Local Broadcast Market Concentration Promotes More Local News Operations?

            At the eleventh hour, the Ajit Pai-led FCC released an economic study examining the impact of market size and concentration on the number of local news operations.  See Kim Makuch & Jonathan Levy, Market Size and Local Television News, OEA Working Paper 52 (rel. Jan. 15, 2021); available at: https://docs.fcc.gov/public/attachments/DOC-369214A1.pdf.  While the authors explicitly stated that “this paper does not analyze the total quantity of local news (i.e., number of hours, which has been rising or its content,” I am certain that had Chairman Pai retained his position, he would have relentlessly touted the paper as unimpeachable, empirical proof that further concentration in the broadcast marketplace serves the public interest. 

             I appreciate that well financed and profitable media ventures can exploit scale economies and the efficiency possibly accrued. Ventures with deeper pockets can afford to hire staff to create local content.  Long ago, Bruce Owen in a book he wrote (Television Economics) and elsewhere explained how mergers and market concentration can actually generate more program format diversity.  Rather than duplicate a format, a radio station can generate higher revenues by opting to offer a new format, rather than duplicate one already available.  Arguably, format proliferation contributes to a generous sense of what qualifies as “diversity.”

             One can readily count the number of radio formats, e.g., talk, adult contemporary, oldies, news, etc.)  However, counting truly independent local news providers is a far more daunting task than the paper implies, or what Chairman Pai would claim.

             While I am math challenged, I infer from the paper that one can count additional local news providers and that larger markets can support more local news dissemination.  However, the authors extrapolate that point to assert the possible counterproductive impact of current FCC rules limiting further concentration, with existing rules that establish a floor in terms of the number of broadcast voices a single market must have to warrant consideration of a proposed acquisition and usually prohibit mergers of stations that both have local market share in the top 4 of all stations.

             The paper counts the number of broadcast local news operations with a simple yes or no assessment.  Does the station offer local news, or does it not? 

             The question whether a station offers local news is different from whether it constitutes a new and independent source of local news.  The paper’s counting process does not differentiate between truly local and repurposed content made to look local.  Would it surprise you that some so-called local content is reality is centrally produced material lightly edited to appear local?  Have we forgotten how Sinclair Broadcasting issued “must run” edicts to its stations mandating the local dissemination of content created at the Mother Ship?  See https://www.nytimes.com/2017/05/12/business/media/sinclair-broadcast-komo-conservative-media.html.

             In the worst case scenario, the Makuch & Levy paper could be cited by advocates to bolster a finding the paper never intended to reach and surely did not offer empirical proof. Once again, we get a relentless cascade of “proofs” that market concentration promotes competition and all things good, even if the counting process becomes partisan and politicized.  Would the paper count as a net addition in local news operations a simulcast, or rebroadcast of a news program aired by another station with common ownership?  Would the paper count a station that has no net increase in employee numbers, but manages to generate a news program by cobbling together video press releases, content from the Mother Ship and clips from another local station having the same national owner?

             Recently, Gray Broadcasting filed a Friend of the Court brief in the Prometheus case showcasing how it acquires local market laggards and upgrades their news operations with much commercial success.   See https://www.supremecourt.gov/docket/docketfiles/html/public/19-1231.html.  I helped write a brief challenging the premise that market concentration promotes localism and the proliferation of video on demand content from Netflix and others warrants the relaxation of ownership rules in light of robust competition (scroll down the Supreme Court link to the Dec. 23, 2020 Brief amici curiae of Media Law and Policy Scholars).

             Sadly,  stakeholder advocacy, economic models, wishful thinking and results-driven decision making convert conjecture into gospel truth.  Former FCC Chairman Pai masterfully convinced a lot of people with an endless assertion that network neutrality created a multi-billion dollar reduction in infrastructure investment.  If he says it long enough and frequently enough, it becomes true even though, for example, the recently released 2020 Market Competition Report shows stable wireless plant investment even after the FCC eliminated the network neutrality investment disincentive.   See 2020 Communications Marketplace Report,  GN Docket No. 20-60, Fig. II.A.26, Wireless Capital Expenditures by Provider 2016 – 2019, 38 (rel. Dec. 31, 2020); available at: https://docs.fcc.gov/public/attachments/FCC-20-188A1.pdf.

             Yet again, a reminder that there are “lies, damn lies and statistics.”  

 

 

 

Supreme Court Friend of the Court Brief

 

    I accepted the invitation to help write a Friend of the Court brief in the Supreme Court's consideration whether the FCC can further relax limits on broadcast ownership concentration.  I tried to Keep It Simple when explaining the difference between "must see" live television and on-demand Netflix.  Copies available upon request.

Summary of the FCC's Elimination of the Bar on Exclusive Program Access Contracts

           In a unanimous decision, the FCC has decided not to extend its program access rules beyond the scheduled October 5, 2012 sunset date. [1] The Commission believes that the marketplace for video content has become sufficiently competitive to obviate the need for an absolute ban on exclusive contracts for satellite cable programming or satellite broadcast programming between any cable operator and any cable-affiliated programming vendor in areas served by a cable operator.  Congress enactment the rule in the 1992 “when cable operators served more than 95 percent of all multichannel video subscribers and were affiliated with over half of all national cable networks.” [2]

