argue forever that a
local owner is better than a group owner, because the local
owner is there. I mean, I know--I mean, I call it the ``haircut
rule.'' When I get a haircut, and that is not often, but when I
do, I hear about what is on my television station. Localism is
very important. It is why we have them.
In the Communications Act, it did not say we are going to
have these national stations. It said we are going to have
these local stations. And if there is a fixed number, we need
as many owners as possible. And I do not understand why we are
going to change this because Mr. Karmazin wants to make more
money on his network.
I am just--let us do a tax break or an oil well or
something.
[Laughter.]
Mr. Goodmon. I mean, it does not--the two are not
connected. Now, this relationship is really important. I love
my network. I cannot go without my network. He cannot go
without a local station. But this balance is very important,
and we have got to have some say in what is cooking.
Mr. Karmazin. But when I go to this affiliate, and I tell
him the new AFC football contract is costing us so much money
that we cannot afford to put it on our CBS network, we are
going to put it on cable, he is going to sit there and say,
``What is my network doing to me? Where is my network?'' The
NCAA tournament costs us $6 billion. You know, then I am
saying, ``OK, what is my network doing if they do not give me
that program?'' If we do not do CSI, if we do not do the kind
of programming our affiliates want, you know, they are not
going to be affiliates.
So I think it is sort of disingenuous to separate the
network and the stations.
Mr. Goodmon. Now, the FCC report that I read said that the
networks are very profitable. I mean, maybe I will go back and
look at that, but the FCC report said the networks are
profitable. We will have a national system of broadcasting if
you allow the networks to own the stations. They will determine
all the programming. They do--the big groups. I am not just
picking on the networks. The groups do it, too. A group will
buy a program. It will call all of its stations and say, ``You
are going to run this.'' They buy everything for the group,
they program the group nationally, there is no local input. I
mean, that is all I am saying.
Mr. Karmazin. If you have----
Senator Lautenberg. Mr. Chairman, I thank you very much for
the time, Your Honor, but the witnesses--the case rests.
[Laughter.]
Mr. Karmazin. There are--let us assume the big networks,
say--so Fox, Viacom, and CBS, Disney, and GE--you can call as a
witness anyone in the financial community--I cannot speak for
whatever the FCC report is--to determine the profitability of
the broadcast networks. That data is available. Disney is
losing hundreds of millions of dollars this year.
Senator Lautenberg. Is some of that--since you are
provoking this; forgive me a minute more, Mr. Chairman--does
that talk to Disney's management?
[Laughter.]
Mr. Karmazin. I think Disney's management is terrific. I
think Michael Eisner has done a great job for that company. I
think it speaks to the complexity and the difficulties of
running a business where the costs are going up, the audiences
are going down, there is far more competition; and the best way
to solve it is relaxing the ownership rule.
Senator Lautenberg. I come out of the corporate world, and
I ran a pretty good company, I think that Dean Singleton knows,
and we have done well because we worked hard. But simply
because you get larger does not mean that you get more
profitable, and that cannot be the objective in something as
sensitive as the public access to information. That, to me, is
the question that really is at stake here, and I think we have
to determine whether growth in size will benefit or harm the
public's access to information.
Thanks, Mr. Chairman.
The Chairman. Senator Allen?
Senator Allen. Thank you, Mr. Chairman.
Several points I want to make here. Number one is, let us
get updated in reality. Number two, Mr. Jefferson. And, number
three, on to the cross-ownership issues.
Let us look at reality here, and it seems to be getting
lost. Let us look at the media marketplace. We are talking
about regulations, and regulations have to have some rational
reason, and also this discussion ought to be based on reality
in the real marketplace here in the last 25 years, and you have
these FCC regulations.
FM, there are twice as many FM stations, 4,000 to over
8,200 stations. Full-power TV stations, from 988 in 1978 to now
over nearly 1,700. Low-power TV stations have gone from zero in
1978 to 2,200-plus. Cable subscribers, from about 13 million in
1978 to now 69 million. DBS subscribers, zero in 1978, 16-
million-plus now. And a variety of other things, including the
Internet, which were no one on the Internet in 1978, 72 percent
now. There were three networks back then, broadcast networks.
Now there are seven in English, two in Spanish, 231 cable
networks, as opposed to 28 back then. And you just think back
then, in some local communities you had a weekly newspaper in
that county. You have a daily that may have been in that
community, and you had maybe a TV station and a radio station.
The point is, is that the people have so many more options and
opportunities to get their ideas.
And as far as Mr. Jefferson is concerned and regulations,
202 years ago, Mr. Jefferson enunciated his view of the sum of
good Government in his inaugural address here in Washington,
and he said, ``The sum of good Government was a wise and frugal
Government, which should restrain men from injuring one
another, but shall leave them otherwise free to regulate their
own pursuits of industry and improvement, and that the
Government should not take from the mouths of labor the bread
they have earned.''
So the point is, is Mr. Jefferson loved freedom. Mr.
Jefferson loved people searching and finding the truth. In his
day, the only opportunity was the newspaper. Today, Mr.
Jefferson would be thrilled, because he was one who embraced
advances in technology. He was an inventor, an innovator, and
he would love--as far as localism, the Internet is an
individualized empowerment zone where the individual determines
whether they want to read WashingtonPost.com or the Danville or
the Roanoke paper or any other paper, the Denver Post if you
want to see what they are blasting the Raiders about, or any
other newspaper, you can read it. And so the reality is, is
that there has been a tremendous change here.
Now, my question to you all is, where you have cross-
ownership, newspaper/TV cross-ownership, which according to
facts, and it is not just from the FCC, but also from the
Columbia University Project on Excellence in Journalism 5-year
study released, they said that stations in cross-ownership
situations were more than twice as likely to receive an A grade
than were other stations. And they are also more likely to do
stories focused on important community issues, more likely to
provide a wide mix of options and opinions, and less likely to
do celebrity human-interest features.
Now, let me ask you all, any who want to comment on this,
why would these studies that have shown an empirical basis that
the FCC should treat smaller markets more similarly than large
markets? Why should small markets not be able to have that same
opportunity, as do larger markets?
Mr. Blethen. Well, there is a real danger in using that
study as empirical evidence. That is the only study I am aware
of that has been done trying to evaluate that quality. It has
not been out very long. It has not been discussed, it has not
been vetted, and it has not been debated. And I have already
mentioned a handful of communities that I am aware of where I
am aware that there is good television journalism and
investment in these situations is where there is local
ownership.
And I know, in our situation in Seattle, if we were to buy
a television station, we do not see that there is any
synergism, but we would eliminate a competitor, we would have
more control over rates. And any kind of sharing of information
and news, we already have an arrangement with the owner of
another newspaper----
Senator Allen. Well, let me ask you this. Why should larger
markets allow this? Why should there be a distinction between
larger markets and small markets on these limitations?
Mr. Blethen. I do not think there should be.
Senator Allen. You do not think they should be allowed
anywhere.
Mr. Blethen. Exactly.
Senator Allen. All right. Well, let me ask you--anybody
else want to comment on this?
Mr. Singleton?
Mr. Singleton. I would just like to point out, once again,
in the media issue there are emotions and there are facts, and
the facts speak for themselves.
Thank you.
Senator Allen. Let me ask Mr. Goodmon a question. How many
stations do you own in Raleigh?
Mr. Goodmon. Two.
Senator Allen. Two.
Mr. Goodmon. Yes.
Senator Allen. All right. Any why do you own two stations?
Why did you desire to own two stations?
Mr. Goodmon. Well, the Commission made it possible. I
compete against an ABC O&O, an NBC O&O, a Sinclair duopoly, and
a Paxson duopoly. I did not want them to get it. I mean, that
is a strategic issue. If you are asking me if I like
duopolies--is that the question?
Senator Allen. Well, I mean, I would not imagine that you
would invest in something you do not like.
Mr. Goodmon. No, well, I--well, no, that is defense. I did
not want the other guy to get it. You do not want the other
stations to get it against you. I do not think we should have
duopolies.
Senator Allen. Even though you do have that.
Mr. Goodmon. Well, but the----
Senator Allen. Under what----
Mr. Goodmon. Well, but the rule says you can do it, and if
your opposition can buy one, you want to get it before they do.
Senator Allen. Has that been harmful to the viewers in the
Raleigh/Durham area that you own those two stations?
Mr. Goodmon. Has it been harmful?
Senator Allen. Has it been beneficial or harmful, the fact
that you all own two stations in the Raleigh/Durham viewership
area?
Mr. Goodmon. Well, I would have to say because I own it, it
is beneficial.
[Laughter.]
Mr. Goodmon. But I--that is not the issue. It was----
Senator Allen. Well, no, this is----
Mr. Goodmon. No, it is a financial issue.
Senator Allen. Well, the fact that you have done this----
Mr. Goodmon. Right.
Senator Allen. --and your testimony is that it has been
beneficial. Maybe you do not think it is beneficial, but do you
not think others in smaller markets ought to have that same
opportunity?
Mr. Goodmon. Well, if you are going to do duopolies, I
think the test that they have now is pretty good. You know, if
you are going to do----
Senator Allen. You have to have eight stations.
Mr. Goodmon. You have to have some others. My view--right.
That is what I am saying. I think we have got a pretty good
rule now. I think if you----
Senator Allen. Were you----
Mr. Goodmon.--do not have many stations and you do
duopolies--if you have got a station with four markets or----
Senator Allen. Four stations.
Mr. Goodmon.--a market with three stations or four
stations, I do not think, in terms of voices, you want to
double them up. But I am not--the truth is, I do not--you know,
I just----
Senator Allen. All right. Let us say you have a small----
Mr. Goodmon. I think it is another----
Senator Allen. Let me ask you this.
Mr. Goodmon. Right.
Senator Allen. As far as your business----
Mr. Goodmon. Right.
Senator Allen.--these two stations you own----
Mr. Goodmon. Yes.
Senator Allen.--where there is some convergences or
efficiencies and that some of the improvements, your technology
or----
Mr. Goodmon. Yes.
Senator Allen.--equipment could be used for both----
Mr. Goodmon. Yes.
