FCC 375

In a fresh setback for the Federal Communications Commission’s effort to revise its media ownership regulations, the Third Circuit Court of Appeals today struck down changes adopted by the agency in Nov. 2017 that among other things, abolished the newspaper-broadcast and TV-radio cross-ownership bans and relaxes several television ownership restrictions including allowing the same company to own two of the big network affiliates in a single market. The biggest impact for radio however was the decision by the Philadelphia court to block the FCC’s new radio incubator program from going forward.

“Here we are again,” opened Judge Thomas Ambro in the decision, acknowledging that it’s not the first time the Third Circuit has thrown a roadblock in front of the FCC. “The Commission did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities,” he wrote. Similar to previous decisions, the Third Circuit concluded the Commission failed once again to adequately justify its decision-making. Ambro said the agency’s analysis lead to the regulatory rollback was “so insubstantial” that it failed to provide a “reliable foundation” to the court supporting the conclusions.

The Third Circuit decision, if it is upheld, sends the task of revising the media ownership regulations to the FCC for yet another try.

Radio Incubator Blocked

Cross-ownership deals are few and far between, so the larger impact of Monday’s decision will likely be the decision to block the rollout to the FCC’s new radio incubator program to proceed. The Multicultural Media, Telecom and Internet Council (MMTC) and National Association of Black Owned Broadcasters (NABOB) had appealed the incubator rules adopted in August 2018.

The groups said the mechanism dictating how established broadcasters can use the waivers they receive as a reward for participating in the incubator program. As an incentive to get established broadcasters to take part in the program and potentially help a new competitor get on their feet, the FCC would give the established company a waiver to the local radio ownership limits, including the AM/FM subcap restrictions. Broadcasters would be able to use the waiver in the market where the incubator relationship is located, or in a comparably sized metro area. And they’d be able to transfer the waiver to another city. But MMTC and NABOB argued the market comparability standard adopted by the FCC was unlawfully adopted and would create perverse incentives.

The Third Circuit however ruled that although the comparable markets definition for the incubator program was “a reasonable exercise of discretion” by the FCC. But the judges also said the agency didn’t adequately justify its creation, and for that it threw up another roadblock saying the agency needed to show that the proposal. “On remand the Commission must ascertain on record evidence the likely effect of any rule changes it proposes and whatever ‘eligible entity’ definition it adopts on ownership by women and minorities, whether through new empirical research or an in-depth theoretical analysis,” the court said, adding, “The Commission must provide a substantial basis and justification for its actions whatever it ultimately decides.

FCC Plans Appeal

Despite the latest setback, the FCC wasn’t with allies on the Third Circuit. Judge Anthony Scirica issued a partial dissent to the ruling. While he agreed with the decision to allow the radio incubator program to move forward, Scirica said the two other judges failed to consider the realities of a rapidly evolving marketplace. He said that the FCC’s existing rules are built for a pre-internet marketplace and “no longer serve the public interest” and should be repealed or modified. “The realities of operating a viable broadcasting enterprise today look little like they did when the FCC enacted the current ownership rules,” Scirica wrote. “Despite all of this, the FCC’s broadcast ownership rules remained largely static for 15 years.”

FCC Chair Ajit Pai seized on Scirica’s comments, calling them “well-reasoned” and predicting they will “carry the day” in the end. Pai said the Commission plans to appeal the Third Circuit’s decision, slamming the judges for once again putting a roadblock in front of change. “For the last fifteen years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace,” said Pai. “It’s become quite clear that there is no evidence or reasoning—newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever—that will persuade them to change their minds.”

The FCC’s decision nearly two years ago was made by a 3-2 Republican majority and one of the two Democrats who opposed the relaxing of the media rules welcomed the court’s intervention. Commissioner Jessica Rosenworcel said the Third Circuit rightfully concluded the FCC’s analysis wasn’t enough to justify the rollback approved. “The FCC shouldn't be in the business of cutting corners when it comes to honoring our long-held values when updating media ownership policies,” said Rosenworcel.

Commissioner Geoffery Starks, who wasn’t serving when the last vote agreed, saying the FCC has relied on “bad data and shoddy analysis” to overlook the miniscule number of diverse owners in radio and television. “For nearly all of the 21st century, the FCC has ignored its statutory obligation to promote diversity in broadcasting,” Starks said.

NAB ‘Disappointed’ With Decision

The National Association of Broadcasters said it was “disappointed” with the Third Circuit’s decision, calling the changes approved by the FCC “measured.” NAB spokesman Dennis Wharton said it amounts to a panel of judges supplanting its own views for that of the expert federal agency. “The media marketplace has undergone massive changes over the past few decades, let alone since 2004,” Wharton said. “We strongly encourage the FCC to appeal this misguided decision so that broadcasters can compete on an even playing field with tech giants and pay TV conglomerates.”

In one victory for the Commission, the judges reject a request by critics of the deregulation that a court-appointed “special master” be named to oversee the FCC’s work as it pushes forward with any future updates in order to “ensure timely compliance.” The court said it will be able to easily keep tabs on what the Commission is doing, adding that any overseer with more than just observational duties would raise “grave” constitutional concerns. Ambro also said they fully expect to be tasked again with sorting out new legal challenges to whatever the FCC opts to decide in the future, calling such lawsuits “sadly foreseeable.”