FOR THE
Argued
No. 00-1222
Fox Television Stations, Inc.,
Petitioner
v.
Federal Communications Commission and
Respondents
National Association of Broadcasters, et al.,
Intervenors
Consolidated with
00-1263, 00-1326, 00-1359, 00-1381, 01-1136
On Petitions for Review of an Order of the
Federal Communications Commission
Edward W. Warren and Paul T. Cappuccio argued the
cause for petitioners. With them on the
joint briefs were Bruce D. Sokler, Richard A. Cordray, Ashley C. Parrish, Ellen S. Agress,
Diane Zipursky, Michael D. Fricklas,
Mark C. Morril, John G. Roberts, Jr., Stuart W. Gold,
Laurence H. Tribe, Jonathan S. Massey, Arthur H. Harding, R. Bruce Beckner and Henk Brands. Jay Lefkowitz
entered an appearance.
C.
Grey Pash, Jr., Counsel, Federal Communications
Commission, argued the cause for respondents. With him on the brief were Jane
E. Mago, General Counsel, Daniel M. Armstrong,
Associate General Counsel, James M. Carr, Lisa S. Gelb and Roger D. Citron,
Counsel, Mark B. Stern and Jacob M. Lewis, Attorneys, U.S. Department of
Justice. Christopher J. Wright, General Counsel, Federal Communications
Commission, Robert B. Nicholson and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, entered appearances.
Robert A. Long, Jr. argued the cause for intervenors
National Association of Broadcasters and the Network Affiliated Stations
Alliance. With him on the brief was Jack
N. Goodman.
Harold J. Feld, Andrew J. Schwartzman and
Cheryl A. Leanza were on the brief for intervenors/amici curiae Consumer Federation of America and
United Church of Christ, Office of Communication, Inc.
Wade H. Hargrove, Jr. entered an appearance.
Before: Ginsburg, Chief Judge,
Edwards and Sentelle, Circuit Judges.
Opinion for the Court filed by Chief Judge Ginsburg.
Table of Contents
Page
Introduction
3
I. Background 4
A. The National Television Station Ownership
(NTSO) Rule 5
B. The Cable/Broadcasting Cross-Ownership
(CBCO) Rule 6
C. Applying § 202(h) 7
1. The NTSO Rule 9
2. The CBCO Rule 9
II. Threshold Issues 10
A. Finality 10
B. Reviewability 12
C. Ripeness 13
D. Exhaustion and Standing 15
III. The NTSO Rule 16
A. Section 202(h) and the APA 16
1. Is the Rule
irrational? 16
2.
Failure to comply with § 202(h)
22
3. Failure to address the 1984 Report 22
B. The First Amendment 23
C. Remedy 27
IV. The CBCO Rule 30
A. Section 202(h) and the APA 31
1. Competition 31
2. Diversity 33
B. Remedy
35
V. Conclusion 37
Ginsburg, Chief Judge: Before the
court are five consolidated petitions to review the Federal Communications Commission's
1998 decision not to repeal or to modify the national television station
ownership rule, 47 C.F.R. § 73.3555(e), and the cable/broadcast cross-ownership
rule, 47 C.F.R. § 76.501(a). Petitioners
challenge the decision as a violation of both the Administrative Procedure Act
(APA), 5 U.S.C. § 551 et seq., and § 202(h) of the Telecommunications Act of
1996, Pub. L. No. 104-104, 110 Stat. 56. They also contend that both rules violate the
First Amendment to the Constitu-tion of the
We
conclude that the Commission's decision to retain the rules was arbitrary and
capricious and contrary to law. We
remand the national television station ownership rule to the Commission for
further consideration, and we vacate the cable/broadcast cross-ownership rule
because we think it unlikely the Commission will be able on remand to justify
retaining it.
I. Background
In
the Telecommunications Act of 1996 the Congress set in motion a process to
deregulate the structure of the broadcast and cable television industries. The Act itself repealed the statutes
prohibiting telephone/cable and cable/broadcast cross-ownership, 1996 Act §§ 302(b)(1), 202(i), and overrode the few
remaining regulatory limits upon cable/network cross-ownership, id. § 202(f)(1). In radio it
eliminated the national and relaxed the local restrictions upon ownership, id.
