their primary networks (generally one of the Big Four).68 These secondary affiliates generally
carry only two-to-four hours of UPN programming per week, most often in low-rated weekend
daytime or post-midnight time periods.
2. Notwithstanding Its Distinctive Programming Contributions, UPN Lags Well Behind the Other Networks in Audience Ratings and Is Not Self-Supporting
Since its inception nearly six years ago, UPN has been disadvantaged by the inherent
limitations of its affiliate line-up. As noted above, the great majority of UPN's affiliates are
UHF stations, and a substantial number are LPTVs which, of course, provide very limited
coverage. Further, over the past several years, UPN has lost several key affiliates. In some
cases, UPN has been unable to secure a replacement outlet. In addition, Chris-Craft, UPN's
largest single affiliate group (with outlets in the critical New York, Los Angeles, and San
Francisco markets), is now under contract for sale to the owner of the competing Fox network, who has reportedly considered turning at least some of the Chris-Craft stations into
"Fox II" affiliates. 69 Moreover, the struggling UPN network has been hindered by consistently low ratings and has suffered substantial financial losses in every year of its existence.
Substantially due to its limited national coverage, UPN has lagged in audience ratings.
UPN ranked last during primetime among the six broadcast networks for the past two television seasons, earning only a 2.9 rating for 1997-98 and a 2.0 rating for 1998-99. While
68 Today, UPN reaches 9.633 % of the country through secondary affiliation agreements.
69 See John Carman, Fox to Fill Void With More Void, S.F. Chronicle, Aug. 18, 2000, at Cl ("Rupert Murdoch says a Fox 2 broadcast network is under consideration. ").
-23- UPN's ratings have increased over the 1999-2000 season due in large part to the success of
"WWF Smackdown!, ,,70 its ratings still place it fifth among broadcast networks.
Lower ratings and a smaller distribution chain have inevitably led to low advertising
revenues for UPN and its affiliates. Based on "upfront" sales, it is estimated that UPN will
finish the year with about $150 million in advertising revenues during primetime. 71 To put this in perspective, ABC is expected to lead the market and take in approximately $2.4 billion in advertising revenues during primetime, and NBC is projected to receive about $2.35 billion. 72
3. Program Suppliers, Creative Personnel, and Numerous 0&0 and Affiliated Stations Are Financially Reliant on the UPN Network
UPN's program suppliers - and their writers, directors, actors, and other creative personnel - are, of course, dependent on the long-term health of the network. In addition, many of the network's affiliates, especially weaker UHF and LPTV stations in small and medium-sized markets, rely on UPN for the quality primetime programming, branding, and marketing support that is critical to their success and to their ability to provide community- oriented programming to their local audiences. 73
70 See Rob Owen, UPN Announces Name Change, Celebrates Ratings, Pittsburgh-Post Gazette. July 26, 2000, at E1; Ed Bark, UPN Flattens a Formulaic WB with Wrestling, The Record (Northern N.J.), Mar. 20, 2000, at 1.
71 See Bill Carter, The Media Business: Advertising, N. Y. Times, May 26, 2000, at C6.
72 [d. Since CBS is expected to take in $1.6 billion during the same period, CBS/UPN combined will have lower revenues than either NBC or ABC. [d.
73 The number of commercial television stations on the air has increased by 83 since the UPN (Continued...)
-24- As Caroline Powley, Owner/General Manager of UPN affiliate WNGS-TV in West
Valley, New York, states, independents and start-ups typically have experienced great
difficulty in obtaining quality, first-run programming to fill their primetime slots,
programming which UPN now provides for these stations. 74 Similarly, LIN Television Vice
President Paul Karpowicz observes that, in his experience, "UPN is an extremely important
resource for start-up television stations and for struggling independent stations. ,,75 According
to Mr. Karpowicz, "[t]hese stations would not otherwise have access, at affordable prices, to
quality, first-run programming.... ,,76 Any reduction in the availability of such attractive
programming would, of course, seriously undermine the ability of start-ups and independents
(...Continued) and WB networks were launched in January 1995. Much of that increase is due to the availability of network programming for these start-up operations. See infra notes 82-83 (and accompanying text).
74 See Letter from Caroline K. Powley to Magalie Roman Salas in MM Docket No. 00-108, dated Aug. 9, 2000, at 1 ("Powley Letter") ("The large number of stations in the [Buffalo, New York] market has ... made it extremely difficult to get high-quality, syndicated, first run programming to air on WNGS. It is invaluable to WNGS to have UPN's ten hours of quality programming to air during primetime. Before becoming the Buffalo UPN affiliate .. ., limited programming resources forced WNGS to air public domain movies in daytime and primetime hours. Being a UPN affiliate has allowed WNGS to provide exciting, recognizable programming to our viewers and advertisers. ").
75 Declaration of Paul Karpowicz, dated Nov. 15, 1999, at 1 3 ("Karpowicz Declaration"). (The declarations of Mr. Karpowicz as well as those of actors Tim Russ, Garrett Wang, and Sheryl Lee Ralph and UPN affiliate stations owners/heads Caroline K. Powley, Al Devaney, and Paul Miller, which are cited herein, were filed with the Commission as part of Viacom's Comments in the Biennial Review proceeding.)
76 [d. See also Letter from Paul Karpowicz to Magalie Roman Salas in MM Docket No. 00 108, dated Aug. 28, 2000, at I ("Karpowicz Letter") ("Without a network affiliation, the attendant increases in programming ... would be a very difficult economic proposition.... UPN literally makes it possible for LIN to provide an additional programming voice in the Grand Rapids [Michigan] market. ... ").
