SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3398 words

COMMITTEE: SENATE COMMERCE, SCIENCE AND TRANSPORTATION

HEADLINE: MEDIA CONSOLIDATION

TESTIMONY-BY: GENE KIMMELMAN, CO-DIRECTOR

AFFILIATION: WASHINGTON OFFICE CONSUMERS UNION

BODY:
July 17, 2001

Statement of

GENE KIMMELMAN Co-Director Washington Office Consumers Union

Before the

Senate Committee on Commerce, Science, and Transportation

Consumers Union is concerned that meaningful public policy debate about the need for media and communications ownership restrictions has been distorted by ideology and the business interests of the commercial players who stand to gain or lose by manipulating this debate. We urge policymakers to reaffirm the goals of promoting competition, diversity and meeting community needs, and to refocus the ownership debate on the fundamental attributes of the various communications and media markets. While the antitrust laws can effectively prevent substantial reductions in competition, they are not effective tools for dismantling monopolies, promoting competition or preserving other public interest values. We believe that consumers' interests will best be served if the Federal Communications Commission (FCC) is instructed to maintain previous media ownership rules, until it can demonstrate how the public interest in more competition, diverse ownership and the needs of local and minority viewpoints can be met by altering or eliminating these rules. The recent explosion of media and communications technology was expected to deliver consumers a brave new world of competition across all telecommunications and media markets. There is no doubt that today, consumers have the option of receiving news, information, entertainment from a far greater variety of media - newspapers, radio, television, the Internet - than ever before. Unfortunately, this growth in variety has not been accompanied by a comparable growth of independent, diversely owned competitive communications services and media voices.

Rather than the cross-market competition envisioned with the enactment of the 1996 Telecommunications Act, virtually every communications and media sector has witnessed an explosion of consolidation. The study attached as an appendix to this testimony, "Mapping Media Market Structure at the Millennium," provides the detailed empirical and analytical analysis upon which our testimony relies. The two major communications wires into the home, telephone and cable are now controlled by a few super-regional companies that focus their business on dominating their respective markets rather than challenging each other's core business. Long distance companies have not been able to crack the local phone companies' stranglehold on consumers, and the satellite companies still cannot compete on price with cable monopolies. Radio and newspaper chains grow larger, and national broadcast networks continue to buy more local broadcast stations. And on the Internet, where "the number of potential online channels is infinite," about one-third of user minutes were controlled by cable giant AOL Time Warner last year.

Has this consolidation opened the door to new competition? Hardly. Contrary to the claims of the major players in each communications sector, Internet service providers, national broadcast networks, newspaper and radio chains, and cable companies do not compete in a meaningful way against each other for consumers' news, information, entertainment and other communications needs.

A careful market analysis reveals that there are several kinds of media markets (e.g., national v. local, primetime television v. daytime TV, national network news v. all other news programming), which support different business model s (e.g., subscription- based v. advertiser-based). These markets are adjacent to each other rather than in competition with each other. This is not to say that there is no form of competition or rivalry across media, but newspapers' classified advertising cash cow in no way resembles the high-priced pharmaceutical and auto advertising splashed across national television network primetime programming. These are separate markets that are not yet substitutes for one another. For example, the enormous growth of the Internet provides no basis for relaxing the national television broadcast ownership cap, given that only about half the country is on the Internet, and the Internet does not provide a service comparable to broadcast television.

And in moderately or highly concentrated media and communications markets, vertical integration--the combined ownership of content and distribution channels--can skew incentives to undermine journalistic independence. For a news program at a station that is independently owned and operated, the overriding concern should be credible and professional reporting that will bring viewers back. However, when a large media conglomerate gobbles up that same station, it becomes unlikely that the station will cover its parent aggressively when inevitable conflicts of interest arise. In markets with few direct competitors, this bias is more likely to go unnoticed and unchallenged.

Even when it appears that the giants in one media sector are squaring off against the giants in another, each invoking the consumer's interest as its sole motivation in battle, often the consumer is more a hostage than the beneficiary of the warfare. For example, when ABC, backed by its parent, the Walt Disney Company (Disney), squared off against cable monopoly Time Warner over carriage terms for Disney's programming, consumers faced the following prospects: either Time Warner would win and consumers would still pay inflated cable rates without receiving Disney programming, or Disney would win, and Time Warner could increase consumers' rates in return for carrying Disney programming. And when cable and Internet giant AOL Time Warner sounds like it wants to challenge the national broadcast networks' dominance in TV news coverage through its popular CNN and Headline News cable channels, analysts believe this really means that AOL Time Warner wants to merge or partner with either ABC

The fundamental failure of media and communications policies to develop competitive transmission/distribution systems has left consumers at the mercy of powerful content and transmission companies whose most antagonistic, "competitive" behavior consists of fighting with each other over who gets the larger share of monopoly profits from consumers, and who often control content delivered to consumers.

