A quarter century ago, in anticipation of the growing competition TV and radio stations were beginning to face from new digital media, Congress in the Telecommunications Act of 1996 ordered the FCC to conduct regular biennial reviews of its local media ownership rules. It directed the FCC in these reviews to eliminate or relax any rules that were no longer “necessary in the public interest” due to rising competition. In the 25 years since then, the FCC has made several efforts to comply with this congressional mandate, only to have those efforts repeatedly frustrated by two or three judges on a panel of the U.S. Court of Appeals for the Third Circuit, sitting in Philadelphia.

The FCC’s most recent effort to relax these regulatory shackles on the broadcast TV and radio industries was in 2017 when the FCC, under its former chairman Ajit Pai, released a comprehensive set of deregulatory reforms to loosen its local media ownership rules. The FCC concluded that three of those rules no longer served the public interest due to the competition broadcast radio and TV now face from digital media. It therefore repealed two of those rules prohibiting newspaper/broadcast and radio/television cross-ownership. It also modified its Local Television Ownership Rule to eliminate its 8-voices test, which prohibited any broadcaster owning two or more full-power TV stations in the same local market unless there were at least eight independently owned stations in that market. The FCC retained its prohibition on a single company holding the FCC licenses to more than one of the top 4 stations in any DMA, but put in place a procedure by which licensees could seek a waiver of that prohibition where local circumstances warranted it.

On a petition for review filed by the Prometheus Radio Project, an advocate for a group of low power broadcasters, the Third Circuit – as it had on two prior occasions – vacated the FCC’s order, thus reinstating outdated limitations on local media ownership that were first adopted in the 1960s and 1970s, long before the advent of digital media. The court did not dispute the FCC’s conclusion that these rules no longer promoted the public interest in competition, localism, and viewpoint diversity. Instead, the court held that the FCC had not adequately considered the impact the rule changes would have on minority and female ownership.

The FCC and the National Association of Broadcasters both sought Supreme Court review of the Third Circuit’s order. The Supreme Court agreed to hear the case and heard arguments in January. In April, the Court, in a 9-0 decision, reversed the Third Circuit and reinstated the FCC order repealing its two cross-ownership rules and relaxing its Local TV Ownership Rule. See FCC v. Prometheus Radio Project, Slip Op. (2021). In an opinion by Justice Brett Kavanaugh, the Court held that the FCC had given any parties opposing the rule changes ample opportunity to comment on the impact of the proposed changes on minority and female ownership. It held, therefore, that the FCC’s conclusion that its rule changes would have minimal impact on race and gender diversity of ownership was not an abuse of its discretion given the failure of Prometheus Radio and other commenters opposing the rule changes to produce convincing evidence to show that it would. (Slip Op. at 12.)

Now that the Supreme Court has ruled, the question is whether the FCC, under its new leadership, will adhere to the regulatory reforms to its local media ownership rule adopted under the prior administration or will instead take a step backwards by trying to reinstate the more restrictive ownership rules it had left in place during the Obama Administration. As a commissioner, the new FCC acting chairwoman, Jessica Rosenworcel, dissented from the FCC’s 2017 order relaxing those rules.  In her dissent, she wrote in nearly apocalyptic terms about the consequences of the FCC’s action:

Today . . . [i]nstead of engaging in thoughtful reform—which we should do—this agency sets its most basic values on fire. They are gone. As a result of this decision, wherever you live the FCC is giving the green light for a single company to own the newspaper and multiple television and radio stations in your community. I am hard pressed to see any commitment to diversity, localism, or competition in that result.

Given the abundance of competing voices now available to residents in every community nationwide and the Commission’s retention of a presumptive ban on any broadcaster owning more than one of the top four TV stations in a market, Commissioner Rosenworcel’s concerns seem highly exaggerated.

Now that she is the FCC’s Acting Chairwoman, her overwrought concerns about the likely effects of these regulatory reforms are troubling.  

Local newspapers and broadcast TV stations have long been our most important sources of local news in every community in the country. As a majority of the Commissioners recognized in 2017, local newspapers and TV stations now face an existential threat due to the growing competition they face from digital giants, a threat that is even more pressing today than it was three years ago when Commissioner Rosenworcel penned her dissent.  

