The broadcast industry’s campaign to roll back the national cap on TV ownership blew up in its face last week when a federal appeals court granted a stay barring the Federal Communications Commission’s new media ownership rules from taking effect-including ones that many broadcasters support.
Under the industry game plan, the National Association of Broadcasters and the Network Affiliated Stations Alliance wanted the federal government to overturn one of the new TV rules raising the cap on TV ownership from 35 percent to 45 percent of the nation’s TV homes. But in an unexpected twist, the U.S. Court of Appeals in Philadelphia also stayed new FCC rules that would have allowed broadcasters to buy daily newspapers and up to two additional TV stations in key markets, deregulation that NAB and NASA heartily endorse.
The court’s temporary action is expected to slam the door on many major TV transactions for at least a year, pending judicial review of the challenges to the agency’s rules.
In response to the court stay, sources warned that the FCC plans to put on indefinite hold hundreds of pending radio and TV station transactions while agency officials struggle to lay out new transaction ground rules that comply with the court’s order. “[The court stay] screws everybody,” said one industry source.
Hardest hit by the ruling, according to industry sources, are firms such as Tribune Co., which has made no secret of its business plan to merge broadcast stations with daily newspapers in key markets. Under the stay, the FCC’s old rule on the subject is in force, barring the transactions.
Also taking a wallop, according to industry sources, are Viacom’s CBS and News Corp.’s Fox, because they currently own stations that exceed the 35 percent limit-the cap that’s in effect for the foreseeable future.
Sources said Tribune could be particularly inconvenienced because it acquired the Los Angeles Times in a market where it already owned KTLA-TV, in anticipation of the FCC’s deregulation.
But Shaun Sheehan, Tribune VP, Washington, said that even if the agency’s cross-ownership ban is upheld, a loophole in the FCC’s rules ensures the company wouldn’t have to contemplate divestiture until a year after KTLA’s license comes up for renewal at the end of 2006.
“I can assure you if we haven’t achieved regulatory relief by that time, we’ll take it to court,” Mr. Sheehan said.
A network source, meanwhile, said Fox and CBS also will be spared divestiture, because they are protected by waivers.
“The stay just says things stay as they are and as they are, we don’t have to divest anything,” the source said.
Key industry sources have also made clear that they hold FCC Chairman Michael Powell responsible for at least some of the regulatory backlash because of his decision to lump all of the pending deregulation into one huge proceeding.
At least according to affiliate representatives, the only truly controversial rule was the national cap. Affiliates were fighting the effort of their networks to raise the cap to get additional leeway to buy stations.
“If Chairman Powell had not insisted on bundling the national cap rule with the local ownership rules, this would not have happened,” said Alan Frank, NASA chairman and president of Post-Newsweek Stations. “If he had not insisted on that, the cap would have stayed at 35 percent and the rest of the rules would have flown through.”
Also last week, the Senate Appropriations Committee voted unanimously to approve legislation to roll back the cap on national TV ownership from 45 percent to 35 percent of the nation’s TV households-the mirror image of a bill approved in a 400-21 vote by the House of Representatives in July.
In addition, emboldened critics of the FCC’s deregulation demanded that the agency overhaul the regulations on its own, saving the courts and Congress from the trouble.
“Today we hope to put the final nail in the coffin of these ill-considered rules,” said Mark Cooper, research director of the Consumer Federation of America.
Gene Kimmelman, senior director of advocacy and public policy for the Washington office of Consumers Union, said, “The court would not have taken such extreme action unless highly suspicious of the FCC’s rationale.”
But an FCC spokesman said that “While we are disappointed by the decision by the court to stay the new rules, we will continue to vigorously defend them and look forward to a decision by the court on the merits.”
The decision by the court to stay the rules came as a surprise because stays of agency decisions are rare. In two hours of oral arguments before the court last week, attorneys for the FCC and the networks said proponents of the stay had not made the case to warrant a court order.
But in a decision Wednesday night, a three-judge panel of the court disagreed.
“Given the magnitude of this matter and the public’s interest in reaching the proper resolution, a stay is warranted pending thorough and efficient judicial review,” the judges said.
The judges said that, absent a stay, it would be hard to undo consolidation that occurred under rules that could ultimately be rejected.
“In contrast to this irreparable harm, there is little indication that a stay pending appeal will result in substantial harm to the commission or to other interested parties,” the court said.
The court, in a footnote, also said that under standard operating procedures, parties seeking a stay are supposed to first seek one from the agency.
“Nonetheless, under the unique circumstances of this case, it appears virtually certain that the commission would not grant a stay in this matter,” the judges said.
Andrew Schwartzman, president of Media Access Project, the activist group that requested the stay, said, “This action gives us the opportunity to convince Congress and, if necessary, the courts, that the FCC’s decision is bad for democracy and bad for broadcast localism. Perhaps it will embolden Congress to overturn the new rules in their entirety. That would save everyone a lot of time and effort fighting it out in the court to obtain the same result.”
Despite Mr. Schwartzman’s plea, the Senate Appropriations Committee limited its legislative rider last week to the cap issue, sticking to the limited re-regulatory scheme that NAB and the Network Affiliated Stations Alliance have been advancing.
Before the vote, Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, made clear that a cap rollback rider was all he would tolerate without a fight, a rollback he said would now survive Congress because it is already part of House legislation.
He also made clear that he was willing to let the court handle the rest of the regulatory issues-even if that meant eventually kicking them back to the FCC.
Still, several other lawmakers on the committee, including Sen. Byron Dorgan, D-N.D., and Sen. Kay Bailey Hutchison, R-Texas, vowed to try to include a provision to overturn the FCC’s decision to relax the ban on newspaper-broadcast cross-ownership in the bill when it is voted on the Senate floor.
The next ball in the debate is expected to fall in the court’s court, in the form of a response to a request from the FCC and the networks to transfer the challenges in the case to the U.S. Court of Appeals in Washington.
The Washington court has been highly critical of the FCC’s media ownership rules in the past, and therefore would be expected to sympathetic to the interests of the agency and the networks in maximum deregulation.
But attorneys close to the issue said the Philadelphia court has signaled its interest in keeping the case for its own.