-25- to draw viewers and generate advertising revenues. 77 David A. Hanna, owner of UPN affiliate
WUPN in Richmond, Virginia, adds that"[t]o operate as an independent today with all the
major station groups typically in the midsize markets like Richmond would be impossible. ,,78
In addition to programming to anchor their schedules, affiliation with UPN - even for
stations in the nation's largest markets - provides independents and start-ups with a
recognizable identity, which also serves to make the stations more attractive to viewers and
advertisers. As Mr. Karpowicz observes, without network programming and support, "it
would be very difficult to establish a local identity in the face of stiff competition from four or
five network-affiliated stations. ,,79 Similarly, Al Devaney, President of Newsweb
Broadcasting, states that WPWR(TV) in Chicago was not able to "achieve true 'brand' status
in the minds of advertisers" until it became affiliated with UPN. 80 Further, an affiliation with
UPN makes independents and start-ups more attractive to cable systems, increasing the
8 stations' opportunities to secure carriage on the systems. !
77 See Powley Letter at 1-2 ("[T]he UPN affiliation ... has allowed WNGS to become a viable station financially ... [by] increas[ing] public awareness [of the station] .... This increased exposure has brought more viewers and advertisers to WNGS. ").
78 Letter from David A. Hanna to Magalie Roman Salas in MM Docket No. 00-108, dated August 3, 2000 ("Hanna Letter").
79 Karpowicz Declaration at , 3. See also Hanna Letter ("No identity means no viewership means diminished ratings and revenue. ").
80 Declaration of Al Devaney, dated Nov. 12, 1999, at , 2; see also Karpowicz Letter at 1 ("UPN branding and marketing ... makes [extensive additional promotion] unnecessary. ").
8! See Powley Letter at 1 ("[O]ur carriage on local cable systems has gone up 25% since we began airing UPN programming....").
-26- Indeed, the availability of a UPN (or a WB) affiliation has even made it possible in
several markets for LPTV stations to establish themselves as additional local voices where
none existed before. In fact, the number of television stations on the air has increased from
1,523 in December 1994 - just prior to the launch of UPN and WB - to 1616 as of September
30, 1999. 82 The increase includes two new commercial VHF outlets and 81 new commercial
UHF stations - many of them made possible by the availability of UPN and WB affiliations. 83
For example, in Springfield, Illinois, two LPTVs now simulcast UPN programming and have
become "in effect the 'fifth station' in [what was previously] a four station market. ,,84
Although LPTV facilities do not enjoy must-carry status, the new UPN affiliate recently
completed a deal for carriage on the local cable system. "A major contributing factor to our
obtaining cable carriage was the UPN affiliation. ,,85
Finally, the "favorable economics of network affiliation can strengthen these stations
sufficiently to enable them to "devote resources to local programming, such as news and
82 Broadcast Station Totals as ofDecember 31, 1994, FCC News Release (Jan. 24, 1995); Broadcast Station Totals as ofSeptember 30, 1999, FCC News Release (Nov. 22, 1999).
83 Broadcast Station Totals as ofDecember 31, 1994, FCC News Release (Jan. 24, 1995); Broadcast Station Totals as ofSeptember 30, 1999, FCC News Release (Nov. 22, 1999).
84 Declaration of Paul Miller, dated Nov. 16, 1999, at' 1.
85Id. at , 2. The new "voice" also airs a weather service and a community news report. Id. at , 3. See also Karpowicz Letter at I (describing the creation of a new "station" affiliated with UPN in the Grand Rapids, Michigan market by linking a group of LPTV facilities); Letter from George E. DeVault, Jr., President, Holston Valley Broadcasting Corporation to Magalie Roman Salas, dated Aug. 3, 2000 (describing WAPK's affiliation with UPN as playing a significant role in securing the station a channel slot on 25 area cable systems despite its lack of must-carry rights as an LPTV station).
-27- sports. ,,86 As Mr. Karpowicz states, "Without the benefits [LIN's New Haven, Connecticut] station receives from [UPN] network programming and promotion, the market could well be deprived of another programming voice, ... which ... includes an original local primetime newscast and other local and regional sports programming. ,,87 Thus, affiliation with a new network, such as UPN, offers a variety of efficiencies, which independent and start-up stations would not otherwise enjoy, and helps to make possible improvements in their public interest contributions at the local level. Moreover, without a network affiliation, many of these stations might face a real threat to their economic viability - especially in small markets. 88
Viacom submits that the dependence of affiliates on the support of a network provides another powerful reason to encourage, rather than discourage, investment by traditional broadcast networks in new over-the-air services and, thus, to modify the dual network rule as proposed.
III. The Proposed Rule Change Will Promote Important Public Interest Objectives with Regard to Programming
Modification of the dual network rule to permit a combination of a weblet and a major network would advance a variety of important public interest goals. In particular, a combination of this type would substantially promote overall "diversity" in network television programming. It has long been recognized that two networks under common ownership have a strong economic incentive to diversify their program offerings, thereby increasing service to
86 See Karpowicz Declaration at , 3. See also infra Section III.C.
87 Karpowicz Letter at 1.
88 See Powley Letter at 2 ("WNGS is a locally owned and operated station that would not be able to survive in a very crowded marketplace without the UPN affiliation.").
