FCC’s Rules on Media Cross-Ownership Are Vacated by Federal Appeals Court

By Sophia Pearson and Todd Shields - Jul 7, 2011 5:33 PM AT

• A U.S. appeals court vacated a Federal Communications Commission rule relaxing limits on cross- ownership of newspapers and broadcast outlets, saying the agency failed to provide adequate notice.

The FCC in 2007 approved a rule allowing publishers to own both newspapers and broadcast stations in the biggest U.S. cities. CBS Corp. (CBS), Clear Channel Communications Inc., Gannett Co., and Cox Enterprises Inc. challenged the FCC order for failing to relax the rule further. Consumer groups argued that the FCC didn’t provide adequate notice and that elements of the rule were unsupported by evidence.

The federal appeals court in Philadelphia in a 2-1 vote today sent the cross-ownership rule back to the FCC for further consideration. The court upheld FCC limits on local broadcast ownership.

“This decision is a vindication of the public’s right to have a diverse media environment,” Andrew Jay Schwartzman, policy director of Media Access Project, a Washington-based law firm, said in an e-mail. “The FCC majority knew that its effort to allow more media concentration was politically and legally unworkable, so it tried to end-run the procedural protections that are designed to give the public the right to participate in agency proceedings.”

Second Intervention

Today’s ruling marks the second time the appeals court has intervened in the commission’s attempts to relax media ownership rules. The same panel ruled in 2004 that the commission failed to provide reasoned analysis to support regulating cross- ownership with a new set of limits and sent the rules back to the FCC for review.

The agency in 2008 adopted an entirely new rule, under which it would consider cross-ownership proposals on a case-by- case basis using a four-factor test, according to court documents. The order eased restrictions on cross-ownership of full-service broadcast stations and daily newspapers in major cities. It retained such restrictions in smaller markets.

Austin Schlick, the FCC’s general counsel, said in response to today’s opinion that the agency continues a “statutorily mandated review of its media ownership rules.”

“With an updated record and this supportive decision, the agency should be able to take appropriate steps to ensure that the nation’s media marketplace remains healthy and vibrant,” Schlick said in an e-mailed statement.

‘More Consolidation’

Shannon Jacobs, a spokeswoman for New York-based CBS, and Lisa Dollinger, a spokeswoman for San Antonio-based Clear Channel, declined to comment. Elizabeth Olmstead, a spokeswoman for Cox, said the company had no immediate comment. Robin Pence, a spokeswoman for McLean, Virginia-based Gannett, didn’t immediately respond to a request for comment.

FCC Commissioner Michael J. Copps said he was pleased the cross-ownership rule, “which would have opened the door to more consolidation,” was sent back to the commission.

“The rule and the process that brought it forth were highly inimical to media democracy,” Copps said in an e-mailed statement.

The agency’s procedures leading up to the 2007 vote were “irregular,” the appeals panel said. Between October 2006 and November 2007, the commission held six public hearings on media ownership in various cities with the final hearing announced just 10 days before, the appeals court said in its ruling.

The commission’s 2006 notice on the proposed rule failed to solicit comment on the overall framework under consideration and how the new approach might affect other ownership rules, the appeals court said.

‘Significant Omissions’

“These were significant omissions,” the appeals panel said in the ruling.

Notices for the proposed rule changes also didn’t provide enough information on what the commission was planning to do and the options it was considering, and didn’t give the public a meaningful opportunity to comment, the appeals panel said.

The FCC didn’t “fulfill its obligation to make its views known to the public in a concrete and focused form as to make criticism or formulation of alternatives possible,” the appeals panel said.

John Sturm , president of the Newspaper Association of America, an Arlington, Virginia-based trade group, called the ruling “very disappointing.

“We’re back to the original rule that was passed in 1975,” Sturm said. “It strains credulity to understand why that is.”

‘Massive Changes’

The media market has undergone “massive changes” from the Internet, cable channels and satellite TV, and the cross- ownership rule isn’t needed to preserve a diversity of voices, Sturm said.

Judge Anthony J. Scirica in dissent said the court’s decision to vacate and remand the cross-ownership rule “preserves an outdated and twice-abandoned ban.” The FCC gave ample notice and made it clear from 2006 that it was planning a significant revision of the rule, Scirica said.

“As is well known to the parties involved, the NBCO rule is not just the product of one isolated rulemaking, but is instead the outcome of an iterative and interactive process of statutorily prescribed agency review of broadcast media regulation,” Scirica said.

Today’s ruling may have little effect on the future of the media industry, Ken Doctor, a media analyst at Outsell Inc. in Santa Cruz, California, said in a phone interview.

“It is clearer than ever that multimedia, multiplatform reporting is going to be the way of the future,” Doctor said. “Because of the economics of the business overall there may be money to support one big company that does it all. The market and the technology are pushing toward singularity and concentration.”

The companies filed as petitioners in the main case Prometheus Radio Project v. FCC, 08-3078, 3rd U.S. Circuit Court of Appeals (Philadelphia).

To contact the reporters on this story: Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Allan Holmes at aholmes25@bloomberg.net.