§ 202(a), (b), and eased the "dual network" rule, id. § 202(e). In addition, the Act directed the Commission
to eliminate the cap upon the number of television stations any one entity may
own, id. § 202(c)(1)(A), and to increase to 35 from 25
the maximum percentage of American households a single broadcaster may reach,
id. § 202(c)(1)(B).
Finally, and most important to this case, in § 202(h) of the Act, the
Congress instructed the Commission, in order to continue the process of
deregulation, to review each of the Commission's ownership rules every two
years:
The Commission shall review its rules adopted pursuant to this section and all of its ownership rules biennially as part of its regulatory reform review under section 11 of the Communications Act of 1934 and shall determine whether any of such rules are necessary in the public interest as the result of competition. The Commission shall repeal or modify any regulation it determines to be no longer in the public interest.
The Commission first undertook a review of
its ownership rules pursuant to this mandate in 1998. This case arises out of the resulting
decision not to repeal or to modify two Commission rules: the national television station ownership
rule and the cable/broadcast cross-ownership rule.
A.
The National Television Station Ownership (NTSO) Rule
The NTSO Rule prohibits any entity from controlling television stations
the combined potential audience reach of which exceeds 35% of the television
households in the
In
1984 the Commission considered the effects of technological changes in the mass
media, id. p 4, and repealed the NTSO Rule subject to
a six-year transition period during which the ownership limit was raised to 12
stations.
Implementation of the 1984 Report was subsequently blocked by the
Congress. See Second Supplemental Appropriations
Act, Pub. L. No. 98-396, § 304, 98 Stat. 1369, 1423 (1984). The Commission thereupon reconsidered the
matter and prohibited common ownership (1) of stations that in the aggregate
reached more than 25% of the national television audience, and (2) of more than
12 stations regardless of their combined audience reach. Amendment of Multiple Ownership
Rules, Mem. Op. & Order, 100 F.C.C.2d 74, p p 36-40
(1984). These limitations remained in
place until 1996, when the Congress (in § 202(c)(1) of
the Act) directed the Commission to eliminate the 12-station rule and to raise
to 35% the cap upon audience reach, both of which actions the Commission
promptly took. Implementation of
Sections 202(c)(1) and 202(e) of the
Telecommunications Act of 1996 (National Broadcast Television Ownership and
Dual Network Operations), 61 Fed. Reg. 10,691 (
B.
The Cable/Broadcast Cross-Ownership (CBCO) Rule
The CBCO Rule prohibits a cable television system from carrying the
signal of any television broadcast station if the system owns a broadcast
station in the same local market.[2] In conjunction with certain
"must-carry" requirements, 47 U.S.C. §§ 534-535; 47 C.F.R. § 76.55 et seq., to which
cable operators are subject, see Turner Broad. Sys.,
Inc. v. FCC, 512
The Commission first promulgated the CBCO Rule in 1970 along with a rule
banning network ownership of cable systems.
Amendment of Part 74, Subpart K, of the Commission's Rules and Regulations
Relative to Community Antenna Television Systems, Second Report & Order, 23
F.C.C.2d 816, p p 11, 15 (1970). In 1984 the Congress codified the CBCO Rule
but not the network ownership ban. Cable
Communications Policy Act of 1984, Pub. L. No. 98-549, § 2,
98 Stat. 2779.
In
1992 the Commission repealed the rule prohibiting net-work ownership of cable
systems. Amendment of Part 76, Subpart
J, Section 76.501 of the Commission's Rules and Regulations, Report &
Order, 7 F.C.C.R. 6156, p 10 (1992) (1992 Report). The Commission also revisited the CBCO Rule
and concluded that "the rationale for an absolute prohibition on
broadcast-cable cross-ownership is no longer valid in light of the ongoing
changes in the video marketplace."
C.
Applying § 202(h)
As
mentioned above, the 1996 Act, in addition to raising the national ownership
cap to 35% and repealing the statutory ban upon cable/broadcast cross-ownership,
required the Commission biennially to review all its ownership rules in order
to determine whether they remain "necessary in the public
interest." To begin the first
review thus called for in § 202(h), the Commission, on
We solicit comment on our broadcast ownership rules to
determine whether these rules are no longer in the public interest as we have
traditionally defined it in terms of our competition and diversity goals. Once this phase is completed, we will review
the comments and issue a report. In the
event we conclude there is good reason to believe that any of the rules within
the scope of the review, or portions thereof, should be repealed or modified,
we will issue the appropriate Notice(s) of Proposed Rule Making.