-28- minority or "niche" tastes and interests. The proposed rule change also would contribute to the promotion of another long-standing Commission objective - increasing the overall amount of news and public affairs programming. This is true because there would be the potential for the financially struggling UPN and WB networks to take advantage of the news-gathering and reporting resources of a larger network partner. In addition, the proposed regulatory change would promote other operational efficiencies that would tend to strengthen the program services of UPN and WB - as well as those of their affiliated stations.
These benefits could be achieved, moreover, without incurring any significant countervailing "downside." As explained in detail below, even in the special area of news and public affairs "viewpoint" diversity, it is clear that a combination of UPN and WB and a major network would not result in any material negative consequences.
A. Modification of the Rule Will Promote Overall Programming Diversity
It is widely recognized that common ownership of media promotes overall diversity of program types. A single network, operating on its own, has an incentive to attract the largest possible audience for that individual outlet. Given the widespread viewer preference for mass- appeal programming, the owner of such a network would generally be induced to carry shows that are similar to those of its larger rivals - thus, ignoring minority tastes. In contrast, if two networks are owned by a single entity, that entity would have an incentive to
"counterprogram" the two outlets - i.e., to attempt to attract viewers with differing tastes and, thereby, to produce the largest combined audience for the overall enterprise.
The force (or "gravitational pull") of these incentives becomes apparent, over time, even where an individual network was initially established with a strategic emphasis on some
-29- aspect of "niche" programming. 89 In this regard, the evolution of the Fox television network
is illustrative. In its earlier years, Fox (like UPN) offered just a few hours of programming
per week, and aimed its entertainment fare at the relatively underserved minority and younger
audiences, with programs such as "In Living Color," "The Simpsons," "Married With
Children," "Roc," and "Martin." In the fall of 1992, Fox Entertainment President Peter
Chernin described Fox as offering "more targeted" programming than the more established networks. 90
89 As a general proposition, a stand-alone network would be incentivized to provide "mainstream" programming so long as its share of the mass audience exceeded its anticipated share of a particular niche audience. Crandall Declaration at , 23.
90 Comm. Daily, Aug. 27, 1992, at 5 (available at 1992 WL 2548617). In this regard, the FCC has stated that the "[e]ncouragement of the development of additional networks to supplement or compete with existing networks is a desirable objective and has long been the policy of this Commission." In the Matter ofAmendment ofPart 73 ofthe Commission's Rules and Regulations with Respect to Competition and Responsibility in Network Television Broadcasting, Memorandum Opinion and Order, 25 FCC 2d 318,333 (1970). In fact, the Commission has acknowledged the public interest contributions made by Fox, including (1) the introduction of new programming, (2) the provision of economic, programming, and marketing support to independent UHF stations to enable them to become profitable and self sufficient, and (3) the opportunity to broadcast niche- and minority-oriented programming and to feature the works of minority producers, writers, and actors on a national scale. See Fox Television Stations, Inc., Second Memorandum Opinion and Order, 11 FCC Rcd 5714,5731 32 (1995) (Separate Statement of Commissioner James Quello).
Similarly, UPN has endeavored from its inception to carve a unique role for itself by delivering programming that appeals to traditionally underserved audiences. See Viacom Comments at 27-30. The new network also has distinguished itself by consistently providing significant opportunities for members of minority groups to participate in the creation and on air presentation of that programming. See Declaration of Tim Russ, dated Nov. 12, 1999, at , 2. With numerous programs written and produced by minorities and minorities featured in the casts of all of its dramas and sitcoms, UPN has outperformed all other broadcast networks in appealing to and reaching the African-American audience. For example, in the 1999-2000 primetime television season, while UPN had a 2.7 overall rating, it earned an 8.5 rating among African-American households. See Nielsen Market Research, Network Primetime (Continued...)
-30- However, after Fox gained a foothold with such shows, it sought to expand its audience
by securing the rights to programming with broader appeal - e.g., NFL games, weekly Major
League Baseball broadcasts, and primetime series such as "Ally McBeal," "Party of Five,"
and others. By 1997, observers noted that, "[t]o ensure the success of his Fox network,
[Rupert] Murdoch uses sports and blockbuster movies as drivers. ,,91 Accordingly, during the
relatively short period of its existence, the Fox network has been transformed from a niche
player into an established "mainstream" programmer.
Other stand-alone networks experience similar marketplace pressures to migrate their
programming toward the center - i.e., in the direction of a mass appeal service. 92 In these circumstances, the most promising way to preserve an existing niche-based service (e.g.,
UPN's focus on young, urban, minority viewers) would be to promote common ownership of the "weblet" providing that service and another (presumably larger) network entity.
(...Continued) Rank for the period Sept. 27, 1999 through May 28, 2000. In fact, 7 of the 20 highest rated television network programs among African-American households air on UPN. See id.
91 Dom Serafini, Looking into Murdoch's Plans: A Blueprint for World Conquest, Video Age International, Oct. 1, 1997, at 1. See also Michael Schneider, Behind the Numbers Ratings Special Report: Can't We All Just Watch Together?, Electronic Media, Mar. 2, 1998, at 16 (quoting media expert Steve Steinberg as observing, "When you have two or three nights of programming, you can appeal to a niche audience, but you can't do that on a seven-night-a week basis .... So as Fox expanded, that left the niche open for the new networks....").
