Station cap ball rolls into appeals court

Sep 3, 2001  •  Post A Comment

For television networks and cable companies, Washington on Sept. 7 will be ground zero in their battle to loosen or repeal federally mandated ownership restrictions that they revile as impediments to their expansion.
That’s because the U.S. Court of Appeals in Washington will hear oral arguments on the networks’ desire to remove the 35 percent broadcast ownership cap and on cable’s effort to kill the broadcast-cable cross-ownership rule.
The stakes could not be higher for the plaintiffs-Fox Television Stations, Viacom/CBS, NBC and Time Warner Entertainment Co. (now part of AOL Time Warner)-who hope the court will provide relief that Congress appears unlikely to grant now that the Democrats control the Senate.
A few sources said the Federal Communications Commission, which will defend the rules along with the Network Affiliated Stations Alliance, could be in a tough spot because the agency’s Republican chairman, Michael Powell, has vowed to drop any ownership restrictions that can no longer be justified.
They speculated that he secretly wants to loosen or repeal the broadcast ownership cap and would be happy if the court forces his hand so he doesn’t have to take sides in a dispute that pits the major TV networks against their affiliates.
“The commission is walking into oral argument with one hand tied behind its back,” an industry source said on condition of anonymity.
“That’s ridiculous,” an FCC source said, emphasizing that the agency will vigorously defend both restrictions in court and that Mr. Powell voted to maintain the 35 percent cap when the agency last reviewed it three years ago.
Mr. Powell has not publicly discussed whether he thinks either restriction is justified in today’s marketplace.
Meanwhile, sources said debate over the restrictions could reach the U.S. Supreme Court if the losing side decides to appeal and the high court takes the case.
Another important consideration will be Congress’s reaction to the court’s decision, expected by year-end.
Several lawmakers, including Senate Commerce Committee Chairman Ernest Hollings, D-S.C., strongly oppose weakening the rules and could try to override any relaxation with legislation or other action.
But it’s unclear whether Congress would act, particularly if the three-judge panel is unanimous in its decision.
The networks are confident of victory because they see hopeful signs in two recent decisions.
In March, the appeals court struck down an FCC rule barring cable operators from owning systems reaching more than 30 percent of the nation’s multichannel TV subscribers.
The next month, it stayed an FCC order requiring Viacom to comply with the 35 percent broadcast ownership cap as a condition of its acquisition last year of CBS. The stay is in effect pending the outcome of the Sept. 7 case.
Viacom has a 41 percent ownership reach because of the CBS deal and would reach 43 percent by December due to a station swap with Fox.
The networks, which consider the ownership cap to be outdated in a marketplace filled with new competitors such as the Internet and satellite TV, read those decisions as signals the court will rule in their favor.
“This court is very conservative. They take a very dim view of this agency,” said an industry source.
But an attorney for the affiliates privately downplayed the significance of the decisions, describing the stay as routine and predictable.
The court’s decision on the cable cap is not relevant, he said, because the court faulted the FCC for the threshold the agency chose. The broadcast ownership cap, by contrast, was selected by Congress.
During the oral arguments, the FCC will emphasize that in 1998, when it reviewed the ownership cap and decided to maintain the 35 percent level, it was deferring to the will of Congress, which two years earlier settled on that level in a massive telecommunications law.
Fox sued the FCC over its 1998 review, with Viacom and NBC later intervening.
Fox’s recent acquisition of Chris-Craft’s TV stations puts it at 41 percent nationwide station reach, an amount that will change due to station swaps but would still be above the cap.
The FCC has said Fox doesn’t have to divest stations under the Chris-Craft deal to comply with the cap until the court reaches a decision.
NBC is below the cutoff with a reach of 26 percent or 27 percent, a spokesman said.
The broadcast-cable cross-ownership restriction prohibits broadcasters from owning cable systems in their markets and vice versa. Lifting the rule would enable Time Warner to own TV or radio stations where it offers cable.
Other defendants in the case who support maintaining the restrictions are the National Association of Broadcasters and the Media Access Project, a nonprofit public-interest law firm.