As the FCC reviews its national television broadcast ownership cap, and newspaper/broadcast cross-ownership rules, it is critical that the Commission take a careful look at the fundamentally different characteristics of each media and communications market, in determining what regulations are appropriate to meet Congress' goal of protecting the public interest. And Consumers Union believes that it is important for the Commission to preserve critical elements of previous judicially and Congressionally approved definitions of the "public interest" - promote diversity based on independent ownership designed to expand competition, meet local community needs, and protect the viewing/listening public's First Amendment rights to hear and be heard - rather than drifting toward a definition where variety (even if owned and controlled by few) equals diversity.

Past Commission reviews of these ownership rules have involved only cursory analysis of the most critical economic forces at play in media markets and we believe it is time to correct that flaw. Especially at a time when the D.C. Circuit Court of Appeals can find a way to read an act of Congress (the 1992 Cable Act, Public Law 102-385, which was designed to promote cable competition by limiting concentration of ownership) as potentially allowing a single cable company to own systems serving as many as 60 percent of all cable customers it is obvious that Congress' expert communications agency must do a better job in gathering data, analyzing market forces, and then demonstrating how congressionally mandated rules address market dysfunction.

However, we are troubled that the FCC's current Chairman has characterized the broadcast ownership cap as based on "a romantic notion, . . . an emotional one,"5 that limits "are almost always poorly calibrated"6 and that "there is something offensive to First Amendment values about that limitation."7 We certainly hope that Chairman Powell will engage in a thorough analysis of the market forces that are affected by this rule and all others, rather than reach conclusions based on past shortcomings in the FCC's research. And we hope the Chairman has not forgotten than the First Amendment protects the public's free speech rights, not just the more limited right of commercial media enterprises.8 As we point out above, just because many media ownership rules are old and markets have changed does not mean that markets, without these rules, can adequately promote diversity of ownership and competition.

Recent research on the economics of radio and newspaper markets raises fundamental concerns about whether deregulation of ownership in media markets can produce the kinds of consumer benefits and a robust marketplace of ideas, that are usually associated with competitive markets.9 For example, data show that people whose tastes in radio programming differs from the largest group of listeners in a community tend to receive less content than they desire in the marketplace, and that this is likely the case for other media:

A consumer with atypical tastes will face less product variety than one with common tastes. . .. The market delivers fewer products - and less associated satisfaction - to these groups simply because they are small. This phenomenon can arise even if radio firms are rational and entirely non-discriminatory.

The fundamental conditions needed to produce compartmentalized preference externalities are large fixed costs and preferences that differ sharply across groups of consumers. These conditions are likely to hold, to greater or lesser extents, in a variety of media markets - newspapers, magazines, television, and movies.

Radio programming preferences differ sharply between blacks and whites, between Hispanics and non-Hispanics and (to a lesser extent) across age groups.

These findings indicate that, given the large fixed costs involved in offering media services, the wide variety of tastes in media markets, and the drive to maximize profits through maximum advertising revenue/audience size, market forces are likely to leave more local tastes under-satisfied by national firms, and more minority tastes under-satisfied even in local markets. It is therefore necessary for the government to continue regulating - either through structural constraints like ownership caps, or behavioral requirements like "equal time," "reasonable access," or network/affiliate rules - to pursue the public interest goals of meeting local community needs and promoting diversity of views in media markets, even where competition exists.

Consumers Union therefore believes the FCC should leave the current national television broadcast ownership cap in place, while it initiates a much more detailed and extensive analysis of market structure than it has in the past. The current cap, which allows a national broadcast company to own local television stations that reach as many as 35 percent of the national television viewing audience, is already set at a level that often triggers antitrust scrutiny over the ability to control programming decisions in the marketplace. With four national television networks already dominating primetime television viewing and the massive advertising dollars that come with it, there is a substantial danger that further ownership of local stations would lead to increased pressure on local stations to carry nationally-oriented programming which maximizes national advertising revenue, at the expense of locally-oriented programming. And the fact that the national television networks, no longer constrained by limits on vertical integration (the financial interest and syndication rules), have a financial incentive to favor programming they produce and syndicate is likely to increase pressure on local stations to carry network owned rather than locally popular programming. Certainly the local network affiliates - who may also be doing less than they should to meet community needs - are complaining about an excessive national profit orientation by the networks at the expense of local programming needs.

Consumers Union urges the FCC, as part of its review of the broadcast ownership cap, to initiate an investigation which answers the following critical questions:

1. Since the national television broadcast ownership cap was raised from 25 to 35 percent, how much has local programming designed to meet community needs suffered?

2. How much has elimination of the financial interest and syndication rules affected local station's ability to preempt network programming to show programs that reflect community tastes?

3. How much does l, as opposed to theoretical, enforcement of the Commission's network/affiliate rules protect local broadcasters from unfair leveraging by the national broadcast networks?

4. Are these rules adequate, without a national ownership cap, to prevent unfair leveraging?

5. When there is no interference from the national broadcast networks, are local broadcast licensees meeting their obligations to serve local community needs, or is greater public intervention necessary to ensure diversity of local programming?