92 For example, the acquisition of rights to WWF programming has substantially broadened the audience appeal of UPN.
-31- 1. Economic Studies Are Virtually Unanimous In Recognizing That Common Ownership Creates the Incentive to Counterprogram In Order to Reach the Largest Possible Aggregate Audience
Economic experts have long recognized that common ownership of media creates the
incentive to diversify program offerings among the commonly owned media outlets in order to
garner the largest possible aggregate audience for their owner. 93 As Dr. Robert W. Crandall
of the Brookings Institution explains:
In a rivalrous environment, each broadcast network will attempt to maximize its profits by generally choosing programming that attracts the largest number of viewers. Given the clustering of viewer preferences around mass-appeal entertainment, it is often more profitable for a network to attempt to lure viewers away from rival networks by offering similar entertainment programs ..., ignoring the minority's tastes. However, if two networks are owned by a single entity, that entity will be more likely to attempt to program for minority tastes because it would bid viewers away from its first network by offering mass-appeal programming on the second network. 94
Thus, the dual network rule creates a "rivalrous environment," which incentivizes networks to air relatively similar "mass-appeal entertainment" - a scenario clearly adverse to
93 See Crandall Declaration at , 23 ("The diversity of [entertainment] programming is likely to be increased by the combination of any two networks for reasons that are well developed in the economics literature. "). Examples of such economics literature supporting the counterprogramming model have been frequently cited and relied upon by the Commission. See, e.g., Bruce M. Owen and Steven S. Wildman, Video Economics (Cambridge, Mass.: Harvard Univ. Press, 1992), Chapters 3 and 4 (cited in NPRM at' 24 n.30); Steiner, P.O., Program Patterns and Preferences, and the Workability of Competition in Radio Broadcasting, Quarterly Journal of Economics 66 (1952) (cited in In the Matter ofReview ofthe Commission's Regulations Governing Television Broadcasting; Television Satellite Stations Review ofPolicy and Rules, Further Notice ofProposed Rulemaking, 10 FCC Rcd 3524, 3551 n.81 (1995) ("TV Ownership FNPRM")).
94 Crandall Declaration at , 23 (internal citation omitted).
-32- the development of the kind of entertainment programming "diversity" envisioned by the
Commission. In contrast, the proposed modification of the dual network rule will enhance the
prospect for program diversity because the owner of two commonly-owned networks will have
a clear incentive to counterprogram its two outlets in a manner that is responsive to "minority
tastes. "
2. The Commission Also Has Recognized the Incentive To Diversify Program Offerings Among Commonly-Owned Outlets
In various proceedings over the past decade, the Commission also has recognized that common ownership of broadcast media - especially the same type of media - creates the marketplace incentive to diversify programming among commonly-owned media outlets in order to garner the largest aggregate audience. In other words, common ownership of media actually advances diversity because the commonly-owned media outlets are incentivized to engage in "counterprogramming" in order to attract the largest combined audience for the overall group.
The Commission acknowledged this counterprogramming incentive in 1991 in the radio ownership proceeding:
[W]e believe that stations separately owned will each tend to strive for the same core audience with roughly the same type of programming, while the same stations managed in common may have greater incentives to appeal separately to distinct segments of the audience with distinct programming. In other words, stations managed in common can effectively counterprogram each other. Therefore, we believe that increased group ownership ... may encourage [diversity of programming] .... ,95
95 Revision ofRadio Rules and Policies, Notice ofProposed Rulemaking, 6 FCC Rcd 3275, 3276 (1991).
-33- Then, in 1995 in the television ownership proceeding, the Commission once again aptly
explained the counterprogramming model:
[W]here there are competing parties, each of their strategies would be to go after the median viewer with 'greatest common denominator' programming, leaving minority interests unmet. But where one party owned all the stations in a market, its strategy would likely be to put on a sufficiently varied programming menu in each time slot to appeal to all substantial interests.... [T]his model may, indeed, promote diversity of entertainment formats and programs....96
The Commission noted that, under this model, the opportunity for diversity of programming content in fact increases as the concentration of ownership of media outlets increases. 97
B. Modification of the Rule Will Potentially Increase the Total Amount of News and Public Affairs Programming Available to the Public
The proposed modification of the dual network rule also will have the potential to further the Commission's general interest in increasing the amount of news and public affairs programming. It is highly unlikely that a financially struggling weblet could absorb the full cost of developing and maintaining a network-quality news/public affairs department. As a result, common ownership of a major network and UPN or WB offers what is perhaps the only realistic potential for the carriage of a substantial amount of news and public affairs programming on either of these emerging networks.
96 TV Ownership FNPRM at 3551 (internal citation omitted). See also Revision ofRadio Rules and Policies, Report and Order, 7 FCC Rcd 2755,2771-72 (1992) ("Commenters tend to agree ... that greater combination will not harm diversity because, while competing stations might try to reach the same audience, a single owner might try to program different stations to appeal to different audience segments in order to maximize its total audience size").
97 TV Ownership FNPRM at 3551.
-34- Common ownership of UPN and CBS (or WB and another of the Big Four) would make it possible for the news resources of the larger network entities to be re-deployed in ways that serve the interests of UPN and WB viewers. Such re-deployment could take the form of time-shifting or it could involve the production of "customized" broadcasts for the smaller networks. In addition, such services could be made available either on a network-wide basis or through agreements with individual owned or affiliated stations. While a particular two-network combination might or might not chose to take advantage of such opportunities, the fact remains that the existing rule largely forecloses these possibilities.