There is a growing bipartisan recognition that more needs to be done to rein in the power of these digital giants, but there is also concern about the First Amendment implications of doing that through increased regulation. The better remedy, as a majority of the Commission recognized in 2021, is to allow local TV stations and newspapers to combine in order to gain the economies of scale and scope they need to compete more effectively against these digital giants. We have to hope, therefore, that as the acting chairwoman, Commissioner Rosenworcel will reconsider her earlier views, and will not try to undo these long-needed regulatory reforms.

Guest blog authors William Kolasky and Philip A. Giordano are partners in the Washington, DC office of Hughes Hubbard & Reed LLP. Both Kolasky's and Giordano's areas of focus include antitrust & competition and litigation.

The Supreme Court of the United States’ unanimous decision in FCC v. Prometheus Radio Project may be long past due for much needed regulatory relief from anachronistic ownership restrictions that make no sense today, but it is welcome news nonetheless. It is no exaggeration to say that the modern video marketplace is the most vibrant the world has ever seen, and growing more competitive every day. But until today’s (April 1) ruling, local television broadcasters, like my seven African-American owned Howard Stirk Holdings stations, could not maintain healthy, economically viable businesses in that hyper-competitive marketplace because a single panel of the U.S. Court of Appeals for the Third Circuit unfairly hamstring local journalism and froze in place ownership rules that have not reflected true marketplace conditions for years. Thank Heaven that ice dam has now been broken.

Three of the FCC’s current ownership rules are impacted. The first is the Newspaper/Broadcast Cross-Ownership Rule. Back in 1975, in order to promote competition, the FCC forbade ownership of a local newspaper and a local television station in the same market. Sadly, today the newspaper industry is all but dead and the video marketplace looks nothing like it did then. The second is the Radio/Television Cross-Ownership Rule. Initially adopted in 1970, that rule limits the number of combined radio stations and television stations that an entity may own in a single market. The third is the Local Television Ownership Rule. Initially adopted in 1964, that rule restricts the number of local television stations that an entity may own in a single market.

Pursuant to Section 202(h) of the 1996 Telecommunications Act -– a/k/a  the quadrennial review –- the FCC is required to modernize its ownership rules to reflect changing competitive realities. While the FCC tried several times over the years to update its rules accordingly, the Third Circuit consistently rejected those efforts and left the broadcast industry frozen in a bygone era, as if there was only limited local media competition, a time when there were only three national broadcast networks and a small handful of broadcast TV stations in most markets.

In the past the FCC believed that competition, localism, and viewpoint diversity were best served by constraining common ownership of the relatively limited number of local media outlets. Today’s media marketplace is vastly different. There are thousands of video programming options, and multiple platforms deliver video programming via cable, satellite, wireless, and the Internet. Viewers can access an almost infinite library of video programming virtually whenever and wherever they choose.

Although the marketplace has transformed in recent decades, the public service role of local broadcasters has not changed. The broadcast industry provides a free-over-the-air service to nearly every community in the nation, creating and distributing news, weather, public affairs, sports, and entertainment programming, including needed public health and emergency information. The coronavirus pandemic has reinforced the critical importance of reliable access to local and national news and information programming via local broadcast television.

Television stations cannot fulfill that critical role if their businesses are bound by out dated policies obstructing their ability to survive in today’s rapidly changing, increasingly diverse, and exceedingly competitive media marketplace. Like every other business, the survival of local television depends on economic viability. Stations that cannot compete cannot survive, and broadcasters today face competitors too numerous to count: cable programmers, satellite services, online news and programming providers, subscription video-on demand platforms, video programming websites, and many more. In stark contrast to television broadcasters, nearly all of these competitors are free to operate in local markets unconstrained by the FCC’s decades-old ownership limits.

This is why this Supreme Court ruling is such welcome relief. The FCC’s much-needed modernized broadcast ownership rules will, at long last, be allowed to take effect. This is particularly important for television broadcasters because they uniquely face overwhelming competition from the tech giants -– Google, Amazon, Facebook, Netflix and Apple -– and the titans of telco -– AT&T, Verizon and T-Mobile-Sprint. To illustrate, in 2018 Google earned $116.3 billion in advertising revenues. For that same time period, the broadcast industry as a whole earned about $20 billion in over-the-air advertising and digital revenues. See, Sen. Maria Cantwell, U.S. Senate Committee on Commerce, Science, and Transportation, Local Journalism: America’s Most Trusted News Sources Threatened (Oct. 2020) (“the ad revenues that Google is projected to earn this year will exceed the combined ad revenues of all TV and radio stations in the country”). 