The FCC's newspaper/broadcast cross-ownership rule plays a very different role from the national broadcast cap in promoting a marketplace that protects the public interest. Consumers Union believes that this prohibition on a local newspaper owning a local broadcast outlet in the same community has much more to do with promoting checks and balances in media coverage of news and information (including matters affecting the business interests of newspapers and broadcasters) than competition. The fact that virtually every community in this country has only one financially stable community-wide newspaper, and that broadcast does not compete effectively with newspapers, should give the FCC pause as it considers relaxing or eliminating the cross-ownership rule:

Wasn't it television and radio that were going to kill newspapers? "I don't really consider them competition in that old-school way," stresses Florida Sun-Sentinel editor Earl Maucker. "They reach a different kind of audience with a different kind of news. . .

Publisher Gremillion, a former TV executive himself, seconds the point, "I don't believe people are watching TV as a substitute for reading the newspaper. . ."

. . .Many newspapers are increasingly writing off local TV news as a serious threat, treating local stations instead as potential partners who can help spread the newspapers' brand name to new and bigger audiences.

It is difficult to imagine the Thomas Paine pamphleteer tradition of print journalism - considered so valuable to our core beliefs that the Supreme Court granted it the most far reaching First Amendment protections 13 -- will be able to survive in a world where newspapers become marketing devices for broadcasters. Print journalists often assert an allegiance to their almost century- old creed:

I believe in the profession of journalism. I believe that the public journal is a public trust; that all connected with it are, to the full measure of their responsibility, trustees for the public; that acceptance of lesser service than the public service is a betrayal of this trust.

Compare these journalistic values with the image presented by Tribune Company executives, describing how the Chicago Tribune and Chicago television station WGN, among other media properties, view their business:

Tribune had a story to tell - and it was just the story Wall Street wanted to hear.

In charts and appendices, they showed a company that owns four newspapers--and 16 TV stations (with shared ownership of two others); four radio stations; three local cable news channels; a lucrative educational book division; a producer and syndicator of TV programming, including Geraldo Rivera's daytime talk show; a partnership in the new WB television network; the Chicago Cubs; and new-media investments worth more than $600 million, including a $10 million investment in Baring Communications Equity Fund, with dozens of Asian offices hunting out media investments.

. . .There was an internal logic and consistent language to their talk: Tribune, said the four men, was a "content company" with a powerful "brand." Among and between its divisions, there was a "synergy."

. . .It was a well-scripted, well-rehearsed performance, thorough and thoroughly upbeat. And the word "journalism" was never uttered, once.

. . .Even apart from TV and new media--at the Tribune papers themselves--the editor in chief rarely presides at the daily page one meeting. The editor's gaze is fixed on the future, on new zoned sections, multimedia desks, meetings with the business side, focus group research on extending the brand, or opening new beachheads in affluent suburbs. "I am not the editor of a newspaper," says Howard Tyner, 54, whose official resume identifies him as vice president and editor of the Chicago Tribune. "I am the manager of a content company. That's what I do. I don't do newspapers alone. We gather content.

In highlighting the Tribune Co., we do not mean to suggest that there is anything wrong with the company's behavior. On the contrary, economic "synergies" may certainly help Tribune improve the quality of its media products. And we do not mean to suggest that other factors, like newspaper consolidation and newspaper ties with other corporate entities, do not also challenge print journalist's ability to follow their creed. However, when the two largest sources of news and information - television and newspaper 16 - come under the same ownership roof, there is special cause for concern about business pressures that could undermine the free marketplace of ideas. Consumers Union believes that, particularly where there is only one local newspaper, the public interest is best served by prohibiting that newspaper from owning a local television broadcast outlet. Dangers ranging from favorable newspaper reviews of a broadcaster's programming, to positive editorials/opinion articles about business interests of a broadcaster or politicians who favor such business interests would be difficult to prevent if cross-ownership is broadly permitted:

Down in Tampa, Media General has gone so far as to put its newspaper, the Tribune, in the same building with its local television station and online operation, the better to exchange stories and, ostensibly, resources. (It's still unclear what the newspapers get out of the bargain other than garish weather maps sponsored by the local TV meteorologist.) Tampa's has become the most sophisticated model of this kind of thing, and as such is drawing enormous interest from other newspaper companies.

Under the Tampa model, and presumably in most major city rooms of the future, news decisions for all these outlets are made in a coordinated way, sometimes in the same meeting. In effect the same group of minds decides what "news" is, in every conceivable way that people can get their local news. This isn't sinister; it's just not competition.

Except where there is meaningful competition between local newspapers, we believe that lifting the newspaper/broadcast cross- ownership ban would significantly undercut the watchdog role that newspapers play over broadcasters and thereby undermine - particularly in the realm of political speech - Congress' goal of ensuring an open marketplace of ideas.

It is time for the FCC to engage in a careful analysis of media and communication markets, before it considers altering current ownership rules. Consumers Union believes that such a analysis will demonstrate the need to preserve the national broadcast network ownership cap and newspaper/broadcast cross-ownership rule in order to promote the publics interest in more media and communications competition, diversity of ownership, and protecting the First Amendment rights of citizens whose tastes do not correspond to those of the majority nationwide or in a particular community.



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