In a similar context, in its 1989 decision relaxing the one-to-a-market rule, the FCC concluded that common ownership of broadcast stations increases the availability of informational programming, providing communities with a more diverse range of programs, stories, and viewpoints than would separately owned stations. 98 Likewise, in a subsequent decision granting a waiver of that rule, the Commission observed:
[I]n both the one-to-a-market rulemaking proceeding and the radio ownership rulemaking proceeding, the Commission expressly determined that combinational efficiencies derived from common ownership of radio and television stations in local markets were presumptively beneficial and would strengthen the competitive standing ofthe combined stations, a circumstance that would enhance the quality ofviewpoint diversity by enabling such stations
98 Amendment ofSection 73.3555 ofthe Commission's Rules, the Broadcast Multiple Ownership Rules, Second Report and Order, 4 FCC Red 1741, 1744 (1989) ("Broadcast Multiple Ownership Rules") ("[A] broadcaster who seeks to operate a second station in the market may, because of economies of scale and cost savings inherent in radio-television combinations in the same market, produce or purchase more informational programming than would two separate stations. "). See also Revision ofRadio Rules and Policies, Memorandum Opinion and Order and Further Notice ofProposed Rulemaking, 7 FCC Rcd 6387, 6389 (1992) ("[T]he Commission concluded that relaxation of the national caps may actually enhance the quality of viewpoint diversity, as economies of scale from group ownership provide additional resources to invest in programming. ").
-35- to invest additional resources in programming and other service benefits provided to the public. ,,99
Similarly, as shown herein, allowing common ownership of one of the major networks
and UPN or WB can be expected to strengthen the ability of the smaller network and
its affiliates to serve their audiences and, thus, to further the Commission's diversity
objectives.
c. Modification of the Rule Will Promote Efficiencies That Strengthen The Programming Services of UPN, WB, and Their Affiliated Stations
Viacom's current ownership of CBS and UPN illustrates various ways in which such
combinations promote efficiencies that can strengthen the program services offered by an
emerging network and its affiliated stations. Indeed, Viacom and CBS are precisely the kind of enterprises that are well-equipped to assist in nurturing a nascent network like UPN. For example, the combined Viacom/CBS could make available to UPN extensive libraries of programming, valuable brands, and the resources and expertise to develop and distribute new programming efficiently.
Viacom and CBS also could call upon their combined resources and experience to offer
UPN substantial savings by combining "backroom" operations such as accounting, traffic, business affairs, financial reporting, and engineering. 100 Indeed, the latter may be especially helpful in speeding the transition to digital operations at the two networks and their respective
99 Golden West Broadcasters, 10 FCC Rcd 2081,2084 (1995) (emphasis added).
100 The Commission has recognized that common ownership can improve programming, enable a struggling station to survive, and create new jobs. See TV Local Ownership Order at 12921 22. Since television station duopolies are now permitted, the synergistic benefits of common ownership surely should be available to national broadcast networks as well.
-36- owned and operated station groups. 101 UPN also could take advantage of marketing
opportunities that the existing operations of Viacom and CBS could provide. Taken together,
such efficiencies could substantially strengthen the long-term ability of UPN to provide quality
programming services to its viewers.
In addition, as discussed above, many of the network's affiliates, especially weaker
UHF and LPTV stations in small and medium-sized markets, depend on UPN for the quality
primetime programming, branding, and marketing support that is critical to their success.
Strengthening UPN (by allowing it to draw upon joint operating efficiencies) will, in turn,
bolster the ability of the emerging network's affiliated local stations to attract audiences,
secure cable carriage and advertising revenues, and, ultimately, to devote resources to local
programming, including news, sports, weather, and other community-oriented offerings. 102
Thus, relaxation of the dual network rule, as proposed, can be expected to have a significant
and beneficial effect on diversity in the local marketplace as well as on a national scale.
D. The Combination of UPN and WB With a Major Network Would Not Cause Any Material Reduction In News/Public Affairs "Viewpoint" Diversity
In issuing the NPRM, the Commission stated that the benefits to be derived from the proposed rule modification would be accompanied by "the loss of an independent network
'voice' [which] diminishes source diversity. ,,103 But even in the relatively specialized area of
101 UPN O&Os and affiliates are required to commence digital operations by May 1, 2002 under the transition schedule adopted by the Commission.
102 See supra Section II.D.3.
103 NPRM at , 27. "Source" diversity (like "outlet" diversity) has been viewed by the Commission as an indirect means of promoting the ultimate goal of "viewpoint diversity." Id. (Continued...)
-37- news and public affairs viewpoint diversity, the proposed rule change would, in fact, lead to
no material adverse public interest consequences. This is true for several reasons.
First, as the Commission itself noted in the NPRM, the initial importance of
maintaining a weblet as an independent network "voice" may have diminished over time as the
substitutes for such entities have become more plentiful. 104 Specifically, "[wlith the growth of
cable television networks, direct broadcast satellite services, and the ongoing deployment of
digital television," maintaining the independent ownership of UPN and WB has "diminished in
importance. ,,105 Additionally, Internet web sites increasingly are becoming formidable
competitors in the market for national news, with Internet users more likely to believe
(...Continued) at , 27 n.37.
