Regulation of Media Industries

Regulation Generally speaking, why does the government regulate businesses and industries? Ensure free markets

Regulation of media How are media regulations different from those of most other businesses? Public interest provisions

Early Regulation Radio Act of 1927 Created Federal Radio Commission (FRC) with power to grant federal licenses to stations for broadcasting over airwaves Required stations to serve the public interest, convenience and necessity Licenses given to for-profit broadcasters (not educational institutions)

FRC continued FRC classified stations & assigned frequencies made rules to prevent interference established power and location of transmitters established coverage areas

Communications Act of 1934 Created Federal Communications Commission (FCC) to replace FRC Recodified many features of earlier radio act Left “public interest” undefined Directed FCC to provide:  rapid, efficient communication service  adequate facilities at reasonable charges  distribution of service to all states and communities

Allocated radio spectrum assigned licenses (taking into account economic factors). NOTE – license renewal increasingly a formality 1983 new section encouraged provision of new technologies and favoring more competition in the marketplace to “serve the public good”

Examples of Media Regulation Anti-trust action FTC, Justice Department, FCC – e.g. break up of motion picture monopoly in the 1940s Fairness Doctrine ( ) – required commitment to “different opposing positions on public issues of interest and importance” Provision of children’s programming “Fin-syn” rules ( ) – prevented television stations owning their own programming

Key concepts common carrier natural monopoly public interest regulation

Common Carrier Akin to a “public utility” access to communication should be non-discriminatory rates should be just and reasonable control over content separate from control over networks

Natural Monopoly One firm can provide product/service at lower cost than 2 or more A result of:  economies of scale  single technology specifications  cheaper to achieve universal service

Problems with “Natural” Monopoly Rural areas often served by small independents, which lose access Natural monopoly often outcome of special interest & predatory policies:  1880s: Western Union & Bell  1926: ATT & General Electric, Western Union etc.

Public interest Vaguely defined by regulators Over time, increasingly defined, informally, as economic interest E.g., what’s good for the television industry is good for the public

Main Provisions of 1996 Telecommunication Act telecommunications broadcast services cable regulation obscenity and violence

Broadcast Services Broadcasters may add to existing licensed spectrum to develop digital service, Spectrum taken away from low-power TV license holders, land mobile services and other small broadcasters. Broadcasters get their additional spectrum for free. But have to spend millions to outfit for digital Analog spectrum must eventually be returned.

Radio All national ownership restrictions removed Local ownership restrictions relaxed according to the size of the market One owner cannot own more than half the local radio spectrum

TV Single owner may buy stations that reach up to 35% of the national audience In 50 largest markets:  may own more than one TV station or a radio and a TV station  may own a TV station and a cable TV system in the same place  may own more than one network (except biggest existing networks).

Virtually guarantees license renewal  protects broadcasters from public scrutiny and from enforcement of public trustee obligations Cannot challenge incumbent's license unless FCC has already found the licensee unfit FCC can no longer find licensees unfit because of failure of public trusteeship

But for violence, broadcasters required to append to license renewals any written comments from listeners or viewers

Cable Incentives for establishing cross- platform competition among services e.g. cable into telephony, phone companies into video service Permits network businesses to enter the cable environment.

Cable still has public interest obligations  required local carriage of local broadcast signals  franchise obligations imposed by local authorities.

All rate regulation for non-basic tier services is abolished This benefits large existing cable companies.

Bans mergers, joint ventures, and greater-than-10-percent investments between cable and phone companies that serve the same market. A number of exceptions encourage competition among existing large players, and do not encourage entrants.

Regulatory Reform Explicitly equates competitive environment and public interest

Obscenity and Violence Reemphasizes existing law requiring cable operators to block programming subscribers did not opt for, upon request Requires blocking or scrambling sexually explicit programming.

FCC to create a rating system, if the industry fails to do so within a year FCC to set standards for and to require TV sets to include a V chip that can receive signals labeling shows with Controls socially negative programming, not a tool to give TV viewers more choice in programming.

Some Outcomes Local telephone markets quickly consolidated from 7 to only 4 Baby Bells (BellSouth, Qwest, SBC and Verizon) E.g., CA has only 2 major providers of local land lines: SBC and Verizon

Cable rates have increased significantly faster than consumer price index Satellite still controls only a small segment of the market Satellite by only 2 companies, one of which is News Corp.

Triggered a wave of mergers, mainly to protect against competition Greater concentration in radio: In cable, the top 10 account for 75% of the industry

Greater commercialism: many radio stations offer no local news at all. In some markets not a single station offers public affairs programming Overall, public affairs programming accounts for far less than 1% of content. Decline in minority ownership by ~ 15%

June 2003 FCC ruling Regulations Relaxed Newspaper/television Cross-Ownership National television Ownership Cap 35% to 45% Local Radio Ownership Rule Duopoly Rule Regulation Maintained Dual Network Rule

Concerns about FCC changes Lead to greater consolidation Monopolies non-competitive Mergers limit number of independent voices in media Localism & community Corporate accountability Facilitates censorship

2003 FCC changes currently on hold (not implemented) Citizen complaints Congressional scrutiny Cases currently in the court

Public Concerns Public input into FCC decisions generally lacking Few public hearings, poorly advertised Current controversy over “hidden” reports Activist groups continue to pressure Congress and FCC