Freed from the Third Circuit’s iron grip, the broadcast industry will hopefully –- if it’s not too late -– be able to better compete in the fierce media marketplace and avoid going the way of the newspaper industry.

The U.S. Court of Appeals for the D.C. Circuit has declined to overturn the FCC's restoration of the UHF discount on the grounds that the parties challenging it--Free Press, Prometheus Radio--did not have standing to bring the challenge.

That could be a big boost to broadcast M&A, though it might not be the big boost for the Sinclair-Tribune deal given the FCC's other problems with it.

The UHF discount means that only half of a UHF TV station's audience counts towards the 39% national ownership cap. The discount allowed Sinclair to bid for Tribune stations that otherwise would have pushed it to almost double that 39% cap.

“I’m pleased with the court’s decision to reject this challenge to the reinstatement of the UHF discount pending the completion of our comprehensive review of the national ownership cap," said FCC chair Ajit Pai.

During oral argument last April, the judges clearly had concerns about not having statements from individual members of the associations establishing particular harms related to the Sinclair-Tribune deal, which the petitioners used as an example of the harms of the discount. The court wanted the petitioners to have identified at least one Free Press member or Prometheus member in a Sinclair market that would have been affected by the potential merger.

Related: Dems Tell Pai to Wait for UHF Court Decision

The three-judge panel of the court said the argument did not even warrant a published opinion, adding that it did not have to reach the merits of the decision because of that lack of standing.

Those merits were whether it was within the FCC's discretion to reinstate the UHF discount pending “a broader review of the [national ownership] cap” itself after the FCC, under previous chair Tom Wheeler, had concluded it had erred in eliminating the UHF discount before that review.

Since there is no published opinion, it is unclear whether the petitioners could have won on the merits, though two of the three judges appeared inclined to agree with them. Most observers of that oral argument had speculated that, if the standing issue did not derail the challenge, it had a good chance of succeeding and the discount repealed and remanded back to the FCC.

But in a two-page document dismissing the petition to overturn the FCC decision, the three-judge panel said: "Membership organizations may assert standing on behalf of their members, but in order to do so they must show that at least one member “would otherwise have standing to sue in [his or her] own right.”

The court said Prometheus and Free Press did not do that, and it did not accept those showings in a supplement filed after oral argument.

Related: Free Press to Court: Sinclair is Exhibit A on UHF Discount Harms

Now that the court has ruled, Pai is expected to proceed with an item that combines the discount with re-thinking the 39% national audience reach cap to which the discount is tied, perhaps by raising it to 50%, as some broadcasters have asked for, with a review of that move down the line in case it needs some more raising.

Free Press and Prometheus can appeal the three-judge decision to the full court.

Free Press attorney Andrew Schwartzman had no comment on next steps, saying he was still processing the decision and that it was too early to make that call.

"This should remove the cloud hanging over broadcasters, preventing them from further growth. The next, and most important, step is for the Commission to eliminate the national cap altogether," said Adonis Hoffman, former top FCC staffer and currently head of Business in the Public Interest. "Taken together, these actions will give broadcasters the regulatory foundation yo compete in a rapidly changing media market against the likes of FAANG [Facebook, Amazon, Apple, Netflix and Google]."

Equity Research analyst Marci Ryvicker called it a "nice and unexpected positive for the broadcast space."

“This decision is deeply disappointing," said former FCC Chairman and Common Cause Special Advisor Mike Copps. "Rather than decide the merits, the court throws out a major case on a technicality over “standing” that the court itself more than hinted petitioners could easily overcome. On substance, the FCC presented a ludicrous case during oral arguments. There is no defense for maintaining the UHF discount – a technologically obsolete loophole that only allows broadcasters to buy stations beyond ownership limits. It’s more than regrettable that an awful FCC decision that paves the way for more media consolidation is allowed to stand."

“NAB is pleased the court rejected the challenge to the FCC’s decision reinstating the UHF discount," said National Association of Broadcasters SVP Dennis Wharton. "The Wheeler FCC’s decision eliminating the UHF discount without consideration of the national TV ownership cap was inappropriate and ignored the market power of massively deregulated pay TV providers. FCC Chairman Pai deserves enormous credit for righting this wrong, and for providing an opportunity for local broadcasters to better serve our tens of millions of viewers.”