Traditionally, the agency's interest in advancing viewpoint diversity has primarily focused on news and public affairs programming. The Commission has defined "viewpoint" diversity as "the range of diverse and antagonistic opinions and interpretations presented by the media." Biennial Review Report at , 6. See also id. at' 5 (quoting Associated Press v. United States, 326 U.S. 1, 20 (1945) (the FCC seeks "the widest possible dissemination of information from diverse and antagonistic sources"); TV Local Ownership Order at 12912 (the FCC focuses on "the manner and viewpoint a station uses in presenting the news"). As a general matter, within the context of news coverage, the FCC's interest in "[v]iewpoint diversity has traditionally been viewed in terms of the number of independent viewpoints expressed in local markets. .. ."). Biennial Review Report at , 57. See also id. at , 89 (" [W]e are most concerned with viewpoint diversity at the local level. "); TV Local Ownership Order at 12912 ("Our concern for ensuring diversity in broadcasting is most pressing at the local level. "). Here, of course, diversity in the local information marketplace would not be adversely affected by common ownership of two national networks. On the contrary, as discussed above, allowing dual network ownership would strengthen the weblets and, ultimately, help preserve their affiliates as viable local "voices."
104 NPRM at , 27.
105Id. See also supra Section II.C.
-38- information on the web sites ofCNN, ABC, CBS, USA Today, and Fox News than
information from their parent television and newspaper outlets. 106
Today, virtually every major newspaper (and many lesser known papers as well) boast high-traffic online news sites. 107 These newspaper websites have effectively transformed local print media into additional national and international electronic "voices" for news and commentary.108 Major Internet service providers and portals such as AOL and Yahoo also provide hugely popular news sections. 109 These services are further augmented by scores of independent news and informational websites. 110
106 See David Lieberman, Net Encroaches on TV News - More Users Stick to Web for Info, USA Today, June 12, 2000, at 2B (reporting results of April-May 2000 survey conducted by The Pew Research Center For The People & The Press). See also id. ("The Internet is bad news for ... traditional TV newscasters.... [Only] 53% of Internet users watch some TV news on an average day. ... Two years ago, [this number was] at 59%. And only 40 % of Internet users spend a half hour or more watching TV news. That's down from 47% two years ago. "); id. (quoting Andrew Kohut, Director of The Pew Research Center) ('''[TV] national news continues to decline at a time when ... the Internet ... is growing like Topsy. ''').
107 "[Newspaper] web sites ... have become a 'necessary part' of the news and ad operations at flourishing newspapers." Joe Nicholson, Forecast: Hang Onto Your Hats, Editor & Publisher, Aug. 7, 2000, at 2728 (quoting Robert J. Broadwater, Managing Director of the Newspaper Group at Veronis Suhler and Associates). For example, USAToday.com has more than 25 million visitors each month. USA Today Partners With AT&T to Offer Newspaper Subscription With Co-Branded Internet Service, PR Newswire, Aug. 21, 2000.
108 '''The New York Times recognises [sic] the importance of using the [New York Times] website for breaking news and also for spreading the New York Times articles world wide.'" Irish Times, Aug. 21, 2000, at 12 (quoting Bernard Gwertzman, Editor of NYT.com) (available at 2000 WL 25175742).
109 See Competition is Fiercefor Internet Advertising, Seattle Times, Aug. 19,2000, at A3.
110 Indeed, in the field of politics, there are scores of independent news and information sites, including SpeakOut.com, which offers news and information on national candidates and key election issues, as well as discussion forums where any individual can participate in public (Continued...)
-39- The recent political conventions illustrate the proliferation of Internet news operations.
Recognizing the public's reliance on such news services, the independent journalists' group
that screened reporters for the congressional press galleries at the Republican National
Convention accredited "from 80 to 100 Internet news operations, [including independent
websites] such as PseudoPolitics [an interactive "net-TV show" from Internet company
Pseudo.com], 111 the online magazines Slate and Salon[,] and Web news operations ZDNet and
Wired News." 112 Similarly, more than 70 exclusively Internet news organizations-plus a like number of online news teams from traditional media (i.e., broadcast networks and newspapers)-covered the Democratic National Convention. 1I3 Significantly, two purely
Internet news media-AOL and Pseudo. com-joined the broadcast television networks in the sought-after sky boxes above the convention floors. 114
(...Continued) debate by posting his/her view to a national audience. See SpeakOut.com to Acquire VoxCap.com Political Portals, Business Wire, Aug. 10,2000. "SpeakOut.com was started by a guy ... who wanted to voice his opinion but didn't know exactly who to talk to. He saw the Internet as the perfect vehicle for reconnecting people with their leaders. .. ." SpeakOut.com (visited Aug. 25, 2000)
111 See Christina Landers, Internet Set for Prominent Role at Conventions: Online Firms Plan Extensive Coverage, San Diego Union-Tribune, July 25,2000, at AI.
112 Reid Kanaley, It's Boom Timefor Internet News Outlets Providing GOP Convention Coverage, Knight-Ridder Tribune Business News, July 3, 2000.
113 See Richard Wolf, Web Lets Armchair Delegates Call Shots, USA Today, July 31, 2000, at 6A; Christina Landers, Internet Set for Prominent Role at Conventions: Online Firms Plan Extensive Coverage, San Diego Union-Tribune, July 25, 2000, at AI.
114 See Mary Anne Ostrom, Republican Convention in Philadelphia Serves as Dot-Com Media Haven, Knight-Ridder Tribune Business News, Aug. 2, 2000; Richard Wolf, Web Lets Armchair Delegates Call Shots, USA Today, July 31, 2000, at 6A; Christina Landers, Internet Set for Prominent Role at Conventions: Online Firms Plan Extensive Coverage, San Diego (Continued...)