Senator Allen.--both stations?
Mr. Goodmon. Yes.
Senator Allen. Now, in a smaller market, do they not have a
harder time, really, sometimes, because they do not have as
many viewers that they do in larger areas?
Mr. Goodmon. Yes.
Senator Allen. And so could they not also benefit----
Mr. Goodmon. They are having a tough----
Senator Allen.--from this----
Mr. Goodmon.--time with the digital conversion, too.
Senator Allen. Exactly.
Mr. Goodmon. Right.
Senator Allen. And so to the extent they can do that and
will cover two stations rather than having one completely fail,
would that not be beneficial, conceivably, as a business
proposition?
Mr. Goodmon. As a business proposition, yes. As a matter of
localism and number of voices, I am not sure. You got me on one
on this list that I am not working on. Generally speaking, I
think there should be as many owners as possible. Now, there
might be some economic reasons to do them in a--but that is
fine. That is fine.
Senator Allen. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Allen.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman. I believe that
Senator Snowe was giving her statement before I----
The Chairman. Senator Snowe?
Senator Cantwell. Senator Snowe, go ahead.
Senator Snowe. That is OK. Go ahead.
Senator Cantwell. Well, thank you, Mr. Chairman.
I guess, listening to the back and forth from our
witnesses, I guess the question that comes to mind is really in
categorizing this issue of whether you think there are cultural
differences between your organizations. And I guess Mr.
Karmazin, I wondered if you thought that there was a cultural
difference between your organization and Mr. Blethen's
organization.
Mr. Karmazin. Sure. I think that each of our general
managers at each radio station creates the culture at that
radio station, and the same thing would be true of the general
manager of a TV station. The culture at Nickelodeon is very
different than the culture at MTV. So I believe that, within an
organization, the managers create their culture. And
particularly on the local level, there is a distinct cultural
difference. If you were to walk into our radio stations here in
Washington, D.C., you will see a different culture in each
different radio station.
Senator Cantwell. And so you do not believe that there is a
larger parent umbrella culture that is created by being part of
a large organization?
Mr. Karmazin. I cannot see it at all. I do not believe that
anybody who is watching Nickelodeon and watching Sponge Bob
knows that that is the same company that is watching Ozzy
Osbourne.
Senator Cantwell. Well, let me be more specific. The Dixie
Chicks and Clear Channel. Now, whether the organizations
collectively decided or somebody said, ``Hey, our station in
such-and-such city is deciding they are not going to play the
Dixie Chicks,'' I have to believe that culturally there was a
lot more security of somebody saying, ``Hey, some
organization--some of the radio stations within our
organization felt the same way, so let us use our own
discretion, but let us do the same thing because there is a
little bit of comfort here. Our parent organization is not
coming down on this. Our parent organization is encouraging it,
so let us join the fray,'' which I find to be different
culturally stationed in Seattle, all of a sudden deciding that
some station unrelated in Miami is doing some activity, now
they are going to pick it up. So, culturally, I see a
difference.
Mr. Karmazin. And I do not. I compete with Clear Channel.
They own 1,200 radio stations, and we own 15 percent of their
stations. So if they are not playing Dixie Chicks, and the
people in that market, because these have a lot of choices,
want to hear Dixie Chicks, I am all over the Dixie Chicks.
[Laughter.]
Mr. Karmazin. So the sense is that I do not find those--and
I am not suggesting, by the way, that the decision--I do not
know where the decision was made, but if they make dumb
decisions, you can own 100 radio stations and make dumb
decisions. It does not matter whether you own 1,200.
Senator Cantwell. Mr. Karmazin, I disagree. It reminds me
of a discussion of another company in the State of Washington
who felt, just because it got big, that maybe the culture was
not going to cause problems for it, and they found out that the
culture and aggressive attitude of their employees did, in
fact, cause problems for them, because they did not realize
that they were a large corporation. They did not realize how
big they had become and how far their reach had gone.
Mr. Karmazin. Senator, I would invite you to visit any
operation within our company and see whether or not we have
sacrificed the culture for its size.
Senator Cantwell. Well, I--thank you for your answer,
because I do believe you are different cultures, and you said
you were.
Mr. Blethen, did you want to comment on that?
Mr. Blethen. Well, yes, I--they are clearly different
cultures. One is a culture of maximizing profits for an
absentee owner, and one is the culture of journalism and public
service when you have local ownership.
We have an example in Seattle that you know well, Senator,
which is KING Television, which was long owned by the Bullitt
family and was considered one of the best journalism and
community-service stations in the country. I would even argue--
I think they had had a period of time when it was probably the
best of an exceptional commitment by the family. Unfortunately,
they sold to a public company a few years ago. And, you know,
you watch the same stations I do, and they are a shadow of
their former selves.
Senator Cantwell. Well, I guess that is my concern. I
believe that communities across this country are melting pot of
different opinions and ideas, and they have different texture,
they have different flavors to them. And I think this proposal
is about stripping that away. It is about making things more
vanilla. And I do not think that that is what America wants to
see in the diversity of their news.
So it leads me to the question, What is the rush? When I
think about these rules and regulations, they have been in
place for 60 years, and now all of a sudden--and I certainly
applaud everyone's interest in the variety of new technologies
and medium devices that people will be able to get content, but
I think we are still quite a few years from that providing any
kind of true competition to today's mass market. So what is the
rush in overturning this rule? And what is the secrecy about?
Mr. Karmazin, I think, in your testimony, alluded to the
fact that this had gotten more public debate than just about
any other issue, and yet all I know was one public hearing,
officially, in Richmond, and it took two FCC Commissioners, who
decided to go out on their own to have non-formal hearings, and
we almost had a riot in Seattle, people were so upset over this
concept. I mean, I have gotten more mail on this issue lately
than just about any other issue, because citizens are
concerned. And yet we really have not had a public-hearing
process.
So what is the rush?
Mr. Karmazin. So I guess the rush is that in 1996, in the
biennial, the Congress told the FCC to review these rules every
2 years. I mentioned in my opening comment that I was down here
2 years ago, which was the start of this biennial. I cannot
imagine anybody in Washington would want to be believing that
this is a process that is being rushed. In my 30-plus years in
the broadcasting business, I have never seen a issue get more
attention than this one has gotten.
Senator Cantwell. Well, here is a very detailed letter from
14 Members, mostly from this committee, and many from my
colleagues. So we have, in the budget, I think, some language
to the FCC saying, ``Complete your business in a required
timeframe.'' I am sure one of my well-meaning colleagues
slipped in that little note basically urging the FCC to finish
their business, in direct contrast to a very detailed position
statement by many members of this committee and others who say,
``We are going too fast, without public comment.'' I mean, if
you think you are right, if you think that you are on the right
side of this, you should not care whether we have more dialogue
and debate about this issue to make sure that the public
concern is addressed.
Mr. Karmazin. There are many things that I have read in the
papers about this issue that I do not like, but the one thing I
do have is a great deal of respect for all five members of the
FCC. If they believe they needed more time, then they would
have taken more time. But if they believe they have exhausted
this study and that they have a conclusion, then I say this
body should let them do their work and let them come out with
their report in order.
Senator Cantwell. Well, I think this hearing is probably a
sign that there is anxiety about just letting them do just
that.
Thank you, Mr. Chairman.
The Chairman. I think they are constrained, also, by a
court order to act, Mr. Karmazin.
Senator Snowe?
Senator Snowe. They certainly are. But, on the other hand,
Mr. Karmazin, June 2 is final. I mean, that is the issue here
today. And it is true, the biennial review has been
incorporated, in the 1996 Act. It does mandate the FCC to
review it, obviously, every 2 years. And so it certainly was
anticipated on their part that they had to conduct this review.
And, yes, it was a court order, but it still does not negate, I
think, the responsibility of the FCC to share the intent of
their changes and modifications. Would you not agree these are
significant changes, just based on what has been speculated
about in the media?
Mr. Karmazin. I really do not know what the outcome is
going to be.
Senator Snowe. Yes, that is the point.
Mr. Karmazin. But I trust the process. And if we do not
trust the process, then I do not know what else we have. So the
sense would be there are checks and balances. I assume we
have--there have been hearings here. As I mentioned, I
testified 2 years ago at a hearing here. There comes a time
when even unpopular decisions--I mean, whatever way it goes, I
have to live with it or go to court. But I do think we have a
right to move on with our business and should not take this
long to develop those modifications, if there are to be
modifications. Whatever the rules are, we have an opportunity
to follow them or go to court and see if they are
constitutionally correct.
Senator Snowe. Well, you know, I guess the fact of the
matter is that, obviously, the FCC has to conduct its own
exploration, but we also have a responsibility, as well, and it
is to serve the public. I mean, this is serving the public
interest, without question. I mean, we have had precedent in
law, precedent in statute for more than 70 years with respect
to these issues. And they are going to be undone very quickly
on one day, June 2. That is the issue here.
Mr. Karmazin. That is true.
Senator Snowe. There is no flexibility. And I have enormous
respect for the members of the Commission. And obviously some
Commissioners have concerns, as Senator Cantwell indicated,
several of them had their own public hearings. I had urged
public hearings back in January, and we had the first of three
oversight hearings on this matter.
I just was watching CNN last night, and they were doing a
story on this subject, and they invited the viewers to
register, to log in, their yes or no with respect to the
question, Do you think too few companies own too many media
outlets? Yes, 98 percent.
Mr. Karmazin. And you want to----
Senator Snowe. No, 2 percent. So, you know, I think the
point is that there is a concern publicly about it, and it is
the sanitizing of this process now. The fact that five
companies are going to own 60 percent of prime-time
broadcasting both in the broadcast and cable networks, that is
disconcerting, because I do not know how that affects the
three-pronged approach of diversity and localism and
competition. I mean, those are the issues that we cannot
overlook. Those were, sort of, the foundations and premises for
these rule changes.
Now, I do not object, necessarily, to deregulation, per se,
but we have gone through many deregulations--with the airline
industry, with the telecommunications sector--and they have
unintended consequences, and I have not been able to understand
how you put the genie back in the bottle. I do not understand
how you reverse courses once this is unleashed. That is what I
am not understanding. Because this is really the last barrier.