Reply comments were filed in June, 1998 but as of the fall of 1999 the
Commission had not yet completed its review.
Therefore, in November, 1999 the Congress directed that: "Within 180 days ... [the] Commission shall
complete the first biennial review required by section 202(h) of the Telecommunications
Act of 1996." Consolidated
Appropriations Act, 2000, Pub. L. No. 106-113, § 5003,
113 Stat. 1501, 1501A-593 (1999).
The accompanying Conference Report instructed: "[I]f the Commission concludes that it
should retain any of these rules under the review unchanged the Commission
shall issue a report that includes a full justification of the basis for so
finding." H.R.
Conf. Rep. No. 106-464, at 148 (1999).
On
1. The NTSO Rule
The Commission gave three primary reasons for retaining the NTSO
Rule: (1) to observe the effects of
recent changes to the rules governing local ownership of television stations; (2) to observe the
effects of the increase in the national ownership cap to 35%; and (3) to preserve the power of affiliates
in bargaining with their networks and thereby allow the affiliates to serve
their local communities better.
The effect upon petitioners Fox and Viacom of the Commission's decision
to retain the NTSO Rule was direct and immediate. Viacom's acquisition of CBS brought its
audience reach to 41%;
only a stay issued by this court has enabled Viacom to avoid
divesting itself of enough stations to come within the 35% cap. Fox Television Stations, Inc. v. FCC, No.
00-1222 at 2 (
2. The CBCO Rule
In the 1998 Report the Commission decided
that retaining the CBCO Rule was necessary to prevent cable operators from
favoring their own stations and from discriminating against stations owned by others. 1998 Report p 104 ("current carriage and
channel position rules prevent some of the discrimination problems, but not all
of them"). The Commission also
determined that the CBCO Rule was "necessary to further [the] goal of
diversity at the local level."
The effect upon Time Warner of the Commission's decision to retain the
CBCO Rule was significant. Although Time
Warner has not identified any specific transaction it would have consummated but
for the CBCO Rule, the Rule is preventing it from acquiring television stations
in markets, such as
II. Threshold Issues
Before turning to the merits of the petitions we must consider several
threshold issues. The Commission, supported
by the intervenors, contends that its decision not to
repeal or to modify the Rules is not final agency action, was not meant by the
Congress to be subject to review, and in any event is not ripe for review. Intervenors NAB and
NASA also argue that the petitioners failed to exhaust their administrative
remedies and lack standing.
A.
Finality
This court has jurisdiction to review "final orders" of the
Commission and "final agency action for which there is no other adequate
remedy in a court." 28 U.S.C. § 2342(1); 5 U.S.C. § 704. Consequently, the court must determine
whether the Commission's determination was "final." Agency action is final if: (1) it is "the consummation
of the agency's decisionmaking process," and (2)
"rights or obligations have been determined" by the action or
"legal consequences will flow" from it. Bennett v. Spear, 520
There is no question a Commission determination not to repeal or to
modify a rule, after giving notice of and receiving comment upon a proposal to
do so, is a final agency action subject to judicial review.
The Commission first appears to contend that only a decision made
pursuant to an adjudicative or rulemaking proceeding is final. The Commission fails, however, either to
offer support for this argument or to acknowledge that we have held other types
of agency actions to be final and reviewable. See, e.g., Ciba-Geigy Corp. v. EPA, 801 F.2d
430, 435-37 (1986) (holding letter expressing EPA's position on procedural
question was final agency action because it was definitive and had direct and
immediate effect upon petitioners); Nat'l Automatic Laundry and Cleaning
Council v. Schultz, 443 F.2d 689, 702 (1971) (holding letter from Administrator
of Wage and Hour Division of Department of Labor interpreting provision of Fair
Labor Standards Act was final agency action).
Second, the Commission argues that the 1998 Report is not final because
the agency intends to continue considering the ownership rules. That, however, does not mean the determination
is not "final" as a matter of law.
The 1998 Report is the Commission's last word on whether, as of 1998,
the Rules were still "necessary in the public interest as the result of
competition."
