The Perversity of the FCC’s Ownership Limits

For decades, rules meant promote diversity stood in the way of a fourth major television network.

 
 

The Perversity of the FCC’s Ownership Limits
PHOTO: ISTOCK/GETTY IMAGES
 

The FCC is reconsidering some of its rules on the ownership of TV stations. These regulations date back to a bygone era of scarcity—predating cable television, the internet, video downloads, streaming, social media and other innovations that give consumers an array of competitive options.

I have friends who believe that the public interest requires the FCC to keep its TV ownership rules. But my personal experience in the industry for over 40 years has shown me that TV ownership limits intended to enhance diversity often stifle competition and inhibit innovation and growth in the industry.

My first job, in 1973, was at Metromedia Inc., a company that had emerged out of the ashes of the DuMont Television Network. In the late 1940s, television pioneer Allen DuMont warned the FCC that it must assign at least four VHF stations to each major market to ensure the survival of the four television networks. The FCC ignored his advice and proved DuMont right—his network folded, leaving the nation for decades with only three commercial TV networks. Reading this history was my first lesson in how well-meaning FCC rules can have unintended consequences for competition and diversity.

 

As the DuMont Network was going out of business, it spun off to shareholders the TV stations it owned in New York and in Washington. Businessman John Kluge acquired de facto control of the new company and named it Metromedia. Kluge struggled to create a fourth network. He aggressively sought to expand Metromedia’s portfolio of owned television stations—the indispensable foundation of any network. But his efforts were thwarted by the FCC’s own rules limiting ownership. One particularly prominent obstacle was the FCC’s “top 50” policy, which required a “compelling public interest showing” to own more than three stations, or more than two VHF stations, anywhere in the top 50 markets. Of course, the three entrenched networks owned more than that, but they were grandfathered in.

The first decade of my life in the industry was consumed drafting and advocating for waivers of the FCC’s TV station ownership limits and its top 50 policy to advance Metromedia’s quest for a fourth network. Despite spending millions of dollars on innovative programming, Metromedia could not overcome the handicap imposed by the FCC’s TV station ownership rules. Kluge failed to fulfill his objective—and the FCC’s—of creating a fourth network.

So in 1985, Kluge sold his TV stations to Rupert Murdoch, who also acquired the then-bankrupt 20th Century Fox film studio. Together with Barry Diller and Jamie Kellner, Mr. Murdoch set out to create the long-sought fourth network. Again, FCC rules got in the way. On behalf of Fox, it fell to me to seek waivers of station ownership limits and other rules intended to promote diversity, such as the ban on cross-ownership of newspapers and the Financial Interest and Syndication Rules. The effort to create meaningful diversity required the FCC to waive its rules that were intended to create diversity. (Mr. Murdoch is executive chairman of News Corp, which publishes this newspaper.)

Because the benefits of granting the Fox waiver requests were so obvious, even supporters of TV ownership regulation such as Sen. Ted Kennedy (D., Mass.), Gov. Mario Cuomo (D., N.Y.) and Sen. Dan Inouye (D., Hawaii) supported our waiver requests. Fox eventually succeeded in becoming the fourth major commercial network. But it is perverse to keep in place rules intended to promote competition and diversity if they have to be waived in order to achieve that objective.

I offer this history because I lived it. On many occasions I thought: Why can’t the FCC see that these station-ownership restrictions are preventing the creation of meaningful entities of scale that could bring to viewers the benefits of greater competition and diversity? In today’s world—with hundreds of cable and satellite networks, the internet and myriad audio, video and other content providers—that question is more compelling than ever. And at a time of escalating TV costs and cord-cutting, enabling the creation of additional free over-the-air programming would be a great public service.

Some oppose repeal of the TV station ownership rules because one beneficiary of repeal might be Sinclair Broadcasting Co., which has conservative views. Those critics would be the first to insist that federal licensing decisions cannot—must not—be based on political views. And for all we know, the next beneficiary of deregulation could have liberal views. That is what free markets, competition and diversity are all about. My experience with the television ownership rules leaves no doubt that consumers will be well served by their repeal.

Mr. Padden is a consultant and former media executive. This article is adapted from an Aug. 28 blog post for Broadcasting & Cable.

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