-40- Second, in the past, the Commission also has recognized that common ownership of media outlets does not damage the editorial independence of those outlets. For example, the
FCC concluded in 1989 that "relaxing the [one-to-a-market] rule should not significantly affect diversity of viewpoints. ,,115 In so doing, the Commission took note of evidence that group owners of broadcast stations, even in the same market, do not necessarily have a 'monolithic viewpoint' at all of their stations." 116 This evidence revealed, among other things, that in 45 percent of the instances in which CBS owned a radio and television station in the same market, the stations endorsed opposing candidates in political races. 117 Similarly, NBC submitted comments indicating that, "even among its stations located in the same market, editorial and programming decisions are made independently from other NBC-owned stations, resulting in its commonly owned stations making different editorial or programming decisions. 118
Finally, diversity of viewpoint is not advanced to any material degree by continuing the existing regulatory restrictions on UPN and WE. These financially struggling networks have not, thus far, been in a position to develop news departments - or to offer regularly scheduled network news and public affairs programming. Thus, a combination of one of these weblets
(...Continued) Union-Tribune, July 25,2000, at AI. Pseudo.com even had a 360-degree camera that allowed users of its website, PseudoPolitics.com, to navigate the convention floors. See Richard Wolf, Web Lets Armchair Delegates Call Shots, USA Today, July 31,2000, at 6A.
115 Broadcast Multiple Ownership Rules, 4 FCC Rcd at 1744.
116 [d.
117 [d.
118 !d.
-41- with one of the Big Four networks would not affect the independence of an existing network
news organization because, in the case of UPN and WB, there is not one. Accordingly, such a
combination could not conceivably cause a substantial reduction in viewpoint diversity in news
and public affairs programming.
IV. The Dual Network Rule Distorts The Marketplace By Diverting Investment Away From the Emerging UPN and WB Broadcast Networks
The Commission adopted the dual network rule with the intention that it would
promote the development of new over-the-air program sources. 119 However, as the
Commission has previously recognized, the dual network rule in fact has had the undesired
effect of inhibiting the development of such services. 120 If free, universal television is
believed to be in the public interest, the Commission presumably should be encouraging the
flow of capital into this service rather than discouraging it. But by prohibiting common ownership of a major network and UPN or WB, the rule has artificially diverted the flow of capital and programming resources away from the struggling broadcast "weblets" and toward cable, other subscription-based services, and the Internet. Further, because the rule affects only the two emerging networks captured in a "snapshot" taken in February 1996, it unfairly
119 See Review ofNetwork Rules at 11955-56.
120 See Review of Television Rules at 4113, 4118; see also Review ofNetwork Rules at 11959, 11974. In these proceedings, the Commission concluded that retaining the dual network rule could have the undesired effect of inhibiting the development of new over-the-air services and stifling innovation, especially as the television industry migrated to digital technology. Review ofTelevision Rules at 4118. The passage of time only has made these conclusions all the more clearly correct.
-42- singles out UPN and WB without affecting other existing or potential new networks with
which they must compete.
All things being equal (i.e., assuming the dual network rule did not exist), broadcast
networks which seek additional outlets for the recovery of the costs of acquiring and
maintaining programming/advertising expertise would have two primary options - investment
in cable networks or investment in additional over-the-air broadcast networks. However,
under present Commission rules, all things are not equal: the dual network rule prevents a Big
Four network from pursuing the option of investing in UPN or WB - and, thus, acts to funnel
investments by the major broadcast networks into cable programming or into broadcast
networks that by a fluke of timing were not captured by the dual network rule. 121
The adverse effects of the dual network rule on over-the-air broadcasting can be seen in
the investment actions of the Big Four: the steady expansion of NBC's and Disney/ABC's
significant cable presence; Fox's investment in ten U.S. cable programming services; and
CBS's entry into the cable arena prior to its merger with Viacom. 122 Accordingly, the dual
network rule has, in fact, frustrated one of the goals the Commission intended it to promote -
investment in new and competitive over-the-air services.
As it turns out, the entities the Commission feared would impede the development of new program sources - namely, the major networks - may well be the most likely candidates to invest in new over-the-air broadcast services. Because cable networks generate substantially
121 See Review of Television Rules at 4118 (stating that regulatory barriers "appear to have channeled the networks' activities into non-broadcast enterprises").
122 See supra note 15 for a detailed discussion of the cable interests of each network.
-43- more profits than their over-the-air counterparts, it makes little financial sense for most entities
to invest in a broadcast network; only another broadcast network can reasonably be expected
to be willing to make that investment because of the increased efficiencies and operational
benefits that would result. 123
The existing rule also discriminates among the smaller broadcast networks. Thus, a
Big Four network is free to combine with an over-the-air network that was created after 1996
- as NBC did in its deal with Paxson Communications Corporation ("Paxson"). 124 There is
no apparent justification for shackling two specific emerging and struggling broadcast networks - UPN and WB - while other similarly situated competitors' services are free to pursue such opportunities.
Indeed, the dual network rule's assumed applicability to UPN (and WB) is based solely on a "snapshot" of the television industry taken in early 1996, and ignores subsequent developments, including the emergence of other competing networks, which must be considered in any meaningful assessment of current marketplace realities. For example, the
PaxTV network today boasts a national distribution chain virtually equal to that of UPN.
123 See, e.g., TV Local Ownership Order at 12930. Indeed, the tension between declining revenues and escalating costs highlights the importance to broadcast services of exploring and exploiting all possible economies of scale, which the Commission has long-recognized can be derived from common ownership.
