Duopoly ownership and local informational programming on broadcast television: before-after comparisons.

Author:Yan, Michael Zhaoxu
Position:Report
 
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For decades, the government prohibited companies from owning more than one television station in a single market. In 1999, the Federal Communications Commission (FCC) relaxed this limit and allowed duopoly ownership, i.e., a company owning two stations in a local television market (FCC, 1999). In June 2003, as part of its comprehensive review of the broadcast ownership rules, the FCC further relaxed the local television multiple ownership rule. For example, in markets with 18 or more television stations, a company can own three stations provided that only one of these stations is among the top four ratings (FCC, 2003).

In relaxing the multiple ownership restrictions, the government believed that the public interest benefits resulting from common ownership of local television stations outweighed the threats. Particularly, the FCC assumed that the new rules allowed the commonly owned stations to operate more efficiently by taking advantage of their combined resources, which would lead to the increase of local and public affairs programming in the local market. The federal circuit court in Prometheus Radio Project v. FCC (2004) essentially endorsed this view although it remanded the specific numerical limits to the Commission for further consideration. However, much of the evidence regarding the benefits of television joint ownership is anecdotal and provided by broadcasters drawing upon their own experience (FCC, 1999). As far as the authors know, scholarly research examining the effects of common local television ownership on the quantity and quality of local and public affairs programming is rare.

This study examined the relationship between duopoly, and the supply of local news and public affairs programming in the local television market. Using station program data of 1997 and 2003, the study investigated whether stations (particularly the non-top-four-ranked ones)increased their local news and public affairs programming once becoming part of a common ownership. It also investigated whether stations in common ownership aired more such informational programming than comparable stations in the same market or stations from different markets that have no multiple ownership, and whether markets with common ownership stations, as a whole, provided more local news and public affairs programming than those that contain no such ownership structure. The results of the study provide much needed evidence regarding the purported benefits (or the lack thereof) of the current television duopoly rules.

The next section begins with background information about the duopoly rules, followed by a review of previous research that examined the relationship between media ownership structure and television content, followed by research hypotheses and methodology, and, lastly, results and conclusions.

Duopoly Structure and Television Programming

Local television multiple ownership rules limit the number of television stations a company can own. The "duopoly rule," adopted in 1964, prohibited an entity from having cognizable interests in two television stations whose Grade B signal contours overlap (FCC, 1964). The rationale underlying such a rule was that the policy goals of diversity and competition were best ensured with a multiplicity of separately owned media outlets.

Congress passed the Telecommunication Act of 1996 that, among other things, made a number of changes to the media ownership rules. For example, the Act eliminated the restriction on the number of radio stations a single entity can own nationally, and increased the number of radio stations one company can control in a local market. Although the Act did not make changes to the television duopoly rule, Congress directed the FCC to conduct a rulemaking proceeding concerning the retention, modification, or elimination of the duopoly rule. The congressional mandate required the FCC to rewrite the duopoly rule in 1999, the first time in 35 years of its history (FCC, 1999). Under the FCC's revision, common ownership of two television stations in the same designated market area (DMA) is permissible if their Grade B signal contours do not overlap, or if eight independently owned, full power and operational TV stations (commercial and noncommercial) will remain post-merger and one of the merged stations is not among the top four ranked stations in the market (FCC, 1999). Exceptions were also allowed to this "four top-ranked/eight voices test," for example, if one of the merged stations is a "failed station" or a "failing station."

In June 2003, the FCC further liberalized the television duopoly rule as part of yet another review of media ownership rules. The new rule eliminated the "eight voices test," and based the ownership limits entirely on the size of a media market. For example, a company may own two stations in markets with five or more television stations, and 3 stations in those with 18 or more stations (again, only one of these merging stations can be among the top four in ratings) (FCC, 2003).

The FCC 2003 decisions were first enjoined by a federal circuit court in September 2003, and were later remanded back to the Commission by the same court for further justifications of the numerical limits (Prometheus Radio Project v. FCC, 2004). However, many television stations now operate under a common ownership structure as a result of the FCC's 1999 duopoly rule. According to one estimate, there are at least 75 television combinations (McConnell, 2002). An examination of station ownership patterns in this study revealed 77 combinations in 2003, involving 155 television stations in 59 markets.

The FCC calculated the costs and benefits when it decided to relax the duopoly rule. On the one hand, allowing further consolidation of stations in the local market may reduce competition and ownership diversity. On the other hand, common ownership of stations could yield economies of scale that can result in stronger stations and better services to the viewing public. In balance, however, the FCC deemed that the reduction in competition and diversity is minimized by the presence of a plethora of media choices available to the public and serving as competitive forces against the broadcasters. In addition, the economic efficiencies gained from common ownership were so great that a change of the duopoly rule was needed. As the FCC put it,

In markets with many separate licensees and a variety of other media outlets, we believe the benefits of joint ownership in certain instances outweigh the cost to diversity from permitting such combinations. There is evidence concerning the efficiencies inherent in joint ownership and operation of television stations in the same market ... These efficiencies can lead to cost savings, which in turn can lead to programming and other service benefits that serve the public interest. (FCC, 1999, para. 38)

The FCC applied the same line of cost-benefit analysis in its 2003 decisions. Again, prior local television ownership rules could not be justified on diversity or competition grounds because the FCC found that Americans rely on a variety of media outlets for news and information, and local television broadcasters face significant competition from other media industries such as cable and satellite television services. The FCC emphasized the economic efficiencies and public service benefits to be gained from common ownership of stations. In particular, the FCC agreed that television combinations would yield efficiencies that "would expand local news offerings and other programming relevant to the needs and interests of viewers in local markets" (FCC, 2003, para. 138).

The logic of horizontal mergers leading to economies of scale and creating efficiencies has validity. Mergers reduce duplication and save costs. For example, the creation of a single set of managers can save management costs (Carlton & Perloff, 2005). A merged firm can also reduce the total cost that separate firms would have to incur if developing similar products independently (Hoskins, McFadyen & Finn, 2004; Owen, 2003). In addition, merger can lead to complementary activities that benefit merged firms. For example, media firms in a merger can cross-promote each other's products (Croteau & Hoynes, 2001).

Chain ownership in the newspaper industry significantly increased economies of scale due to the creation of national news circulation (Dertouzos & Trautman, 1990). Ill broadcast television, stations in a horizontal merger can benefit from potential synergies of sharing staff, reducing production costs, cross-promoting content and combining advertising efforts (Pierce, 2005). More specifically, jointly owned stations can integrate core personnel in creating content, share newsroom and production facilities, and exchange and cross promote content produced by different stations. To be able to use the same content in more than one outlet means not only increased economies of scale, but also less reliance on syndicated programming, resulting in programming cost reduction (Mermigas, 2003). Sales staff under the same ownership offers advertisers package deals over two or more stations (McConnell & Ault, 2001).

However, whether or not...

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