Finally, the Commission says the 1998
Report does not impose an obligation or deny a right because the petitioners
would receive no immediate relief if they were to prevail in their present
challenge; all
they could get would be an order requiring the Commission to initiate a
rulemaking. We shall have more to say
below about the relief to which the petitioners are entitled. For now it is sufficient to observe that by
the Commission's own account its decision is, in effect, at the least a
decision not to initiate a rulemaking, and it is established that "an
agency's refusal to institute [rulemaking] proceedings has sufficient legal
consequence to meet the second criterion of the finality doctrine." Capital Network Sys.,
3 F.3d at 1530. Therefore we conclude,
as we must, that the decision under review -- holding that the NTSO and CBCO
Rules were necessary in the public interest -- is a final agency action.
B. Reviewability
Separate from the question whether the 1998 decision is a final agency action,
the Commission argues that the "Congress did not intend for the
Commission's biennial reviews ... to create reviewable
action." In support of this proposition,
the Commission notes that § 202(c)(2) of the 1996 Act calls for the Commission
to conduct a rulemaking to determine whether to retain, to modify, or to
eliminate local television ownership limitations; in contrast, § 202(h) requires only that the
Commission "review" rules to determine whether to repeal or to modify
them. The Commission next argues that
under the 1996 Act a "determination," unlike a rulemaking decision,
is not a reviewable event. It contends that if the Congress had wanted
to subject to judicial scrutiny determinations made pursuant to the biennial
reviews required by § 202(h), then it would have said so, as it said in § 252(e)(6)
of the Act that a state commission's "determination" approving or
disapproving an interconnection agreement shall be reviewable
in federal court. Additionally, the Commission
observes that § 202(h) does not require it to submit a written report to the
Congress. All this, according to the
agency, indicates the Congress did not intend that the courts review agency
determinations made pursuant to § 202(h).
In any event, the Commission argues, under Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the court must
defer to the Commission's statutory interpretation to that effect. Finally, the Commission contends that if its
every decision to retain a rule under § 202(h) were subject to judicial review,
then the agency and the courts alike would face tasks so overwhelming as not to
be a result sensibly ascribed to the Congress.
In
light of the presumption that final agency action is reviewable,
see Abbott Labs. v. Gardner, 387
C. Ripeness
Next the Commission contends that its decision not to repeal or to
modify the ownership rules in question is not ripe for review because the
issues are not "fit" for judicial review, and delay would not cause
the petitioners any hardship. See Abbott
Labs., 387
We
find these arguments unpersuasive.
First, the issues in this case are fit for judicial review because the
questions presented are purely legal ones:
whether the Commission's determination was arbitrary and capricious or
contrary to law, and whether the challenged rules violate the First
Amendment. Because the court will not
review de novo the Commission's decision to retain the Rules, the Commission's
argument that it is in the better position to make that determination is, while
doubtless true, quite beside the point.
Second, the petitioners will indeed be harmed if we do not review the
Commission's decision now. Although they
could challenge the Rules by other means, retention of the Rules in the interim
significantly harms both the networks and Time Warner. As we have said, the NTSO Rule constrains Fox
and Viacom from entering into or completing certain specific transactions,
and the CBCO Rule prevents Time Warner from acquiring television stations in
certain markets where it would like to do so.
Moreover, the Commission is mistaken in asserting that the only remedy
available to the petitioners is a remand for rulemaking. For the reasons we provide below (in Part
III.C), we think that under § 202(h) a reviewing court may vacate the
underlying rule if it determines not only that the Commission failed to justify
retention of the rule but that it is unlikely the Commission will be able to do
so on remand.
Finally, CFA, UCC, and all other interested parties were invited in the
Notice of Inquiry to comment specifically upon whether the broadcast ownership
rules should be retained. 1998 Biennial Regulatory Review, Notice of Inquiry, 13 F.C.C.R.
11276, p 3 (1998). Perhaps CFA
and UCC, unlike the other intervenors and many
members of the public, chose not to comment in anticipation of doing so if the
Commission were later to propose repealing the Rules. Be that as it may, we do not see how that can
make unripe an otherwise ripe issue or deprive those harmed of their right to
timely review of a final agency action.
Hence, we conclude the Commission's decision is ripe for review.
D.
Exhaustion and Standing
Intervenors NAB and NASA argue that the petitioners failed
to exhaust their administrative remedies because they neither petitioned for a
rulemaking to amend or repeal the Rules nor asked the Commission for a waiver
of the Rules. They argue that in Tribune
Co. v. FCC, 133 F.3d 61, 69 (1998), this court "made clear that the
exhaustion requirement applies to challenges launched against the ownership
rules that are subject to the Commission's biennial review process." The intervenors'
reliance upon the Tribune case is misplaced, however. When that case was decided
the Commission had not yet completed a review pursuant to § 202(h). In this case, where the Commission had just
determined that the rules in question were still necessary in the public interest,
it obviously would have been futile for the petitioners to have petitioned the
agency for a rulemaking to repeal them.