It is the last bulwark against open, unfettered ownership, you
know, and that is the problem that I have with this. And I do
not understand either with the rush.
I understand that the deadlines, but I think if the
Commission had asked for time to--given the enormity of this
issue, or if our biennial review is unreasonable, then that is
something we ought to consider in terms of the timetable, Mr.
Chairman. But it should not negate the consequences of not
having a full airing of these issues before the Congress and
before the public.
Mr. Karmazin. And, Senator, it is for that reason----
The Chairman. I think Mr. Goodmon wanted to comment, if he
might.
Senator Snowe. Yes, OK, thank you. Yes, go ahead, Mr.
Goodmon. And we will go back.
Mr. Goodmon. Please remember my sign.
Senator Snowe. Yes, 70 percent.
Mr. Goodmon. 70 percent, not 35 percent.
Senator Snowe. Yes.
Mr. Goodmon. We have got plenty of diversity. What is the
rush?
Senator Snowe. Yes.
Mr. Goodmon. What is the hurry? The hurry is they have the
votes at the Commission, and the hurry is that this is very
important to the investment and financial sector in the
country. Because what they see is going to be, as there was
last time when the rules changed, a whole lot of station
trading. There is going to be a lot of money loaned, and there
are going to be a lot of commissions.
So what we have is the big companies wanting to get bigger,
and I think that--Mr. Karmazin should want to own all of his
affiliates. But I am saying that is not a good plan. We have
enough--they are 70 percent. If they raise it to 45, it becomes
90 percent.
So I am saying there is already enough relaxation of
ownership. There is no hurry on this, particularly because we
are going into digital, and nobody has a clue as to what the
broadcasting world is going to be like when we get there.
Senator Snowe. That is right. Mr.----
Mr. Goodmon. But it does not make any sense.
Senator Snowe.--Mr. Blethen, you mentioned an important
point in response to Senator Sununu's question. The issue is
ties to the community and localism. And that is one of the
important dimensions in terms of establishing and upholding
important principles regarding the dissemination of news and
information to the public, and that is having ties to the
community. And that is essentially what you have done both in
Seattle and both in Maine with your ties to the state. We
welcomed that, I should tell you, Mr. Chairman, because at the
time we were sort of very concerned about who was going to
purchase the Portland newspapers that had been owned by the
Gannett family, as I said, for well more than 100 years and
rooted in the community, they have been part of the community.
And so we were certainly relieved when the Blethen family, the
Blethen newspapers, purchased those newspapers, because it
really continued that very important tradition in our State,
and that is having ties and being sensitive to the issues and
the needs of the community.
Mr. Blethen. If I could comment----
Senator Snowe. Yes.
Mr. Blethen.--the comment about the ``we should trust the
process.'' You know, I am sort of a newcomer to this, but I am
finding it really hard to trust a process which has been done
behind closed doors with only the major players, the major
owners involved. Over 80 percent of the American public does
not know what is going on. Most of the Hill did not even know
what was going on until recently. And where the vast
preponderance of all these comments the FCC says they have
received, indeed, have been against any relaxing of these
rules. The Commission will talk about something like 18- to
20,000 comments, but I am told that 18,000 or so of those are
all against repeal and that they are hard-pressed to find
anything for appeal that is not from a corporation.
Senator Snowe. Mr. Karmazin?
Mr. Karmazin. I think it is important to have a healthy
industry to be able to evolve into a digital environment. We
are all going to be UHF stations in the digital world, and I do
not think, since it is many years away, regretfully not our
fault, that I think you want to have a healthy industry to get
to that digital transition. This is a bogus argument, because
there is clearly a disadvantage of being a UHF station in the
market, and the rules over the years have looked at the
difference between a UHF station and a VHF station. I want one
VHF station in a market, as compared to two UHF stations, when
I can. So, you know, it is just another argument.
And regarding the process, just like I respect the Senator,
the Chairman, and Senator Hollings, that this committee has had
plenty of opportunities to deal with this over the time. And,
again, I cannot speak for whether you have all the facts or
not, but I think it is open. I hear a total disconnect. I hear
no one knew about it, but there are 18,000 people complaining
about it. So somebody knows about it.
Senator Snowe. We do not know the specificity of what they
are going to recommend.
Mr. Karmazin. Neither do we.
Senator Snowe. OK, well, that is--but that is the point.
Should we not? I mean, that is the issue here on a major
modification. This is not inconsequential, and that is the
issue that we are raising. Hence, the 20,000, you know,
responses to the FCC. I would assume that that is a very
substantial response to proposed changes by the FCC, whatever
they happen to be. We are saying given the magnitude and the
enormity of this issue and the implications for the future that
will be unending, and the risk if we are wrong--the risk if we
are wrong--and where is the balance, as Mr. Goodmon and Mr.
Blethen have indicated? Where is going to be the balance? It is
a high-risk proposition if we are wrong, and I think that is
the issue, and it has been enshrined in statute and judicial
precedent for more than 70 years, so I think we should hesitate
and pause before we go into this June 2 up-or-down vote and no
recourse.
And that is a concern, Mr. Chairman. And, you know, when
they predicate this decision on the diversity of voices out
there with subscribers to cable and Internet and so on, but the
fact of the matter is, it is whose ownership? Who are the
owners of all of these entities? And that is going to be the
concentration of the source that is going to be disseminating
the information in the final analysis. And that is, I think, a
major concern. And they are predicating it on that basis, in
terms of, you know, the diversity of voices, but it is going to
be owned by a few, and that is the bottom line.
And so, you know, I just wish we were in a very different
position here today and in the future, because I know the FCC
is struggling with the deadline and all that. But I think, in
the final analysis, it is more important to get it right,
because the risks are far too great.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Snowe.
We are all in agreement that no one entity or company or
corporation should own 100 percent of any media market. Is that
right? Mr. Karmazin, do you agree with that?
Mr. Karmazin. That is right.
The Chairman. Mr. Goodmon?
Mr. Goodmon. Yes, sir.
The Chairman. Mr. Blethen?
Mr. Blethen. Yes, sir.
The Chairman. Mr. Singleton?
Mr. Singleton. Yes, sir.
The Chairman. So I guess what we are doing here is trying
to decide what is appropriate, and that is what the difficulty
that we are encountering. I think that Clear Channel, the
situation that exists there today with 1,200-and-some stations
and domination of various markets, was a warning sign to me,
and I am concerned but unsure, uncharacteristically, unsure in
how we maintain the balance that is necessary. But this hearing
has been very helpful. I thank you for the spirited discussion,
and I hope you will all remain friends.
[Laughter.]
The Chairman. And I thank the witnesses for coming. Thank
you.
Due to the lateness of the hour and the lack of
participation by members of the Committee, we will have another
hearing between now and June 2, and Mr. Kimmelman and Mr.
Mikkelsen will be invited back at that time, because I do not
think they would get a fair amplification of their views by
calling them at this late hour.
I thank you, and I thank the witnesses. This hearing is
adjourned.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Thank you, Mr. Chairman. Today we return to the topic of media
ownership, and more specifically, to plans afoot at the Federal
Communication Commission to radically liberalize or eliminate many, if
not all, of the current media ownership rules that have long guided our
stewardship of the public airwaves.
Over the last several years, the amount of consolidation in the
entertainment and media industries has been staggering. We have seen
the combination of AOL and Time Warner, Viacom and CBS, Tribune and
Times Mirror, and now, face Rupert Murdoch's bid to merge News
Corporation with DirecTV. While technology has provided Americans with
new media outlets, this growth has failed to outpace the insatiable
desire of big media to effectively control what Americans see and hear
on television. Today 90 percent of the top 50 channels on cable are
owned by either the major TV networks or by cable operators. Moreover,
the top 5 programmers (Viacom/CBS, Disney/ABC, News Corporation/Fox,
NBC, and Time Warner) now control 75 percent of prime time programming
and are soon projected to increase their share to 85 percent--the level
reached by NBC, CBS, and ABC at their peak.
Mr. Chairman, Teddy Roosevelt once said that ``the only way to meet
a billion dollar corporation is by invoking the protection of a
hundred-billion dollar government.'' As defenders of capitalism, we
expect large media corporations to pursue policies in their own
economic self-interest. But to protect the public interest, we
similarly demand that our government act to protect civic and local
community interests of ordinary citizens, particularly in areas related
to the public airwaves and the marketplace of ideas.
While details of the Commission's proposal are finally starting to
leak into the press, the process conducted by the FCC on a matter so
fundamental to the foundation of American democracy has been shameful.
Instead of sparking a national debate by putting forward specific rule
changes to stand in the rigors of sunlight, as earlier requested by a
majority of the members of this committee, the FCC has instead opted to
keep its plans under wraps, further strengthening the hand of big media
companies with direct-dial connections to the FCC and keeping the
American public in the dark. Furthermore, by creating an arbitrary
deadline of June 2, Chairman Powell and other proponents further
deregulation have sought to squelch any meaning criticism of this
proposal and hammer through one of the most far-reaching policy
decisions in the history of American media.
Mr. Chairman, the American people deserve better. Unless we reverse
course, radical rule changes in the existing national and local
ownership limits could seriously, and perhaps irreparably, alter the
fabric of American culture and civic discourse. While proponents claim
that new rules will only be ``incremental changes,'' the American
public will not be fooled.
Further media concentration will mean fewer creative outlets for
independent TV and content producers; higher ad rates for local and
family businesses; fewer antagonistic sources of news and opinion, less
air time for local politicians and community groups, and a growing
reluctance of local station operators to take on network executives in
rejecting nationally-produced programming that violates local community
standards.
While many of us in Congress had hoped that the FCC would recognize
the serious consequences that could result from a laissez faire
approach to media ownership, it appears the message is not getting
through. As a result, Senator Stevens and I will introduce legislation
today to do what should not have to be done--namely, to re-establish by
statute a 35 percent national broadcast ownership cap. This legislation
is identical to a bill introduced in the House last week by Congressmen
Burr and Dingell, and serves to underscore the substantial support in
Congress for keeping the existing TV broadcast cap and protecting the
interests of local communities.