            To guard against the possibility of ongoing harm resulting from any individual exclusive access contract, particularly in regional markets and for specific types of content like sports, the FCC will consider complaints on a case-by-case process. [3] The Commission will retain a rebuttable presumption that an exclusive contract involving a cable-affiliated Regional Sports Network (“RSN”) has the purpose or effect prohibited in Section 628(b) of the 1992 Act [4] that established the ban based on the assumption that the FCC needed to preserve and protect competition and diversity in the distribution of video programming.  The Commission noted that additional safeguards exist in its conditional grant of authority for Comcast to merge with NBC/Universal. [5] Additionally the Commission stated that it will require program suppliers to honor the full term of existing supply contracts and access complaints can include claims of discriminatory treatment where a supplier provides access to one or more distributors, but not to others.  Lastly the FCC stated its intention to continuing monitoring the video programming access marketplace to ensure that “the expiration of the exclusive contract prohibition, combined with future changes in the competitive landscape, result in harm to consumers or competition . . ..” [6] 

            In the Further Notice of Proposed Rulemaking in MB Docket No. 12-68, the FCC proposed specific rebuttable presumptions about exclusive RSN access contracts.  The Commission sought comments on whether to establish a rebuttable presumption that an exclusive contract for a cable-affiliated RSN, regardless of whether it is terrestrially delivered or satellite-delivered, is an “unfair act” under Section 628(b) of the 1992 Cable Act as well as a rebuttable presumption that a complainant challenging an exclusive contract involving a cable-affiliated RSN is entitled to a standstill of an existing programming contract during the pendency of a complaint.  Additionally the Commission proposed to treat as rebuttable presumptions with respect to the “unfair act” element and/or the “significant hindrance” element of a Section 628(b) claim challenging an exclusive contract involving a cable-affiliated “national sports network” and a rebuttable presumption that, once a complainant succeeds in demonstrating that an exclusive contract involving a cable-affiliated network violates one or more provisions in Section 628 of the 1992 Cable Act. 

            The FCC’s decision not to maintain a bar on exclusive program access contracts represents a conclusion that the video programming marketplace evidences greater competition and less domination by vertically integrated companies, such as Comcast, that have ownership interests in both video program creation and distribution.  The Commission acknowledges that “the record here shows a mixed picture, indicating that vertically integrated cable programmers may still have an incentive to enter into exclusive contracts for satellite-delivered programming in many markets.” [7] 

            However, “the record evidence indicates that the cable industry’s share of MVPD subscribers nationwide has continued to decrease, from 67 percent in 2007 to 57.4 percent today, which indicates that vertically integrated cable operators as a whole – and considered solely on a national basis – have a reduced incentive to enter into exclusive contracts, compared to 2007.” [8]  On the other hand, the Commission noted that vertically integrated cable operators have maintained, or increased their market share in certain specific certain Designated Market Areas (“DMAs”).  Previously the Commission had determined that market shares in the range of 67-78 percent provided sufficient incentive and ability to use exclusive programming contracts as a way to maximize profitability.  The Commission noted that major multiple system operators, such as Comcast and Time Warner Cable, have pursued a clustering strategy in many DMAs accruing market share in excess of 70 percent. [9] Notwithstanding such concentration of control in many major metropolitan areas, the Commission has confidence in its ad hoc, complaint driven process in lieu of an absolute bar on exclusive program access contracts:

Because the record before us indicates that there may be certain region-specific circumstances where vertically integrated cable operators may have an incentive to withhold satellite-delivered programming from competitors, we believe that a case-by-case approach authorized under other provisions of the Act – rather than a preemptive ban on exclusive contracts – will adequately address competitively harmful conduct in a more targeted, less burdensome manner.  We disagree with commenters to the extent they imply that Congress intended the prohibition to expire only once vertically integrated cable operators no longer have any incentive to enter into exclusive contracts.  Such an interpretation contradicts Congress’s recognition that exclusive contracts do not always harm competition and can have procompetitive benefits in some cases.  [10] 

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[1]           Revision of the Commission’s Program Access Rules, Report and Order in MB Docket Nos. 12-68, 07-18, 05-192, Further Notice of Proposed Rulemaking in MB Docket No. 12-68 Order on Reconsideration in MB Docket No. 07-29, FCC 12-123 (rel. Oct. 5, 2012); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-123A1.doc.

[2]           Id. at ¶1.

[3]           “.In addition to allowing us to assess any harm to competition resulting from an exclusive contract, this case-by-case approach will also allow us to consider the potentially procompetitive benefits of exclusive contracts in individual cases, such as promoting investment in new programming, particularly local programming, and permitting MVPDs to differentiate their service offerings.” Id. at ¶2.

[4]               47 U.S.C. § 548 (2010) codified at 47 C.F.R. § 76.1002.

[5]           [A]pproximately 30 satellite-delivered, cable-affiliated, national networks (accounting for 30 percent of all such networks) and 14 satellite-delivered, cable-affiliated, RSNs (accounting for over 40 percent of all such RSNs) are subject to program access merger conditions adopted in the Comcast/NBCU Order until January 2018.  These conditions require Comcast/NBCU to make these networks available to competitors, even after the expiration of the exclusive contract prohibition.” Id. at 4.

[6]           Id. at 4.

[7]           Id. at 17.

[8]           Id.

[9]           “The Commission has, in past orders, observed that clustering may increase a cable operator’s incentive to enter into exclusive contracts for regional programming.  In the 2007 Extension Order, the Commission noted that Comcast passed more than 70 percent of television households in 30 Designated Market Areas (DMAs) and TWC passed more than 70 percent of television households in 23 DMAs.[9]  Based on the 2011 data provided by the cable operators, Comcast now passes more than 70 percent of television households in [REDACTED] DMAs and TWC passes more than 70 percent of television households in [REDACTED] DMAs.  Id. at 19.

[10]          Id. at 21.