And the intervenors cite no authority
suggesting the petitioners were required to request a waiver from the agency
even though a waiver is not the relief they seek from the court; nor do the intervenors
proffer any reason to believe the petitioners would have been entitled to a
waiver had they sought one.
The intervenors also argue that the
petitioners lack standing because a favorable decision in this case would not
redress their injuries. Their point is
that the Commission would still have to consider in a rulemaking whether to
repeal the Rules, but as we have just seen in connection with the Commission's
objection that this case is not ripe for review, that is not so. We therefore conclude that the petitioners
have standing to bring their claims before the court.
III. The NTSO §Rule
Having found no obstacle to our adjudication of this dispute, we turn at
last to the merits. The networks assert
that the Commission's decision to retain the NTSO Rule was contrary to § 202(h)
and arbitrary and capricious in violation of the APA; alternatively they contend the Rule
violates the First Amendment.
A.
Section 202(h) and the APA
The networks argue that the Commission's decision not to repeal the NTSO
Rule was arbitrary and capricious and contrary to § 202(h) for three
reasons: (1) the Rule is fundamentally
irrational, and the Commission's justifications for retaining it are correlatively
flawed; (2) the Commission failed
meaningfully to consider whether the Rule was "necessary" in the
public interest; and (3) the Commission
failed to explain why it departed from its previous position that the Rule
should be repealed.
1. Is the
Rule irrational?
The networks advance three reasons for thinking that retention of the
NTSO Rule was irrational: The 35% cap is
if anything less justified than the aggregate limitation upon cable system
ownership we held a violation of the First Amendment in Time Warner
Entertainment Co., L.P. v. FCC, 240 F.3d 1126 (2001) (Time Warner II); the Commission has provided no persuasive
reason to believe retention of the Rule is necessary in the public
interest; and retention of the Rule is
inconsistent with some of the Commission's other recent decisions.
Time Warner II. According to the
networks, "[t]he logic of Time Warner II applies with even greater force
here." They contend that the
television station ownership cap of 35% is more severe than the cable system
ownership cap of 30% struck down in Time Warner II, because unlike cable
systems "broadcasters face intense competition from numerous stations in
each local market" and the 35% cap is measured in terms of homes
potentially rather than actually served.
In response, the Commission, supported by intervenors
NAB and NASA, notes two distinctions between Time Warner II and this case: The 30% cap in Time Warner II was set by the
Commission whereas the 35% cap at issue here was set by the Congress; and the provision of the Cable Act at issue
in the prior case limited the extent to which the Commission could regulate in
furtherance of diversity, whereas § 202(h) mandates that a rule necessary
"in the public interest" -- including the public interest in
diversity -- be retained.
The networks are right, of course, that a broadcaster faces more local
competition than does a cable system. We
must also acknowledge that under the cap expressed in terms of a
"potential audience reach" of 35%, an owner of television stations
cannot in practice achieve an audience share that approaches 35% of the
national audience. Nonetheless, we find
the networks' reliance upon Time Warner II less than convincing for two
reasons, one advanced by the Commission and one not. As the Commission points out, we concluded in
Time Warner II that the 1992 Cable Act limited the agency's authority to impose
regulations solely in order to further diversity in programming, Time Warner
II, 240 F.3d at 1135-36, whereas no such limitation is at work in this
case. See page 18 below. Additionally, in Time Warner II we reviewed
the challenged regulations under first amendment "intermediate
scrutiny," which is more demanding than the arbitrary and capricious
standard of the APA. See Time Warner II,
240 F.3d at 1130 ("a government regulation subject to intermediate
scrutiny will be upheld if it 'advances important government interests
unrelated to the suppression of free speech and does not burden substantially
more speech than necessary to further those interests' ") (quoting Turner
Broad. Sys., Inc. v. FCC, 520
The Commission's reasons: competition,
diversity, et al. The networks next
argue that neither safeguarding competition nor promoting diversity generally
can support the Commission's decision to retain the NTSO Rule. They then take on the specific reasons given
by the Commission in support of its 1998 decision.
As
to competition, the networks note that there is no evidence "that broadcasters have undue market power," such as to
dampen competition, in any relevant market.