While I welcome the testimony of the witnesses today and their
responses to our questions, I hope that in the near future, we will
have the opportunity to hear from the individual members of the
Commission. These are not state secrets. The American people deserve to
see the specifics of changes in store for them so as to allow for
vigorous and meaningful debate. I have seen little out of the FCC to
suggest that such a change of heart is in the offing, but I look
forward to being pleasantly surprised.
______
Prepared Statement of J. Stewart Bryan III, Chairman
and Chief Executive Officer, Media General, Inc.
Twenty-eight years is a long time to ban an entire industry from
entering a market based on nothing more than a conjectural ``hoped-
for'' gain in diversity and absolutely no proof of any competitive
harm. Yet, that is how long newspapers will have been prohibited from
purchasing broadcast stations in their home markets when the Federal
Communications Commission (``FCC'') meets early next month to act in
its omnibus media ownership proceeding. And this ban has continued
despite the fact that the FCC does not regulate newspapers. The time
for repeal of the FCC's newspaper/broadcast cross-ownership rule in all
markets is long overdue, particularly given the recent liberalization
of every other FCC media ownership regulation. This liberalization has
left newspaper owners unique, among all business owners in the nation,
in their inability to buy broadcast outlets in their home markets.
At the same time, the existence of the rule is preventing the
development and delivery of new and innovative local information
services and the infusion of new resources into struggling television
news operations. In the last decade, as the cost of operating
television stations and producing televised news, in particular, has
gotten more expensive, we have begun to see an erosion in the delivery
of local television news. Not only have television stations been faced
with the expense of converting to digital transmission, but the
presence of large group buyers has made it more difficult for small
operators to compete in the program syndication market. Many small
television stations have also seen their network compensation payments
evaporate or change into ``reverse compensation.''
The result has been that many small market stations, and even some
in large markets, have had to curtail or entirely eliminate their local
newscasts. In the last 4 years, viewers of over 40 television stations
around the country have lost local news coverage. Repeal of the
newspaper/broadcast cross-ownership rule is desperately needed to
reverse this trend.
The Media General Experience: Common Ownership of Newspaper and
Broadcast Television Outlets in the Same Markets Has Increased
Local News and Information Content and Not Caused Any
Diminution in Staff
My name is J. Stewart Bryan III, and I am the Chairman and Chief
Executive Officer of Media General, Inc., an independent, publicly-
owned communications company situated primarily in the southeastern
United States with interests in newspapers, broadcast television
stations, interactive media, and diversified information services.
Media General's corporate mission is to be the leading provider of
high-quality news, information, and entertainment in the southeast by
continuing to build on its position of strength in strategically
located markets.
Media General is also one of the media industry's leading
practitioners of ``convergence,'' the melding of newspaper, broadcast
television, and online research in the preparation and dissemination of
local news. Media General's News Center in Tampa, Florida, is the most
advanced convergence laboratory in the nation, and the only one, as far
as Media General is aware, in which the news staff of a newspaper (The
Tampa Tribune), broadcast television station (WFLA-TV), and online
operations (TBO.com) are housed together under one roof. Besides this
strong presence in Tampa-St. Petersburg (Sarasota), the Nation's 13th-
ranked Designated Market Area (``DMA''), an operation that is
``grandfathered'' under the FCC's cross-ownership rule, Media General
has similar convergence efforts underway in five additional markets
where it has recently purchased television broadcast stations and daily
newspapers--Roanoke-Lynchburg, Virginia, the 67th-ranked DMA; Tri-
Cities, Tennessee/Virginia, the 90th-ranked DMA; Florence-Myrtle Beach,
South Carolina, the 110th-ranked DMA; Columbus, Georgia, the 126th-
ranked DMA; and Panama City, Florida, the 159th-ranked DMA.
At the beginning of 1995, Media General owned just three daily
newspapers and, as of the start of 1997, it held only three broadcast
television station licenses. Since then, Media General has expanded,
now serving newspaper readers in 25 markets and television viewers in
21 DMAs. To The Tampa Tribune, the Richmond Times-Dispatch, and the
Winston-Salem Journal, Media General has now added 22 other daily
newspapers in Virginia, North Carolina, Florida, Alabama, and South
Carolina, as well as nearly 100 weekly newspapers and other
periodicals. Today, its 26 network-affiliated television stations reach
more than 30 percent of the television households in the southeastern
United States and nearly 8 percent of the nationwide television
audience. Media General's Interactive Media Division also provides
online content that includes news, information, and entertainment
sources in virtually every one of the company's markets.
Initially, Media General's convergence efforts focused on Tampa,
where it has owned NBC affiliate WFLA-TV and The Tampa Tribune since
before adoption of the newspaper/broadcast cross-ownership rule. Over
10 years ago, WFLA-TV's news director and The Tampa Tribune's sports
department began to take a coordinated approach to covering local high
school football and other sports. Shortly thereafter, the two outlets
began sharing political polling information and coordinating political
coverage, and the paper's religion columnist began making on-air
reports on WFLA-TV.
Expanded convergence at Media General began in earnest 3 years ago,
when WFLA-TV, The Tampa Tribune, and TBO.com moved all their news
staffs and content operations into a new $35 million state-of-the-art
facility, The Tampa News Center. While each of the three outlets has
its own specific news and editorial staffs that make independent, final
decisions about content, this convergence laboratory features a central
news desk, the ``Super Desk,'' which is continuously staffed by editors
from all three media and facilitates the rapid exchange of story ideas,
news content, and video images among the three outlets. All three
outlets also maintain their news ``budgets'' or plans for stories on a
building-wide ``intranet,'' and the staff of each outlet can access the
news ``budgets'' from the other properties.
Newspaper reporters are writing scripts for television newscasts
and appearing on-air, and television reporters are writing stories for
the newspaper. The newspaper has also made its archives available to
the other two outlets. With the provision of special equipment to the
photographers of all three outlets, The Tampa Tribune and TBO.com have
been able to provide stories with pictures that otherwise would have
been only text, including aerial footage obtained from WFLA-TV's
helicopter. Similarly, The Tampa Tribune's photojournalists have been
able to provide WFLA-TV with video for airing on its newscasts.
In Tampa, the pooling of news-gathering resources has increased the
output of news content and has allowed the reporters at the three
outlets to build on each other's ``scoops'' to present various angles
of the same story. WFLA-TV's and TBO.com's full access to The Tampa
Tribune's archives and research desk has also allowed these electronic
outlets to bring more depth and perspective to their coverage of news
and information. In return, The Tampa Tribune has gained faster access
to breaking news and valuable opportunities for branding its product in
a highly-competitive, two-newspaper market. Finally, by working
together, the three outlets have gained improved access to political
candidates and government officials. Together, they now conduct their
own joint polls, hold town hall meetings, and organize other civic
events, such as health fairs and community telephone banks that would
not have been feasible without common ownership.
These convergence efforts have benefited both the Tampa outlets
themselves and the communities they serve. A little over a year after
moving into The Tampa News Center, WFLA-TV was recognized by the
Project for Excellence in Journalism, which is affiliated with Columbia
University, as providing the best television journalism in the Tampa-
Bay region. Local polls of Tampa-Bay area residents have also found
that a majority of the respondents believe that convergence has
improved the quality of news coverage and had a positive effect on news
presentations in the Tampa market. The three properties have also
experienced the following successes as a result of the convergence
model:
Media General has increased the number of full-time news
professionals in Tampa, despite the very serious advertising
recession.
While daily newspapers across the country generally have
been suffering declining newspaper circulation, the Tribune's
circulation again increased in total and in its core market of
Hillsborough County during the last quarter of 2002 and the
first quarter of this year.
While many television stations were losing viewers, the
ratings for WFLA-TV's 11 p.m. newscast have increased
consistently through 2001, 2002, and 2003.
Despite a downturn in the economy, WFLA-TV has maintained
the same number of local newscasts and has replaced a
syndicated program with a new, locally originated
entertainment/variety program at 10 a.m. on weekdays.
Media General's three Tampa outlets continue to gain recognition in
the journalistic community, receiving an extensive list of journalistic
awards.
As in Tampa, the newspapers and television stations in each of
Media General's other five convergence markets maintain separate news
and editorial staffs. Nonetheless, despite the fact that they do not
have the advantages of co-location as in Tampa, the news staff at these
co-owned properties regularly share story ideas by e-mail, fax and
telephone, and they publicize each other's news content. Media
General's convergence markets have made great progress in providing
their television cameramen with equipment that allows the newspapers to
retrieve newsprint-quality photos, and they are equipping the print
photojournalists with digital video cameras to provide the television
station with video. The newspapers consistently make their archives
available to the television stations. As a result of cross-ownership,
the television stations in each of Media General's five smaller
convergence markets have been able to increase the news and information
they deliver to their communities.
Roanoke-Lynchburg DMA. Since Media General acquired WSLS(TV) in
Roanoke, the station has expanded its weekday early morning newscast
from 60 to 90 minutes. It has also added a locally-produced hunting and
fishing show; numerous local specials concerning the Virginia and
NASCAR races in Martinsville, Virginia, and the opening ceremonies of a
nearby National D-Day memorial; and coverage of local and statewide
political debates. As a result of convergence, the station's overall
staff has grown by two individuals, and the news department staff, in
particular, has increased by nine.
Tri-Cities, TN/VA DMA. Through convergence, WJHL(TV) in the Tri-
Cities, TN/VA DMA has added a new 30-minute weekday newscast at 5 p.m.
In addition, its program lineup now includes locally produced sports
specials and periodic ``Medical Watch'' and ``Education Week'' shows.
Convergence has also created employment opportunities. The station's
full-time staff has increased from 74 to 88 employees.
Florence/Myrtle Beach DMA. In Florence, South Carolina, WBTW(TV)
and The (Florence) Morning News have shared coverage of a number of
major stories over the last year, including initiation of new local
airline service, expansion of a local plant, and the shooting of a
sheriff's deputy. Together, they have completed many projects, which
the outlets believe could not have been covered if they had tried to do
so alone, such as a seven-part series about the seven worst local
traffic intersections and distribution of a hurricane tracking chart,
which helped many local citizens monitor potentially devastating storms
in the area during hurricane season.
