Localism as a Solution to Market Failure: Helping the FCC Comply with the Telecommunications Act.

AuthorTerry, Christopher


In 2016 the U.S. Court of Appeals for the Third Circuit, in a decision that has come to be known as Prometheus III, (1) expressed frustration with the FCC's failure to comply with the terms of two previous remands from the same court in cases known as Prometheus I (2) and Prometheus II. (3) After cataloguing what it saw as the shortcomings in the FCC's most recent actions, the court appeared resigned to still more litigation over the FCC's broadcast ownership rules. The last paragraph of the opinion of the court noted:

This is our third go-round with the [FCC]'s broadcast ownership rules and diversity initiatives. Rarely does a trilogy benefit from a sequel. To that end, we are hopeful that our decision here brings this saga to its conclusion. However, we are also mindful of the likelihood of further litigation. (4) The court's prediction was correct; its decision did not bring the long litigation saga to a conclusion. In November 2017 the FCC, with a new Republican majority in the wake of the election of Donald J. Trump as president, abolished several rules limiting ownership of radio and television stations, while relaxing other restrictions on ownership. (5) In early 2018, Prometheus Radio Project returned to the Third Circuit with yet another challenge. (6) The journey to a decision that will no doubt be known as Prometheus IV began.

To borrow a phrase from baseball immortal Yogi Berra, it was deja vu all over again. (7)

The inconclusive nature of the litigation means that fundamental issues underlying media ownership policy remain unsettled. What is the relationship between economic competition and diversity of broadcast content? Does greater competition among station owners lead to greater diversity of news and entertainment content, or not? As local ownership of radio and television stations becomes increasingly rare, what is the relationship between economic competition and locally-produced content? Since the enactment of the Telecommunications Act of 1996, (8) and especially since Prometheus Radio Project filed its initial challenge to relaxed restrictions on broadcast ownership in 2003, (9) questions about competition and its relationship to the concepts of diversity and localism have been at the heart of discussion and debate over broadcast ownership policy in the United States. Meanwhile, as policymakers, interest groups, and judges wrestle with these questions, the economic and technological environment for American broadcasting is in a state of constant change.

The result of all of this uncertainty is that Prometheus, the FCC, and the U.S. Court of Appeals for the Third Circuit have been trapped in a maze of seemingly endless litigation since 2003. They are like the characters in Jean Paul Sartre's famous play No Exit, condemned to be with each other for all eternity in a locked room. (10) The repetitive pattern of the cases--rule changes from the FCC followed by challenges to the changes from Prometheus followed by a remand back to the FCC from the Third Circuit (rinse and repeat)--evokes not only the well-known American movie Groundhog Day (11) but also popular culture's pithy definition of insanity: Doing the same thing over and over, but expecting a different result. (12)

There has to be a better way. And, as this Article shows, there is a better way.

American law does not look kindly upon mazes of endless litigation. (13) This Article proposes a way for the FCC to escape the legal labyrinth without sacrificing its long-standing policy goals of competition, localism, and diversity (14) The FCC should shift its regulatory focus from issues of media ownership to issues of media production--specifically, to local media production. Such a shift would acknowledge the reality that the modern media environment by itself, with no need for intervention by the FCC, provides a high level of economic competition among owners of broadcast stations across the United States, as well as a vast diversity of viewpoints about national and international issues. The unregulated marketplace falls short, however, in providing local content to citizens of many American communities. (15) The proposal this Article presents accepts the economic and technological environment within which radio and television stations exist, while being readily adaptable to future changes in that environment. (16) The proposal would apply only in situations when market forces have failed to supply adequate competition, diversity, and localism.

Over the past several decades, the FCC has come to rely on theories that assume that economic competition among media outlets is a meaningful proxy for diversity of content and localism. Research has failed to validate such theories, not only leaving many of the FCC's media ownership decisions resting on an empirically unstable foundation that fails to satisfy the judges of the Third Circuit, but also ignoring the fact that the aspect of the media most important to citizens and to democracy is the content, not the ownership. (17)

Section II of this Article documents the strong emphasis on locally-produced media content during the first several decades of broadcast regulation in the United States. Section III outlines how a regulatory concern about the structure of media ownership, in individual communities as well as nationally, supplanted the previous focus on content. Section IV examines the relationship between patterns of media ownership and the FCC's principal content goal, diversity. Section V provides detail about the litigation over media ownership rules brought about by the enactment of the Telecommunications Act of 1996. Section VI presents a proposal for a new rule that will survive legal challenge and put an end to the FCC's long-running litigation with Prometheus.


    At the time of the passage of the Radio Act of 1927 (18) and for several decades thereafter, American broadcasting's regulators not only granted licenses and allocated frequencies but offered broadcasters frequent guidance on the kind of content that would serve the public interest. (19) Cities were thought of as communities rather than media markets. Individuals were conceptualized as citizens in a democracy rather than as consumers in a free-market economy. Broadcasters were expected to use the limited space on public airwaves not in their own private interest, but rather as trustees with licenses to serve the public interest, as a 1929 decision by the Federal Radio Commission (the forerunner of the FCC) demonstrated.

    The case, Great Lakes Broadcasting Co. v. FRC, (20) involved three radio stations in the Chicago area that were in conflict over frequencies and hours of operation assigned by the FRC. To evaluate their claims and any similar claims that other license holders might make in the future, the FCC developed a set of criteria to guide stations in meeting their public interest obligations. (21) The criteria encouraged stations to use local talent for locally-produced original programming, and to air informational programming such as news, weather, and religious programs, among other things. (22) Despite these guidelines, which stressed serving local communities with locally originated programming, in the 1930s many stations turned away from a local approach and became increasingly dependent on national radio networks for programming. (23) The increase in network control was coupled with an agreement among the major radio networks and newspapers to limit the production of radio news, further reducing local content. (24) What little local news and public affairs content radio stations did air often took the form of one-sided commentary that reflected only the opinions and interests of the station owners. (25) Because the FCC deemed such content not to serve the public interest, in 1940 it essentially prohibited editorializing by radio stations. (26) The FCC's decision stated, "Truly free radio cannot be used to advocate the causes of the licensee. It cannot be used to support the candidacies of his friends. It cannot be devoted to the support of principles he happens to regard most favorably." (27)

    In 1941, the FCC issued its Report on Chain Broadcasting, adopting a set of regulations that limited networks' control over stations with which they had contracts. (28) One of the practices prohibited by the regulations was unlimited "network option time," which enabled networks to require stations to air network programming up to 24 hours a day. (29) The FCC sharply criticized the practice because it reduced the amount of local content stations produced:

    A station licensee must retain sufficient freedom of action to supply the program and advertising needs of the local community. Local program service is a vital part of community life. A station should be ready, able, and willing to serve the needs of the local community by broadcasting such outstanding local events as community concerts, civic meetings, local sports events, and other programs of local consumer and social interest. (30) The FCC determined that unlimited network control over local station affiliates contravened the public interest. (31) The NBC network challenged the regulations, arguing that the FCC was authorized only to consider technical matters such as frequency allocation and hours of operation. (32) The Supreme Court upheld the FCC's position, saying that the congressional delegation of authority to the FCC required the agency not only to keep the pathways of communication open, but also placed a burden upon the FCC to consider the content of what...

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