The Commission attempts to rebut the point, but to no avail. In its brief the agency cites a single,
barely relevant study by Phillip A. Beutel et al., entitled
Broadcast Television Networks and Affiliates:
Economic Conditions and Relationship--1980 and Today (1995). Insofar as there is any point of tangency
between that study and the matter at hand, it is in the authors' conclusion
that "the available evidence tends to refute the proposition that affiliates
have gained negotiating power since ... 1980."
As
to diversity, the networks contend there is no evidence that "the national
ownership cap is needed to protect diversity" and that in any event § 202(h)
does not allow the Commission to regulate broadcast ownership "in the name
of diversity alone." The
Commission, again supported by intervenors NAB and
NASA, persuasively counters the statutory point: In the context of the regulation of
broadcasting, "the public interest" has historically embraced
diversity (as well as localism), see FCC v. Nat. Citizens Comm. for Broad., 436
U.S. 775, 795 (1978) (NCCB), and nothing in § 202(h) signals a departure from
that historic scope. The question, therefore,
is whether the Commission adequately justified its retention decision as necessary
to further diversity or localism. In the
1998 Report the Commission mentioned national diversity as a justification for
retaining the NTSO Rule but never elaborated upon the point. 1998 Report p 26 n.78. This justification fails for two
reasons. First, the Commission failed to
explain why it was no longer adhering to the view it expressed in the 1984
Report that national diversity is irrelevant.
1984 Report p p 31-32. Second, the Commission's passing reference to
national diversity does nothing to explain why the Rule is necessary to further
that end. The Commission did, however,
discuss at some length fostering local diversity by strengthening the
bargaining position of affiliates vis-a-vis their
networks, 1998 Report p 30, a justification to which we shall come shortly.
As
to the Commission's three more specific reasons for retaining the NTSO Rule,
the networks contend that each is inadequate.
The Commission stated that retaining the cap was necessary so it
could: (1) observe the effects of recent
changes in the rules governing local ownership of television stations; (2) observe the
effects of the national ownership cap having been raised to 35%; and (3) preserve the power of local
affiliates to bargain with their networks in order to promote diversity of
programming. 1998 Report p p 25-30. We agree
with the networks that these reasons cannot justify the Commission's decision.
The first reason is insufficient because there is no obvious
relationship between relaxation of the local ownership rule -- which now
permits a single entity to own two broadcast stations in the same market in
some situations, see Review of the Commission's Regulations Governing
Television Broadcasting, Report & Order, 14 F.C.C.R. 12903, p 64 (1999) --
and retention of the national ownership cap, and the Commission does nothing to
suggest there is any non-obvious relationship.
Furthermore, as the networks point out, neither the first nor the second
reason is responsive to § 202(h): The
Commission's wait-and-see approach cannot be squared with its statutory mandate
promptly -- that is, by revisiting the matter biennially -- to "repeal or
modify" any rule that is not "necessary in the public interest."
The Commission, with the support of intervenors
NAB and NASA, argues that it was required to defer to the decision of the
Congress to set the initial ownership cap in the 1996 Act at 35%. For this the Commission relies upon both the
House and the Senate having rejected a proposal to raise the cap to 50%, and
upon the statement of Congressman Markey, ranking minority Member of the
relevant subcommittee of the House, that the Congress's choice of the 35% cap
"should settle the issue for many years to come." 142 Cong. Rec. H1145-06,
H1170 (daily ed.
Nor does the Commission's third reason -- that the Rule is necessary to
strengthen the bargaining power of network affiliates and thereby to promote
diversity of programming -- have sufficient support in the present record. Although we do not agree with the networks
that this reason is unresponsive to § 202(h) -- as we have said, that section
allows the Commission to retain a rule necessary to safeguard the public
interest in diversity -- we must agree that the Commission's failure to address
itself to the contrary views it expressed in the 1984 Report effectively
undermines its present rationale. In the
1998 Report (p 30) the Commission asserted that independently-owned affiliates
play a valuable role by "counterbalancing" the networks' strong
economic incentive in clearing all network programming "because they have
the right ... to air instead" programming more responsive to local
concerns. In the 1984 Report, however,
the Commission said it had "no evidence indicating that stations which are
not group-owned better respond to community needs, or expend proportionately
more of their revenues on local programming." 1984 Report p 53. The later decision does not indicate the
Commission has since received such evidence or otherwise found reason to
repudiate its prior conclusion.