Perhaps the Florence outlets' most notable achievement to date has
been the extensive effort that they made in 2002 to cover local
political campaigns and elections and provide debates among the
candidates. In April 2002, the combined outlets sponsored a debate
among gubernatorial candidates in the Republican primary, the first
debate of the campaign and the first in which all seven party
candidates participated. In October 2002, the outlets sponsored a
debate among the Democratic and Republican gubernatorial candidates. In
both debates, the outlets encouraged their readers and viewers to
submit questions to be used in the debate. In November 2002, the
outlets established a joint ``election results'' desk to which their
reporters telephoned results, enabling both improved timeliness and an
expansion of their election coverage. Both Florence outlets also
launched a cooperative effort to stage a ``town hall'' community
meeting called ``Our Town Hartsville,'' and they each coordinated on a
six-part series covering the meeting. In Florence, the overall employee
count at WBTW(TV) has also increased by two individuals.
Columbus, GA DMA. Through convergence, WRBL(TV) in Columbus,
Georgia, has been able to add a new 30-minute weekday newscast and,
later this fall, is scheduled to debut both an additional half-hour
newscast at 5:30 p.m. and a locally produced public affairs show. The
combined outlets have also been active in efforts intended to
facilitate civic discourse and debate, hosting a ``Political Forum'' in
spring 2002 that was carried in both outlets and brought together a
cross-section of local citizens to discuss and ascertain civic topics
that they thought candidates should address. Several months later, on
election night, the newspaper's reporters created print stories and
provided constant on-air updates. The outlets' combined efforts have
also allowed in-depth coverage of a local murder trial, presentation of
a ``Hurricane Watch'' project, coverage of the collegiate Iron Bowl
football game, and hosting and coverage of special events related to
National Signing Day, featuring local area high school football players
and their college selections. As a result of convergence, WRBL(TV) has
added an additional staff reporter in the newsroom and plans to add
another two in September 2003, with the debut of its expanded newscast
and public affairs programming.
Panama City, FL DMA. In Panama City, Florida, Media General's
smallest convergence market, WMBB(TV) works closely not only with the
Jackson County Floridan, which is in the same DMA, but also with The
Dothan Eagle and the Enterprise Ledger in the adjacent Dothan, Alabama
DMA. In May 2002, WMBB(TV), the three newspapers, and their websites
jointly produced a special section on a locally controversial proposal
to construct an I-10 highway connector between Florida and Alabama;
reporters from the newspaper appeared on-air, and television station
reporters contributed print pieces.
With convergence, WMBB(TV) has added an early evening newscast on
Sundays from 5 p.m. to 5:30 p.m., and the newsroom staffs of the Panama
City station and newspaper daily discuss developing new stories to
improve both the timeliness and depth of local reports. In one recent
example, the television station first learned about a breaking news
story involving a bank robbery from a report phoned in by a member of
the newspaper's staff. The two outlets also worked together to delve
into accusations against a local sheriff's deputy for sexual misconduct
with a young girl. Despite efforts from local government officials to
prevent the story's dissemination, the station's and newspaper's
reporters, working together, used their combined resources and clout to
ensure its presentation to local residents.
As in other Media General markets, the outlets have collaborated on
weather-related stories. The newspaper's daily weather package is
produced by Media General's Interactive Division based on information
from the television station's meteorologists. Both the newspaper and
television station jointly produce a hurricane tracking map that
includes basic information about hurricanes, a list of telephone
numbers to call for help, and pointers on developing a severe weather
survival plan.
Convergence has allowed staffing levels at WMBB(TV) to remain
constant despite the general economic downturn. The station's news
staff has increased by three, but overall the station has lost three
employees.
Media General's success with convergence shows that the size of the
market is irrelevant. With co-owned operations, it has been able to
bring better, faster, and deeper news and other benefits to
communities, large and small. The critical ingredients for successful
implementation of convergence are co-ownership and strong leadership,
and it is for these reasons that Media General has been able to achieve
these public interest benefits in markets large and small.
Repeal of the Newspaper/Broadcast Cross-Ownership Rule Is Long Overdue
In 1975, the FCC asserted authority under the Communications Act to
adopt a rule flatly prohibiting newspaper publishers, who hold no
spectrum-related assets, from acquiring and operating broadcast
stations in markets in which their newspapers are published. This rule
was adopted not because the FCC had found any reason that newspaper
owners as a group were unqualified for broadcast ownership, or because
any claim had been made that newspaper-television station owners
committed any specific non-competitive acts, but solely because the FCC
hoped such a rule would add to local diversity. Although well-
intentioned, the FCC conjectured that the rule would improve diversity
despite making a number of contrary empirical findings on the record.
For instance, the FCC found that there generally was significant
diversity or separate operation between commonly owned broadcast
stations and newspapers. Moreover, a study of licensee programming
conducted by the FCC's staff documented that newspaper-owned stations
rendered more locally-oriented service. On appeal, the reviewing courts
explicitly recognized the lack of any documented public interest harm
compelling adoption of the rule.
More than a quarter century later, the newspaper/broadcast cross-
ownership rule still remains unchanged despite profound growth in media
outlets and owners, liberalization of all other media ownership rules,
and a mountain of evidence on the rule that shows, in contrast to the
predictive judgments upon which the FCC relied in 1975, that cross-
ownership does not harm any of the FCC's articulated policy goals and
that the rule, in fact, now hinders the provision of news and
innovative media services. Last fall, when the FCC issued its Notice of
Proposed Rulemaking in its omnibus ownership proceeding, the action was
at least the eighth time in almost as many years that the FCC had
considered or been asked to consider the rule's possible repeal. Time
and again, the FCC has collected more and more evidence supporting
repeal, and each time has failed to take action on the evidence,
promising repeatedly to act but never doing so.
The omnibus media ownership proceeding, which is to be decided on
June 2, 2003, incorporated by reference all the comments filed in a
separate 2001-2002 rulemaking proceeding dedicated solely to review of
the newspaper/broadcast cross-ownership rule. Common throughout all the
comments opposing repeal of the newspaper/broadcast cross-ownership
rule that have been filed in both the omnibus and the newspaper-
specific proceedings is a profound misunderstanding of the
newsgathering resources and financial commitment required to deliver
high-quality local news and information to the public. The same
comments also reflect a complete unawareness of the fact that local
media content at successful outlets is not dictated on a ``top-down''
basis but is consumer-driven and responsive to the needs of the
audiences and communities they serve. The opponents of repeal cling to
the simplistic and erroneous notion that maximization of the number of
separate media owners is the only way to ensure diversity and
competition in the local information marketplace. In light of the very
real financial constraints and pressures facing broadcasters and
newspaper publishers in today's vigorously competitive environment,
however, eliminating the ban is the FCC's best option for ensuring
continued vitality and, indeed, improvement in local news and
information available to the public.
As the media industry has recognized and called to the FCC's
attention in virtually unanimous comments, the current system is
broken. Diversity of viewpoint does not require diversity of ownership,
and the newspaper/broadcast cross-ownership ban has resulted in
noneconomic ownership ``islands.'' As noted above, both worsening
financial conditions in the media sector and the economy overall and
increasing competition from larger national and international players,
which typically present the same undifferentiated non-local information
in all markets, have caused many television stations in both large and
small communities to curtail or terminate local newscasts. Prompt
repeal of the rule is needed to stem and help reverse this decline.
Any Action Short of Complete Repeal of the Newspaper/Broadcast Cross-
Ownership Rule Is Unconstitutional and a Violation of Numerous
Statutory Provisions
Anything short of total repeal of the newspaper/broadcast cross-
ownership rule will raise a whole host of legal problems. Most
significantly, any ban on local newspaper/broadcast cross-ownership
violates the First Amendment. Failing to repeal the rule in its
entirety will also violate the Equal Protection Clause and Section
202(h) of the 1996 Telecommunications Act. In addition, keeping the
rule in any market will run counter to the FCC's goals of fostering
localism, innovation, and diversity.
First Amendment. Although the newspaper/broadcast cross-ownership
rule unquestionably implicates First Amendment rights, the Supreme
Court declined to apply traditional standards of First Amendment
scrutiny when it affirmed the rule in 1975. Instead, relying on two
cases from the early days of broadcasting, the Court concluded that
broadcast spectrum scarcity justified a less rigorous First Amendment
analysis that did not require consideration of whether the regulation
was narrowly tailored or otherwise sufficient to withstand traditional
First Amendment scrutiny.
In the intervening years, technological advances, media
proliferation, and the FCC's revised approach to licensing broadcast
stations have rendered the spectrum scarcity rationale obsolete.
Broadcast licenses are now auctioned and, for all practical purposes,
traded on the open market. There is no longer anything unique about
spectrum that distinguishes it from other economic goods. Today,
broadcasters are entitled to the same level of constitutional
protection that all other media enjoy.
Without spectrum scarcity, the newspaper/broadcast cross-ownership
rule must be evaluated, for First Amendment purposes, under strict or
intermediate scrutiny, and it can survive neither analysis. Strict
scrutiny requires the FCC to show that the rule is the ``least
restrictive means available of achieving a compelling state interest.''
In the past, the FCC and the courts have justified the newspaper/
broadcast rule on the ground that it would produce a ``hoped for'' gain
in diversity. As the extensive record before the FCC shows, with the
amazing growth of new and traditional media outlets over the last
quarter century and evidence that the rule is preventing the
development of new and innovative information services, fostering
diversity is no longer a ``compelling state interest'' that requires
retention of any vestige of the cross-ownership rule. Moreover, the FCC
cannot demonstrate that a ban on newspaper/broadcast cross-ownership
actually achieves diversity. A blunt ownership restriction that bans
all cross-ownership, particularly in smaller markets, is not ``the
least restrictive means'' for attaining the FCC's purported
``diversity'' goal. Indeed, the rule may have the opposite effect of
protecting and perpetuating ownership by companies not interested in
providing news and information, a possibility that is more likely in
small markets where the economics of television operations can be
especially dire. The rule thus cannot survive strict scrutiny review.
