From diversity to duplication: mega-mergers and the failure of the marketplace model under the Telecommunications Act of 1996.

• Author: Bednarski, Anastasia

1. INTRODUCTION II. HISTORY OF OWNERSHIP REGULATION OF RADIO STATIONS BEFORE AND AFTER THE 1996 TELECOMMUNICATIONS ACT A. Policy Justifications 1. The Early Years and the Trusteeship Model 2. The Marketplace Model B. Regulation History 1. Multiple-Station Ownership in the Same Market 2. Multiple-Station Ownership Nationally 3. The One-to-a-Market Rule III. EFFECTS ON STATION OWNERSHIP IV. ANALYSIS A. Diversity Analysis B. Competition Analysis V. CONCLUSION I. INTRODUCTION

   In the immediate aftermath of the September 11 terrorist attacks, radio station owners faced a difficult decision: Should the station limit its play list to reflect the nation's period of turmoil? In the weeks to follow, there undoubtedly would be a careful revision of many radio stations' musical choices--sometimes deliberately, sometimes unconsciously. Most of these efforts drew little attention.

   One station owner's actions, however, drew sharp criticism from media watchdogs. In the week following the terrorist attacks, an e-mail rumor began that Clear Channel Communications had developed a list of approximately 150 potentially inappropriate songs, which was circulated among its staff in an attempt temporarily to "ban" the songs from its play lists. (1) Clear Channel's official statement is that no songs were ever "banned," and that the company simply suggested in an internal memo that its staff members be sensitive to their audience's mood during a time of national mourning. (2)

   Even if the memo was simply a suggestion to tastefully limit play lists, there were several reasons for the outcry. Primarily, critics questioned whether some of the alleged songs on the list were truly "lyrically inappropriate," including John Lennon's "Imagine" and the Bangles' "Walk Like an Egyptian." (3) Underlying this criticism, however, was the fact that Clear Channel is a media conglomerate that owns approximately one out of every ten U.S. radio stations and has more than 110 million listeners. (4) Whether the list was misguided and the circumstances extreme, listeners ultimately became angry that Clear Channel had the ability to manipulate the entire nation's listening habits with a carefully worded fax.

   "Mega-owners" such as Clear Channel became possible with the Telecommunications Act of 1996 (1996 Act), (5) which radically deregulated national and local radio station ownership limits that had been in existence for almost sixty years. (6) The 1996 Act reflected Congress's firm belief that a deregulated marketplace would best serve the public interest, as suggested by the Act's preface, which described its purpose as: "[t]o promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." (7)

   This Note argues that the 1996 Act is an example of excessive adherence to the marketplace model, particularly for regulating the radio industry. From the time that the Federal Communication Commission ("FCC" or "Commission") was created until the early 1980s, the Commission regulated radio based on the trusteeship model, "whereby broadcast stations were entrusted by the government to operate in the public interest" based upon specific guidelines. (8) This changed in 1981, when the Commission began to deregulate the industry and implemented a marketplace model, under which the market would determine the public interest. (9) Although a less extreme marketplace model has guided the FCC's regulation of radio since the early 1980s, the current incarnation of the marketplace model is both contrary to the public interest and economically harmful for radio stations and industries affected by radio, such as advertising. Part II of this Note describes the theoretical bases and history of radio station ownership regulation, including the trusteeship model and the marketplace model of regulation. Part III of this Note describes the marketplace model's negative effect on diversity of ownership in the radio industry. Part IV gives an analysis of these effects, linking decreased diversity of station ownership with harm to the public interest.

2. HISTORY OF OWNERSHIP REGULATION OF RADIO STATIONS BEFORE AND AFTER THE 1996 TELECOMMUNICATIONS ACT

   To understand the magnitude of the changes that the Telecommunications Act of 1996 has wrought on the radio industry, it is important to track the changes in radio regulation since it was first regulated in the early twentieth century. First, this Note will examine the policy justifications behind radio regulation; then, it will examine the regulations themselves, including limitations on local ownership, national ownership, and the concurrent ownership of radio stations and other media such as newspapers or television stations.