124 NBC owns 32 % of PaxTV and has recently made several joint programming moves with the start-up network. For example, the television program "Mysterious Ways," which is slated for PaxTV's fall schedule, debuted on NBC. Additionally, PaxTV now airs a Saturday night primetime block of NBC Sports-produced pre-Olympic events. See Joe Schlosser, Learning to Share, Broadcasting & Cable, July 3, 2000, at 4. "NBC also is moving to amortize more station sales, program and promotion costs over Paxson Communications outlets in their respective markets." Diane Mermigas, Future is Already Here for NBC, Electronic Media, Apr. 17,2000, at 24.
-44- According to Paxson's most recent quarterly report, as of July 31,2000, the PaxTV Network
reached 80 percent of US primetime television households through broadcast, cable and
satellite distribution. ,,125 Upon completion of pending transactions, the network will include
115 broadcast television stations - 65 owned by Paxson and 50 independently owned affiliates
- reaching 19 of the top 20 markets and 42 of the top 50. 126
Further, Paxson and NBC (which already maintains the most profitable television network) have been able to enter into a series of financial, programming, and other agreements that appear to provide the parties with benefits that are functionally similar to those Viacom and CBS could achieve through continuation of their existing combination. Among other things, these agreements provide NBC with access to and a significant level of control over a second over-the-air network with a national reach comparable to that of UPN. 127 However,
125 Paxson Communications Corporation Quarterly Report, SEC Form lO-Q, (Aug. 19, 2000), at 9.
126Id.
127 See generally Steve McClellan, The Peacocking ofPax - NBC Will Have Wide-Ranging Impact on New Partnership Despite Owning Only 32 Percent, Broadcasting & Cable, Oct. 11, 1999, at 68. Specifically, NBC's approval is required for major Paxson decisions including budgets, program acquisitions, digital spectrum plans, by-laws, amendments, and certain employee hires. Paxson Communications Corporation Current Report, SEC Form 8-K (Sept. 24, 1999). In addition, for the next ten years, NBC has the right to convert any Paxson stations in the top 50 markets to NBC affiliates. Id. A converted station would not receive any compensation from NBC, would be required to pay NBC for "special event programming," and would be forbidden to preempt NBC programming. Id. Moreover, Paxson stations, which are not converted to NBC affiliates, are obligated to carry up to 35 hours of programming each year that is preempted by the NBC affiliates in their markets. Id. Paxson and NBC will also work closely on advertising sales at the network and local levels. The media and Paxson itself characterize the NBC-Paxson deal as providing NBC with "a second national television channel for entertainment programs." See Bill Carter, NBC Completes Acquisition of32% Stake in Paxson, N.Y. Times, Sept. 17,1999, at C6; NBC (Continued...)
-45- because NBC initially acquired only a 32 percent interest in PaxNet's owned and operated
stations, that transaction apparently does not require FCC approval. And, of course, because
PaxNet came into being after February 8, 1996, NBC could proceed to obtain control of
UPN's new rival without regard to the dual network rule.
Moreover, any of the Big Four networks could establish a new second network without
implicating the rule; only combinations among the four older networks themselves or between a Big Four network and UPN or WB are constrained. Thus, for example, Rupert Murdoch would be free to use the proposed acquisition of the Chris-Craft station group as the springboard to establish "Fox II. ,,128 Similarly, the current dual network rule is not applicable to either of the two major Spanish-language networks, Univision and Telemundo, both of which are key players in a number of significant markets with large Latino populations, including New York, Los Angeles, Chicago, San Francisco, Dallas, Houston, and MiamL 129
Thus, application of the dual network rule to UPN and WB - alone - serves only to
(...Continued) Makes Strategic Investment in Paxson Communications, Creating Path to Second National Distribution Outlet (Sept. 16, 1999)
129 See Top 25 Television Groups, Broadcasting & Cable, Apr. 10, 2000, at 73. Moreover, "[i]n major markets like New York, the Univision affiliates now outperform some English language broadcast stations in the Nielsen ratings." Mireya Navarro, Complaints to Spanish TV: Where Are the Americans?, Few U.S. Plots for Fast-Growing U.S. Audience, N.Y. Times, Aug. 21,2000, at A23.
-46- handicap those two particular emerging networks, without restricting their existing or potential competitors.
In short, rather than fulfilling the FCC's goal of promoting the development of over- the-air broadcast services, the continued application of the dual network rule has served principally to fuel the cable programming business at the expense of broadcasters, and the more than one quarter of the country's television households without cable service. To prevent further artificial distortions in programming investments and to allow a willing broadcaster like CBS to make the investment that UPN and its affiliates so desperately need in order to thrive, the dual network rule should be appropriately modified. v. The Proposed Rule Modification Will Not Impair Competition in Advertising Sales
The Commission tentatively concludes that a merger between a Big Four network and a
"weblet" would have "little or no effect on the price for network television advertising .... ,,130
Dr. Crandall's analysis supports this conclusion. As shown in the Crandall Declaration, the advertising market in which UPN competes is relatively unconcentrated - even if the relevant market is narrowly defined (e.g., as a "national television advertising" market). The share of that marketplace currently held by UPN is quite modest, and represents only a marginal addition to the share already held by CBS.
Dr. Crandall also points out that there is relatively little direct competition in advertising sales between UPN and CBS. 131 This is true because, in terms of both size and
130 NPRM at' 26.
131 Crandall Declaration at , 29.
-47-