The rule must also fail even under the lessened standard of
intermediate scrutiny. That standard requires the FCC to demonstrate
the harm posed by cross-ownership, provide a record that validates the
regulation, and show that the rule is ``narrowly tailored to further a
substantial governmental interest.'' Again, the record before the FCC
fails to demonstrate any actual harm but shows very positive benefits
of cross-ownership, such as those common to Media General's experience
in its six convergence markets. Moreover, a ban on cross-ownership in
all small markets is not ``narrowly tailored.''
No matter which standard is applied, small markets have been just
as affected as large markets by the dramatic growth in the number of
media outlets and owners since the newspaper/broadcast cross-ownership
rule was adopted. Media General has seen this profusion in all its
markets, but particularly in the six DMAs where it practices
convergence. The FCC staff's own recent study on outlets and owners
also included many medium- and small-sized markets and found such a
high rate of growth that it used words like ``whopping'' to describe
it. There is also no question that consumers in smaller markets are
just as entitled as those in large markets to the benefits of common
ownership and access to the increased local information it produces.
Equal Protection. When restrictions like the newspaper/broadcast
cross-ownership rule affect fundamental rights such as the First
Amendment, the Equal Protection Clause of the United States
Constitution requires that such regulations be narrowly tailored to a
legitimate governmental objective. In the absence of an effect on
fundamental rights, if a regulation is to withstand an Equal Protection
challenge, the government must establish a rational relationship to a
legitimate state interest.
As noted earlier, the ``legitimate'' objective that the FCC
asserted in defending the initial adoption of the newspaper/broadcast
cross-ownership rule, i.e., enhancing diversity, has completely
evaporated because of the profusion of media and lack of spectrum
scarcity. In addition, ``diversification'' is no longer taken into
account in initial licensing by the FCC, a point upon which the Supreme
Court had relied in 1978 in upholding the rule based on a spectrum
scarcity rationale.
Even if the FCC's assertion of a ``diversity'' objective in the
Equal Protection context were deemed to be legitimate, a modified ban
on cross-ownership that stops short of providing small-market relief
would not be ``narrowly tailored'' because the FCC could not show,
based on the record before it, that the rule in any way directly or
materially advances diversity in such markets. The record before the
FCC does not include evidence of any correlation at all between
diversity and the existence of the rule, but, rather, suggests that the
rule is harming the delivery of diverse local news. Thus, the rule also
flunks the less strict ``rational relationship'' test.
The Supreme Court's denial in 1978 of the Equal Protection claims
of newspaper owners has preserved a regulatory regime that has
radically changed, and retaining any form of a newspaper/broadcast
cross-ownership rule that discriminates against small market owners
would also fail on Equal Protection grounds given other changes in the
FCC's regulation of media ownership. For instance, vacatur of the cable
television/television cross-ownership rule has occurred in all markets.
When the Court of Appeals for the District of Columbia Circuit recently
vacated that rule, it did not suggest any need to retain its
restrictions in small markets; the FCC never mentioned such a concept
when it sought rehearing; and the FCC has allowed the rule to disappear
nationwide. If there is no reason to follow a graduated market approach
in repealing cross-ownership of television and cable television, two
outlets that the FCC does regulate, there can be absolutely no reason
to do so for combination of newspapers, which are otherwise unregulated
by the FCC, and broadcast stations. In addition, television/radio
cross-ownership is allowed in all markets provided a certain number of
``voices'' remain, a standard that can be met in virtually all small
markets. Moreover, businesses closely related to broadcasting, such as
advertising agencies, rep firms, broadcast networks, equipment
manufacturers, and program suppliers, may own broadcast stations in
small markets, whereas newspaper publishers in the same markets are not
be able to do so. Finally, all other businesses unregulated by the FCC
(many of which compete with newspapers and television stations at the
local level, such as Internet site owners and billboard companies) may
own broadcast stations in their home markets, regardless of size,
whereas newspapers may not.
Section 202(h) Violation. Section 202(h) of the Telecommunications
Act clearly requires the FCC biennially to determine whether any of its
ownership rules remain ``necessary in the public interest as the result
of competition'' and to ``repeal or modify any regulation'' that is
``no longer in the public interest.'' The United States Court of
Appeals for the District of Columbia Circuit has found that this
section carries with it a strong presumption in favor of repeal. The
record before the FCC overwhelmingly demonstrates that the public
interest benefits of repeal, in markets of all sizes, outweigh the
benefits of retention. This record combined with the presumption in
favor of repeal leaves no legally sustainable case other than full
repeal. Section 202(h) also requires the FCC to consider the impact of
competition on its rule review and, any standard short of full repeal
that measures the permissibility of cross-ownership only by reference
to one or two types of outlets in a market and ignores the documented
and pervasive competition from all other media in a market will run
afoul of Section 202(h).
Violation of the Statutory Goals of Localism and Innovation. The
Communications Act articulates a number of specific public policy
goals. Among them is the duty to foster localism under Section 307(b)
and the duty to encourage the provision of new technologies and service
to the public under Section 157(a).
Since the 1930s, localism has been one of the bedrock or core
principles of our national communications policy. For nearly 70 years,
the FCC has been carrying out this mandate by ensuring that licenses
and frequencies are fairly, efficiently, and equitably distributed
throughout the nation, so that citizens, no matter what the size of
their communities, have access to broadcast stations and the local news
they deliver.
As noted above and as Media General has documented extensively in
the FCC's record, the ever increasing cost of producing quality news as
well as other financial pressures on broadcasters and the general
downturn in the economy have resulted in over 40 stations in small and
even some large markets curtailing or entirely eliminating their local
news broadcasts. Common ownership will allow the infusion of news-
related resources into these failing local television operations.
Refusing to allow common ownership in smaller markets will ensure that
this negative trend in decreased local content will continue unabated,
and the goal of localism will be poorly served.
The policy in favor of innovation was added to the Communications
Act much more recently. With equal force, however, it requires full
repeal of the newspaper/broadcast cross-ownership rule. There is no
rationale in the record before the FCC, nor is there any other legally
sustainable reason, for denying small market operators and consumers
the same innovations and benefits, such as the enhanced local news
resulting from convergence, that are available to their counterparts in
larger markets. If anything, the costs and difficulties faced by small
market operators make such changes even more deserved and compelling.
The record is replete with the journalistic and public interest
benefits that can redound to the benefit of consumers in smaller
markets through convergence.
Media General has a strong interest in expanding its convergence
efforts beyond the six markets where it currently offers such benefits.
Like all other newspaper owners, however, Media General is hampered in
doing so by the FCC's newspaper/broadcast cross-ownership ban.
* * * * *
For decades, communications policymakers have been struggling to
find a way to foster the provision of diverse local news and
informational programming in the smaller markets of the United States.
Media General has demonstrated that it can be done and done profitably.
The result is hundreds of journalistic awards, a quantifiable growth in
news and public affairs programming, ratings and circulation increases,
and job creation. There is nothing in the FCC's record, other than
anecdotes and speculative musings, that demonstrates any public
interest detriment from such convergence. The FCC should be strongly
encouraged to allow the benefits of newspaper/broadcast cross-ownership
to flourish in all American markets, large and small.
______
Prepared Statement of Victoria Riskin, President,
Writers Guild of America, west
Thank you Senator McCain and Senator Hollings, and Members and
staff of the Senate Commerce Committee, for conducting these hearings.
I appreciate the opportunity to submit this testimony for the record on
behalf of the Writers Guild of America, west.
Senators, the Writers Guild is deeply concerned that the Federal
Communications Commission is preparing to issue rules that will further
deregulate the media and accelerate the negative effects of
consolidation.
The media are the modern-day American Town Square, the place where
people from different backgrounds and points of view share their
stories and the American public learns about the world. Here is where
American democracy comes alive and the American identity is forged. But
today, barriers have been erected to keep all but a handful of voices
from being heard in our town square.
The Federal Communications Commission and the Courts asked for data
about diversity in entertainment programming. As president of the
Writers Guild of America, west, which represents the great majority of
writers and producers who create primetime entertainment programs, I
can tell you that over the past decade, diversity of production sources
in the marketplace has been eroded to the point of near extinction. In
1992, only 15 percent of new series were produced for a network by a
company it controlled. Last year, the percentage of shows produced by
controlled companies more than quintupled to seventy-seven percent. In
1992, 16 new series were produced independently of conglomerate
control; last year there was one.
The opportunity for access for a broad range of voices has been cut
dramatically.
The claim has been made that because we now have hundreds of
channels on cable. ``choices abound.'' But more channels does not
really mean more choices. In the past the FCC has defined a ``major''
network as one that reaches 16 million or more homes. By that
definition there are ninety-one major networks. But of these ninety-
one, 73, or fully eighty percent, are owned or co-owned by 6 corporate
entities. Five of these 6 are the same corporations that run the
broadcast networks: Viacom, Disney, News Corporation, General Electric,
and AOL Time Warner.
Any doubt about the control exercised by these five companies was
dispelled in a recent report by respected Wall Street media analyst Tom
Wolzien, which I have attached to my comments. Wolzien points out that
a ``strong programming oligopoly is beginning to reemerge.'' For
December, 2002, he found that the five conglomerates ``controlled about
a 75 percent share of prime-time viewing.'' Wolzien concludes that over
the next few years, with the further consolidations he expects to
occur, these five companies will control roughly ``the same percentage
of TV households in prime time as the three networks did 40 years
ago.''
In other words, the control by a few conglomerates will be as
absolute as ever in history.
The data we submitted to the Federal Communications Commission as
part of our official filing clearly documents the dominance of content
by a handful of vertically integrated conglomerates; that is now
corroborated by an independent analyst. No longer can anyone argue that
the facts of such control or their potential impact are in doubt. The
old programming oligopoly of media content is being rebuilt.