   1. Policy Justifications

      Radio is unique in that it is the first broadcast medium that the federal government controlled by regulations. (10) Radio regulation was first based on the proposition that airwaves were a public resource that was exploited for the "public interest" by those granted the "privilege" by the federal government. (11) However, over the past twenty years, the concept of the "public interest" has become malleable, changing from a trusteeship model in the 1930s to today's marketplace model. (12) The most recent radio regulatory legislation, the 1996 Act, is yet another extension of that marketplace model, but much more far-reaching. To understand the detrimental effects of the 1996 Act's deregulatory scheme, it is important to review the trusteeship model under which the courts and the FCC worked for the first fifty years of the Commission's existence.

      1. The Early Years and the Trusteeship Model

         The first radio regulations were promulgated in the early 1900s to prevent overlapping frequencies and signal confusion at a time when radio was used primarily as a safety device. (13) The Radio Act of 1912 gave the Secretary of Commerce the right to resolve such signal disputes by licensing; however, a decade later, the ineffectiveness of this Act was apparent. (14) The burden of overseeing radio licensing had become too much for the Commerce Department, and many unlicensed commercial radio stations began to appear. (15) In addition, several court cases successfully challenged the right of the Secretary to become involved in radio regulation. (16)

         In 1927, Secretary of Commerce Herbert Hoover called several national conferences aimed at managing this situation; these conferences resulted in the Radio Act of 1927 (1927 Act) (17), and the creation of the National Radio Commission. (18) This Commission had the power "to regulate all public and private radio transmissions," including granting licenses and setting hours and frequencies. (19) For the first time, the 1927 Act maintained the public's rights over those of broadcasters by declaring that the broadcasters serve "public convenience, interest, or necessity." (20) Seven years later, the Communications Act of 1934 (1934 Act) (21) merged the Interstate Commerce Commission and the Federal Radio Commission to create the Federal Communications Commission. (22) The industry-supported 1934 Act was designed to "preserve the developing broadcasting industry and protect the interests of existing stations." (23) Congress passed the 1934 Act under the assumption that the radio spectrum would stay primarily commercial; in fact, the 1934 Act stipulated "that the broadcasting industry would not be a governmental operation." (24) The 1934 Act, however, did contain some limitations on the ownership and transfer of broadcast licenses. (25) The 1934 Act explained the need for regulation of a privately owned commercial resource by redefining the airwaves as a scarce public resource; as such, this public resource required oversight. (26) "A second, largely unstated basis for regulation was fear of the potential power of broadcasters, both in terms of political power and economic power." (27) The FCC's regulation of a public resource (the airwaves) being used by private individuals was touted as the "trusteeship" model, whereby the government entrusted broadcasters with the airwaves to use in a manner consistent with the public interest. (28)

         Originally, regulators had difficulty defining the "public interest" under the trusteeship model. In National Broadcasting Co. v. United States, the Supreme Court attempted to define the public interest in accordance with the 1934 Act as "the interest of the listening public in `the larger and more effective use of radio.'" (29) However, in FCC v. RCA Communications, Inc., the Court altered its previous opinion and accepted the FCC's power to define the "public interest" on a case-by-case basis. (30) Although the "public interest" was ill-defined by case law, the FCC developed a number of content and structural regulations to ensure that broadcasters acted according to the public interest standard. (31) Content regulations included requirements that stations devote a certain amount of broadcast time to nonentertainment programming, as well as "community ascertainment" rules that "required broadcasters to familiarize themselves with the needs and interests of their communities." (32) Structural regulations included limiting the number of stations a single entity could own, preferring to license those having fewer broadcast interests, and encouraging minority participation in broadcasting. (33) As discussed infra, first the content regulations then the structural regulations were eliminated under the marketplace model.

         The Commission received support for its efforts to structurally regulate broadcasting in FCC v. RCA Communications, Inc., (34) when the Court clearly stated that marketplace competition is not sufficient to maintain the public interest:

         [A]s to the industry before us in this case, there has been serious qualification of competition as the regulating mechanism...