In
sum, we agree with the networks that the Commission has adduced not a single
valid reason to believe the NTSO Rule is necessary in the public interest,
either to safeguard competition or to enhance diversity. Although we agree with the Commission that
protecting diversity is a permissible policy, the Commission did not provide an
adequate basis for believing the Rule would in fact further that cause. We conclude, therefore, that the 1998
decision to retain the NTSO Rule was arbitrary and capricious in violation of
the APA.
Other Commission actions.
The networks argue that the Commission's decision is also arbitrary and
capricious because it is inconsistent with recent Commission decisions relaxing
the local television station ownership and the radio/televison
cross-ownership rules, as well as its decisions repealing the prime time access
and the financial and syndication rules.
The Commission answers that it has properly followed the lead of the
Congress in taking an "incremental" approach to the deregulation of
broadcast ownership. Although we are not
convinced the Congress required such an approach -- the mandate of § 202(h)
might better be likened to Farragut's order at the
battle of
2. Failure to comply with § 202(h)
The networks argue that the Commission's decision to retain the NTSO
Rule was not only arbitrary and capricious but also contrary to § 202(h). As just discussed, we agree with the networks
that two of the reasons the Commission gave for retaining the Rule did not even
purport to show the Rule was necessary in the public interest, as required by
the statute. Furthermore, we agree that
the Commission "provided no analysis of the state of competition in the
television industry to justify its decision to retain the national ownership
cap." The Commission's brief
description of the broadcasting market, a single paragraph of the 1998 Report
under the heading "Status of Media Marketplace," is woefully inadequate: The Commission merely listed the number of
television households, the number of television stations, the percentage of
those stations that are affiliated with networks, and the number of stations an
average viewer can receive, without defining the relevant markets, let alone
assessing the state of competition therein.
See 1998 Report p 9. Nor did the
Commission attempt to link the listed facts to its decision to retain the
national ownership cap. That, however,
is precisely what § 202(h) requires.
Consequently, we agree with the networks that the Commission
"failed even to address meaningfully the question that Congress required
it to answer."
3. Failure to address the 1984
Report
The Commission's failure to address its 1984 Report in the course of its
contrary 1998 Report is yet another way in which the decision to retain the
NTSO Rule was arbitrary and capricious.
Recall that in the 1984 Report the Commission concluded the NTSO Rule
should be repealed because it focuses upon national rather than local markets
and because even then any need for the Rule had been undermined by
competition. 1984 Report p 108. Indeed, even when the Commission subsequently
reconsidered its decision to eliminate the national ownership cap -- as
necessitated by the moratorium the Congress imposed upon implementing the 1984
Report -- it expressly re-affirmed the conclusions reached in the Report. Amendment of Multiple
Ownership Rules, Mem. Op.
& Order, 100 F.C.C.2d 74, p 3 (1984). To retain the cap in 1998 without explanation
of the change in the Commission's view is, therefore, to all appearances, simply
arbitrary. The Commission may, of course,
change its mind, but it must explain why it is reasonable to do so. See Motor Vehicles Mfrs. Ass'n
v. State Farm Mut. Auto. Ins. Co., 463
The Commission now argues that the refusal of the Congress to allow the
agency to implement the 1984 Report and its decision in the 1996 Act to retain
an ownership cap rendered irrelevant the views the Commission expressed in the
1984 Report. When the Congress in 1996
directed the Commission periodically to review the ownership cap, however, it
did nothing to preclude the Commission from considering certain arguments in
favor of repealing the cap -- including the arguments the Commission had
embraced in 1984. So long as the
reasoning of the 1984 Report stands unrebutted, the
Commission has not fulfilled its obligation, upon changing its mind, to give a
reasoned account of its decision.
In
sum, we hold that the decision to retain the NTSO Rule was both arbitrary and
capricious and contrary to § 202(h) of the 1996 Act. The networks argue that this requires us to
vacate the Rule rather than merely to remand the case to the agency for further
consideration. As will be discussed
below, we disagree, and for this reason we must go on to consider the networks'
first amendment challenge to the NTSO Rule which, if successful, without
question would require that the Rule be vacated.
B.
The First Amendment
The networks contend that the NTSO Rule violates the First Amendment
because it prevents them from speaking directly -- that is, through stations
they own and operate -- to 65% of the potential television audience in the