The creative community has seen in recent years how increasingly
difficult it is to bring innovative shows to the air. All too often--
indeed, virtually invariably--to get their work on television writers
and producers must cede ownership and creative control to the network
or cable companies. Most have no choice, none at all. They must accept
the network or cable company as a partner and surrender their
independence, with one result that if their show doesn't make the
schedule, they are now prohibited from taking it elsewhere. Nearly one
hundred small and medium-sized businesses--each with its unique point
of view--have disappeared in the last 10 years. Why is the
disappearance of the small independent producer and writer an issue for
public concern? Because with them have gone stories from hundreds of
writers and producers who care deeply about original drama and comedy,
history, culture, and not just, for example, ratings, ratings, all the
time ratings.
Members of the Commerce Committee have recently received letters
from some of the most respected and famous independent writers and
producers in Hollywood, including Grant Tinker, Diane English, Allan
Burns and others, expressing their concern about the chilling control
media conglomerates now have over entertainment programming and how
this is impacting quality television. In fact, all the creative Guilds
of the Hollywood community including the Producers Guild, the Directors
Guild and, the Screen Actors Guild have warned the FCC in the strongest
terms possible about the negative impact of media concentration and
have called upon the FCC to establish limits on how much programming
the conglomerates can produce for their own networks. In a letter to
the Commissioners, Senators Wyden and Collins this week called upon the
FCC to consider a new access rule that would be vital to the protection
of the diversity of voices on television.
The Writers Guild urges the FCC to adopt rules governing media
ownership that expand access and diversity, not limit it to these few
gigantic companies. We ask you to encourage the FCC to take
constructive action to remedy the serious imbalance that has taken root
in the programming marketplace. We are asking that a few companies do
not continue to have a stranglehold on free expression and robust open
debate, and that independent voices are once again allowed to be heard
in the land. Openness will help ensure program source diversity not for
any given group of entrepreneurs or writers but for the marketplace of
ideas and for Democracy itself. We ask that storytellers from all
backgrounds be once again allowed independent access to America's town
square. We ask these things because we believe that diverse programming
from distinct and varied sources is the very definition of the public
interest.
Attachment
Bernstein Research--Weekly Notes--February 7, 2003
Returning Oligopoly of Media Content Threatens Cable's Power
by Tom Wolzien and Mark Mackenzie
The Long View
Returning Oligopoly of Media Content Threatens Cable's Power
Overview
Common wisdom these days has the consolidated cable companies,
particularly Comcast, taking a commanding lead in the age-old leverage
battle with programmers. Supposedly this will give cable free rein to
drive down prices paid for content. On the contrary, a strong
programming oligopoly is beginning to re-emerge. This is permitting a
three-pronged pincer movement that combines a surprising growth in
control of national content with consolidated cable's unintentional
increase in its exposure to powerful local retransmission consent
requirements. The growth in content power will be additionally enabled
by new consumer hardware and high-speed networks to the home. Comcast
($25) now must gain retransmission agreements covering 55 stations
owned and operated by the largest programmers, who, together with AOL,
controlled more than 70 percent of the prime-time viewing in December.
This number would increase to 85 percent if independent and joint-
venture services are consolidated with the big five--a likely event
over the next few years as weaker cable networks are hammered on price.
At that point, five programming giants would split roughly the same
number of rating points controlled by ABC, CBS and NBC during
television's ``golden age.'' Additionally, the introduction of in-home
networks and servers, coupled with the evolution of unbundled routes
for content into the home, suggest that the implication of these
changes may go far beyond the price paid to programmers. Going forward,
the programmers' power threatens cable's ability to maintain the value
of its ``bundle'' and eventually may shift it to ``dumb pipe'' status,
devoid of the upside from intellectual property.
Part I: Programming Power Grows
The subject of this Long View is leverage--whether content or
distribution can get an edge on one another going forward and, if
content can get an edge, does that threaten cable's historic ability to
bundle content and transport at a high-margin markup. Our view is that
big-content is slowly gaining an edge, even as cable consolidates. That
edge comes from a combination of local and national distribution and
from evolution in the consumer electronics area.
Programming Oligopoly Reforming: A study of the December ratings
from Nielsen Media suggests that we are beginning to see a rebuilding
of the old programming oligopoly when cable and broadcast network and
station viewing are considered. In December, Viacom ($37) controlled
about 22 percent of prime-time viewing through its broadcast and cable
networks. Disney ($17) controlled 18 percent, while News Corp. ($25),
NBC and AOL ($10) were each in the 10-12 percent range. Together, the
five companies controlled about a 75 percent share of prime-time
viewing, not including their nonconsolidated partnerships like A&E,
Court TV and Comedy Central.
Exhibit 1 shows what we found to be a major disconnect, at least
for us, in perception and reality. Column (a) shows classic prime-time
viewership during television's ``golden age,'' when three networks
split an average of 57 percent of the television households (ratings).
Last season ABC, CBS and NBC split about 23 percent, as seen in column
(b). But if the viewing of all properties owned by the parent
companies--Disney, NBC and Viacom--is totaled, those companies now
directly control television sets in over a third of the TV households.
Add AOL, Fox and networks likely to see consolidation over the next few
years (Discovery, A&E, EW Scripps, etc.), and five companies or fewer
would control roughly the same percentage of TV households in prime
time as the three nets did 40 years ago. The programming oligopoly
appears to be in a process of rebirth.
Increased Retrans Exposure: In another surprising twist, the
consolidation of the cable industry has actually left the largest cable
company, Comcast, more exposed to the leverage of the largest
programmers, as their local television stations can further exploit the
need for the cable company to gain permission to retransmit the local
signals. The math resulting from consolidation is working against
Comcast. In 23 of the top 26 television markets covering half the
population of the United States, Comcast now must gain retransmission
consent for some 62 separate television stations owned by four of the
top five program companies. Of the top 26 markets, only Houston,
Phoenix and Portland, Oregon, currently don't have an overlap of
Comcast with ABC/Disney, CBS/Viacom, Fox/News Corp. and/or NBC/GE.
Exhibit 2 shows the programmers' big market leverage against Comcast.
Comcast's historic approach has been to avoid high-profile
conflicts. Just how high-profile retransmission consent conflicts can
be is recalled from 2000 when then Time Warner Cable took the ABC
stations off in New York and other major markets for a day before the
company was crucified in Washington and other media. The lesson: the
more exposed cable companies are to high-quality local television
stations owned by the major programmers, the more leverage those
programmers have against cable. And Comcast is now the most exposed of
all, even before taking into account what News Corp. might do with
retransmission permission for its Fox stations should it enter the
satellite business.
This overlap means that the programmers other than AOL probably now
have sufficient control over Comcast through retransmission consent
requirements for major stations to: (a) neutralize Comcast's scale
threat to reverse program cost increases, and (b) parry cable attempts
to place limits on data transmissions.
Part II: Convergence (Finally) Is Real
Revelation at the Kitchen Counter: Christmas day at my brother and
sister-in-law's place in central New Jersey seemed like many others----
toys and electronics for the teenage sons, the latest digital camera
for their dad, Howard; but it was their mother Linda's present that was
stunning in its simplicity, and, perhaps, for what it said about
convergence and the coming threat to what is becoming to be seen as an
all-powerful cable industry.
There on the kitchen counter, between the Kitchen Aid mixer and the
Christmas cookies, was a new screen. It was a flat screen made by View-
Sonic. The computer sat over the edge of the counter in a corner on the
floor. Computers in kitchens aren't all that unique these days, but
this screen had a couple of buttons on the front. Push one and get the
Web. Push another and there was cable television. Right there on the
display unit. No separate TV. No All-in-Wonder cards jammed into the
computer. Just a cable wire and a computer wire into the back of the
flat screen.
Just buttons. Just like AM-FM. TV-Internet. One device regardless
of band. Simple. Threatening because it reminds that the consumer
doesn't care how programming gets into the home . . . just that it is
available.
Today when you buy cable television service, it is a bundle--
transport and content. The reason the top cable companies are able to
get away with charging such high margins is that they are selling that
transport/content bundle. We consumers are unable to separate the
bundle. We analysts have a difficult time even figuring out what the
parts actually cost.
Data service is different. With their move into high-speed data,
cable companies have, for the first time, unbundled their service. We
consumers buy the data transport service for $40 or $50 a month, but,
unlike video, we don't buy online content from the cable company. And
this may be the beginning of the demise of cable's margins, not for
what they make on data, but for what they may lose in conventional
bundled services. Now, this isn't going to happen right away, but it
should be considered in strategic discussions.
The coming threat is most easily illustrated by the difference
between cable video-on-demand and the new Movielink--Web-delivered
movie downloads on demand. The economics of a video-ondemand movie
purchased from and delivered by the cable company are distinctly
different for the cable company from a movie purchased via the studio's
Web proxy, Movielink. To keep it simple, assume that both movies cost
$4, assume that the revenue is split equally between the studio and the
distributor. For the cable VOD purchase, half of the consumer's $4 goes
to the studio and half goes to the cable company. For the Movielink
purchase, half the consumer's $4 goes to the studio, and the remainder
goes to Movielink. The cable company gets nothing above and beyond what
it is already receiving for the data connection. It is providing
transport just like the phone company.
Cable operators have been thinking that they will be able to make
out very well in this environment if they just begin to ratchet up
price for those who transfer large files. But, as we just saw, they
were missing the intellectual property upside that they get from
bundling transport and content. Two analogies: you and your associates
work all night putting together a deal that creates $10 million in
value. The lights burn late, but the electric company only gets in
additional $0.13 cents for the extra kilowatt-hours. It doesn't get any
of the value created under its lights. The same applies to a long
distance phone company when you make a call on which value is created.
The thought that a linear ratcheting of transport price can offset the
intellectual property upside denies cable's basic bundling premise.
It is easy to deny any problem with the cable approach today. After
all, Movielink is in its infancy and based on downloads of less than
DVD quality for viewing on a computer screen. You can't watch it on
your TV. And there is no other streaming product, much less pay-per-
view streaming product, that we care about. If you're a consumer, just
wait. If you're a longer-term cable investor, watch out. As the
consumer electronics industry accepts the better MPEG-4 compression
standard and couples it with in-home storage and these new hybrid
computer-television flat panel displays, the combination could begin to
threaten cable's wired monopoly.
