Media Ownership Concentration Limits

 

There is an ongoing drama being played out in congress with Facebook, Twitter, Google and the potential influence of Russian actors on the American election (there will likely be something similar in Europe, if there isn't already). One of the main contentions by the technology companies is that they aren't "media companies" and thus shouldn't be considered in the same light - as it relates to political advertising. In this Lift Letter, we peel back some of the layers to discuss regulations on media ownership and competition in the United States, how it has evolved, and the ongoing relevance of these regulations in light of a new media consumption ecosystem. 

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The notion of a free press is explicitly in the First Amendment of the Constitution. Newspapers (in the classical sense) are the purest form of press - an entity reporting something, printing it on a press that they own, distributing it on paper that they've purchased, to people that buy it from them (or their distributors). As such, newspapers have been effectively unregulated by Congress and the Supreme Court has repeatedly ruled in favor of an expansive view of a free press (e.g. https://www.nytimes.com/2016/06/30/insider/1971-supreme-court-allows-publication-of-pentagon-papers.html). When the reporting is transmitted via a medium that is regulated, however, the situation becomes more intricate - meaning certain media can be the source of additional regulation. 

The US government declared that it owned all radio bandwidth dating back to the 1920's. The FCC was created and licensed to grant use of radio spectrum (subsequently used for TV as well) based on, among other things, "the public interest, convenience, and necessity." The public interest, a vague term when considered formally, was subsequently defined as constituting a variety of voices / perspectives for the audience (along with additional color). Newspaper ownership had previously been subject to antitrust limitations, but little else. Iin 1975, however, the newspaper and broadcast cross-ownership rules were promulgated by the FCC. The FCC was thus allowed to use ownership of newspapers as a consideration when granting TV or radio licenses, as part of considering the "public interest" and the associated variety of viewpoints. 

In 1996, the Telecommunications Act required regular reviews of the specific cross-ownership rules in place. Subsequent rule-making allowed for a massive consolidation in media ownership by narrowing certain restrictions. What followed were a number a number of corrections in both directions (variously allowing and restricting concentration). The rules have continued to be revised on a regular basis, with various "scandals" along the way. Currently, the FCC allows media companies to own any number of TV stations nationwide as long as its market share nationally is under 39%. A media company can also own no more than two TV stations in the same market, so long as at least one of the them is not ranked among the top four in the market, with similar rules applying to the ownership of major newspapers and TV or radio. The FCC also explicitly bars any merger between any two of the four major broadcast TV networks: ABC, CBS, Fox and NBC.

Ajit Pai of the Trump administration, who we have discussed previously (https://www.liftletters.com/all-letters/2017/9/11/the-changing-fcc), is a conservative in the sense that he favors fewer government restrictions generally. One of his earliest actions was reinstating the "UHF discount" - which effectively discounts homes reached by UHF by 50% when calculating the 39% ownership cap. The UHF discount is a wonky discussion, but the effect is that it allows for significantly larger levels of nationwide ownership. There is a lot of nuance around the discussion of media ownership, and it gets very technical based on agency rule-making procedure and precedent. The potential Sinclair-Tribune merger will create a very large, powerful, national force, with many more local TV stations and more newspaper ownership and it is being closely reviewed with a cross-ownership lens.  

With radio being consumed increasingly via digital and satellite, local news through social media, and TV moving to OTT, every notion of the regulatory control originally intended by the FCC is outdated. In today's world of content consumption, these rules are creating a balance of power that enable companies like Facebook and Google, as well as increasingly Comcast, AT&T, Netflix and Amazon, that serve as the gateway to much online content - where content is increasingly being consumed - to dominate media companies whose growth and ability to compete is being curtailed by somewhat anachronistic rules. The Trump administration, however, has not done much for its credibility generally. As a result, even a well-intentioned reframing of the FCC regulations may easily be spun by political opponents into something more sinister, especially given the nuance of the topic. Alternatively, the declining public opinion of technology companies, as well as their growing power, may result in some scope expansion to cover the new model of media company. It can even argued that consolidating local media ownership is the only way the business model can compete in the modern, digital economy. But increasingly it is the case that this important set of regulations will need to be changed significantly - if not scrapped altogether - for the modern era.