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New Divider: 'Diversity Index'

At least outwardly, the Republicans who control the Federal Communications Commission are all smiles in professing that the agency is a just a few weeks away from rewriting broadcast-ownership rules, as mandated by Congress and the federal courts.

Despite pressure from Capitol Hill, FCC chairman Michael Powell is refusing to postpone his self-imposed June 2 date for the public meeting at which the new rules are to be unveiled.

"I would highlight that the public interest is presently being ill-served by a body of rules that have been severely wounded and rendered substantially ineffective by withering judicial fire. Survival demands action," Powell said in an April 11 letter to the Senate Commerce Committee chairman, Sen. John McCain (R-Ariz.)

Index at issue

But appearances can be deceiving. In February, Republican commissioner Kevin Martin sided with the agency's two Democrats to undercut Powell's blueprint for rewriting local phone-competition rules. Martin's opposition, which did not erode, postponed the vote by a week.

With regard to broadcast-ownership rules, Powell and Martin share many of the same deregulatory convictions. But the two are likely to collide — if they haven't already — over Powell's plan to construct a model for measuring ownership concentration in local markets, called a diversity index.

The diversity index is not a finished product in the FCC's Media Bureau. To date, it remains a massive spreadsheet program undergoing various refinements.

Keep it simple

Some FCC observers fear that a Powell-Martin dust-up over the diversity index has the potential to delay the June 2 meeting. And the index itself could end up being so abstruse that companies looking to consolidate won't know which deals would sail through and which would go under the microscope.

"I guess I would say it this way: I am concerned about a complicated mathematical formula as a new rule," Martin said two weeks ago at the National Association of Broadcasters convention in Las Vegas. "I think the rules in the end should be simple."

To the same audience, Powell warned that because court cases have insisted on better empirical data from the FCC in support of broadcast-ownership restrictions, lawyers may be required to become reacquainted with integers, constants and variables.

"I know most of our lawyers went to law school hoping they'd never have to see numbers and do math again," Powell said. "But if you are going to make use of data, you are also going to have to make use of data methodologies and make sense of the data."

In the past, the FCC has sought to protect diversity, localism and competition by imposing common ownership bans — a TV station, for example, could not own a local newspaper or cable TV system.

Another rule blocked mergers among the top four TV stations in a market and denied other same-market TV combinations if fewer than eight independently owned stations remained.

The quandary facing the Powell commission is this: If blanket cross-ownership prohibitions are removed as contrary to public interest, how does the FCC ensure that one company does not gobble up the local cable company, newspapers, radio or TV stations?

Drawing a line

The answer, so far, is the diversity index.

"Think of it as an analytical tool. How much [ownership] can you allow?" a senior FCC source said last week.

Under an ownership-rule regime that included bans, the FCC never needed to conduct a census of local media properties that gives each some kind of weight and numerical value, and then decides which ownership combinations would be acceptable.

"Those are questions the agency has never had to confront because these guys [newspapers and broadcasters, for example] were just out of the mix," the FCC source added.

From Martin's perspective — one that is shared by some media companies — the diversity index might serve to frustrate the scope of votes he casts to eliminate cross-ownership bans.

How substantial this concern might be will remain unclear until Martin and the other commissioners receive their copy of the diversity index, probably during the week of May 12.

But Martin made it clear to his NAB listeners that he believes that the diversity index has the potential to become excessively complex. At a minimum, Martin supports a relaxation of the newspaper-broadcast ban.

Tool, not a rule

"I think it's very difficult, when you talk about trying to quantify in a strict number a particular aspect of diversity, [to say] how much is this particular media worth in a strict numerical sense?" Martin said. "Generally speaking, I think the commission would be better off to have simple rules that everyone can understand."

Powell and Media Bureau chief Kenneth Ferree have described the diversity index as an analytical tool, not a rule in itself. Powell promised the diversity index would not be a Rube Goldberg contraption.

"This is being portrayed as way more complicated and way more sophisticated and its mythology grows as the proceeding continues," Powell said. "I don't think there is anything that sophisticated or complex around the idea."

A Powell-Martin disagreement over the diversity index could play into the hands of Democratic commissioner Michael Copps, who believes the FCC has done a woefully inadequate job of designing new broadcast ownership rules and figuring out their likely impact on the marketplace.

Legg Mason media analyst Blair Levin, a former FCC chief of staff, told clients after attending the NAB show that he expects the agency's reliance on a diversity index "will likely be softened." Levin said he understood that FCC lawyers have concluded that if the agency relies too heavily on the diversity index, it would need to seek public comment on such a market-measuring device.

That would prevent the June 2 vote favored by Powell from occurring, he added.

"If such an index is adopted, we believe it will not determine where the lines are drawn, but only provide a rough guideline for helping the FCC determine whether a deal exceeding a single media-outlet rule should be allowed," Levin wrote.