Real Networks now claims some 800,000 customers paying for
streaming video content via the Web--content which often rides the
high-speed cable pipe without allowing cable to take any intellectual
property upside. In the next few months, Major League Baseball games
will begin to be sold by Real, and ride the cable pipe. Cable won't get
an extra cent.
But the threat to cable goes much further than just the fledglings
of Real and Movielink. It would have been easy to miss the small print
on one of the ESPN slides at Disney's presentation to the UBS
conference in December. Under the future business heading were listed
``streaming video'' and ``payper-view.'' There was no indication that
these would be provided in cooperation with the cable operator, and
streaming could help give Disney its long-sought-after alternate
distribution system. If Disney develops an alternative distribution
system to the home, it wouldn't attack cable outright, but rather begin
to offer bits and pieces of content that would steadily increase in
length and quality over time.
Likewise, the troubled AOL is trying to reposition its ``bring your
own access'' approach to delivering high-speed content. BYOA opens the
door for going around the cable operators, who have had more than
enough time to cut deals with AOL to control long-term streaming.
Whatever the reasons--most likely ``stereo hubris'' from both sides--
not only are there no streaming controls on AOL in the current deals
with Time Warner Cable and Comcast, but even the old 10-minute
limitation on streaming from the original @Home and Roadrunner
contracts, seems to have gone away. While AOL made a big deal at its
December analysts' meeting of planning to provide only small chunks of
video by high speed, one mid-level AOL executive later told me that it
wasn't whether they could stream much more than small chunks of video,
but whether they had the guts to do so.
Cable companies may think they can control Movielink and Real and
Disney and AOL by refusing to pass their data bits without being given
a cut. This would be the old cable way. But to do so would initiate a
radical change in the now well-established ``open-ness'' of the
Internet--the ability of any consumer to get to any place in the world.
Such a change by the largest cable companies likely would once again
raise the profile of cable as gatekeeping monopolists. Such an attempt
would pay hell in Washington and, depending on the content available,
push users toward DSL or, in the future, wireless.
Cable had its chance to develop original high-speed content at the
outset, but failed. The original concept for @Home lent itself to
providing preferred positions to certain content providers who would
make content available on an exclusive or priority basis to @Home
subscribers. That potential died when @Home decided to merge with
Excite, was pushed into AT&T, and subsequently became embroiled in the
internecine warfare of that now dismembered company.
Part III: Hardware and Routes Benefit Content
High-Density Storage Alternative: Making this all the more
complicated is the rise of in-home storage and networking. These new
technologies open cable to competition from stored content as well as
that streaming in real time. At this year's consumer electronics show,
high-density storage was a major attraction. TiVo and Replay continued
with their TV storage devices, but they were joined by the Sonys,
Panasonics and Phillips' and others which were converting television
storage into in-home servers for just about any type of material,
including video. These devices, some of which can plug directly into
the Internet, potentially provide the ability to put material on the
television screen from any source, including material that has been
streamed or downloaded.
Competitive Principles: Capacity to deliver video content to the
consumer is determined by a combination of: (a) the ability to compress
the content into smaller total packages using continuing advances in
digital compression, (b) the capacity in the circuit to transport that
data, (c) the ability to separate a piece of content into more-easily
transportable components, and (d) the capability to store and
reassemble the content before or at the home display device. Different
types of content require different thresholds of capacity to reach the
consumer.
The highest threshold of capacity is required by something that is
happening live, in real time. Of course, a live concert, sporting, or
news event only happens live once. After that it is prerecorded
someplace--centrally, at the edge, or in the home. At minimum, a live
transmission demands all of the bandwidth required by the currently
best compression system, and direct access to the consumer without
intervening storage.
Once content is preproduced or delayed, there become many more
opportunities for delivery beyond a continuous stream. In theory, the
content can also be transmitted: (a) in short bursts for reassembly,
(b) not in real time (slowly), (c) by multiple routes and reassembled,
or (d) splatted at super high speed. The only end requirement is that
the data all wind up on a storage device in the home and in a form that
can be reassembled by that device to make a coherent program. How it
gets there and how long it takes to get there is not material, so long
as it is available when the consumer wants it. At this point the
aggregation of data potentially becomes more important than one single
path, thereby suggesting the potential for a new generation of would-be
gatekeepers who try to control the servers in the home.
Routes into the Home: When considering the potential routes into
the home, we began by thinking how few there were 25 to 30 years ago.
Back then, there was broadcast radio and television and the telephone.
And you couldn't carry content in because hardware was too expensive.
Video was recorded on huge reels of two-inch wide tape that played on
sofa-sized machines costing hundreds of thousands of dollars. Today the
number of routes into the home have exploded and may continue to expand
with wireless data. And in-home storage is coming of age not only with
the high-density storage of TV devices and the new consumer electronics
servers, but also with PCs and video game consoles.
It is not difficult to imagine one of these storage devices
offering the option of receiving content by any combination of: (a)
cable modem, (b) cable, (c) satellite, (d) DSL, (e) over-the-air
digital television, and (f) by wireless (WiFi) running at 2.4 GHz,
another frequency, or using bits and pieces of the entire spectrum.
Part IV: Cable's Alternatives
Investing in High-Speed Content: To avoid ``dumb pipe'' status, the
cable industry can try to return to what made it great in the video
realm--the combination of transport and exclusive content. In addition
to offering high-speed Internet transport, a cable company might also
elect to offer another high-speed data option that includes content not
available elsewhere. Of course, this would require the cable industry,
once again, to fund the development of exclusive content, as it did
during the 1980s. Back then, this effort was hugely successful because
there weren't any alternatives--no Discovery, no TNT, etc. It was also
an effort that was successful before the alternative distribution
system of satellite.
To date, cable development of a premium alternative to data has not
been successful in the marketplace, to great extent because of the
@Home fiasco discussed earlier. But there may be another reason. Cable
operators have taken to high-speed modem service and its 50 percent+
margins like drugs. Of course they love it. The content is free, and
the profit ramp is steep. The problem is that in selling a commodity
they may be setting themselves up for a fall by selling nonexclusive
content that is not only free to them--but also free to any competitor
that may emerge. It should be remembered that the key to satellite's
emergence in the United States was Congressional action that required
cable companies to sell to the satellite companies content that had
previously been exclusive to cable.
Cable vs. Programmer Leverage in Contracts: If the cable operators
don't want to invest in high-speed content, and if they don't want to
have their commodity-data pipe compete with the intellectual property
upside of their classic cable-video bundle, then their only other
alternative is to attempt to prohibit competition through contracts
with programmers. On the surface, it would seem to be easy to require
cable programmers to refrain from providing any digital services over
the Web that might compete with the cable operator's bundled
businesses. The simple deal would be, ``if you want your network on our
cable, you must agree not to compete on the Web.'' Or, at least, cut
the cable operator in on any broadband content action. Certainly that
is possible with the likes of Movielink, Real or independent networks
with little negotiating leverage.
However, what would seem to be easy for a powerful cable company,
may not be in the future when it has to deal with the big content
companies. As noted earlier, the growing leverage of the programmers
through both national distribution and local stations will provide
significant leverage to maintain price and develop new services.
Investment Conclusion
While it is currently popular to view cable as having ``won'' in
the leverage battle against content (if not against satellite), such a
view is both momentary and premature. The growing power of the content
providers in viewership across their multiple network and local
platforms threatens cable's short-term abilities to gain program
pricing leverage, and its longer-term ability to protect its
``intellectual property'' upside within its content bundle. When
coupled with the possibility of price-warfare from a reconstituted
satellite industry seeking market share, cable's response will likely
be to improve the offering in its ``bundle,'' probably by offering very
low-cost telephone service using the scale economics of Internet
Protocol telephony.
Should this occur, then we would view the revenues of video from
cable and satellite, data from cable and RBOC, and phone from cable and
RBOC as all sloshing around the same bathtub. If satellite removes
revenues from cable, then cable will try to remove revenues from the
RBOCs. In the end, the economic realities of overcapacity will prevail
to the detriment of both cable and the RBOCs, with principal
distribution benefit accruing to the low-cost provider for any service.
If the scenario plays out as we expect, cable operators will
neither invest in high-speed content in the near term, nor succeed in
blocking programmers who want their content to ride the high-speed
pathways. Having failed to differentiate themselves, cable operators
will likely return to the idea of developing their own content. While
the cable operators may think this approach will be successful, as it
was for video in the 1980s, they run a high risk because, by then, the
programmers will be far down the road in establishing their own
services to the detriment of cable. Simply put, cable will be too late
if it waits.
Programmers will continue to consolidate their cable networks,
exploit the Internet and other distribution methods, and, barring heavy
investment from the distribution players, move rapidly to strengthen
what is already beginning to appear as a return to content oligopoly.
Right now, the balance may appear to have tipped to cable, but over the
longer term, the programmers hold the power.
Disclosures
Bernstein analysts are compensated based on aggregate contributions
to the research franchise as measured by account penetration,
productivity and proactivity of investment ideas. No analysts are
compensated based on performance in, or contributions to, generating
investment banking revenues.
Bernstein rates stocks based on forecasts of relative performance
for the next 6-12 months versus the S&P 500 for U.S. listed stocks and
versus the MSCI Pan Europe Index for stocks listed on the European
exchanges--unless otherwise specified. We have three categories of
ratings:
Outperform: Stock will outpace the market index by more than 15
pp in the year ahead.
Market-Perform: Stock will perform in line with the market
index to within +/-15 pp in the year ahead. Underperform: Stock
will trail the performance of the market index by more than 15
pp in the year ahead.
Bernstein currently makes or plans to make a market in every NASDAQ
security contained within our coverage universe.
Tom Wolzien, Bernstein's Senior Media Analyst, holds an interest in
a public company,ACTV, Inc., and is a director of a subsidiary to
exploit his patents linking mass media with online services. ACTV may
be involved in business dealings or legal actions with companies
covered by Wolzien. Currently ACTV has business arrangements with
Viacom, Comcast (which Mr. Wolzien also maintains a position in) and is
involved in legal action against Disney. ACTV is in the process of
being acquired by Liberty Media.
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