For those of us hoping that the beginning of the Obama administration means the end of the seemingly endless trend towards greater media ownership concentration, right now is a great time to assess the failures of the last several decades and to begin putting together new policies that can work towards building the kind of media that we need if we're going to have a functioning democracy.
For the past two days, I've written diaries (if you have a chance, you can read those diaries here and here)detailing the policies and court decisions since the 1980s that have allowed huge multinational corporations buy large numbers of media outlets.
Today, I want to look at what will hopefully be the last of the FCC rulemakings geared towards allowing for greater concentration of media ownership and give my sense of why that rulemaking was misguided.
Following the Prometheus decision that struck down many of the rules that it drafted in 2003, the FCC again went back to the drawing board in preparation for its 2006 Biennial Review. The Notice of Proposed Rulemaking that the Commission issued originally indicated that the Commission would consider: the local television ownership limit, the local radio ownership limit, the newspaper-broadcast cross-ownership ban, and the radio-television cross-ownership limit.
However, after accepting public comments for about a year and after holding a series of public hearings to address issues connected with media concentration, the FCC – and more specifically, new Chairman Kevin Martin – changed course in November 2007 and announced that it would exclude all rules from consideration except for the cross-ownership ban that restricted television/newspaper and television/radio station combinations in a single market. This change, probably necessitated by a desire to complete the newest proceedings before the end of Bush's second term in 2008, created a deadline for public comment on the modified proposal that was much shorter than normally given.
Citing the need to balance protecting against "excessive consolidation" with the desire to "afford some relief" to newspapers and broadcast outlets that claimed that they needed to be allowed to merge in order to stay in business, the FCC’s 2008 Order lifted the blanket ban on newspaper/broadcast cross-ownership. According to the FCC, the record that they established demonstrated that the largest markets in the country "contain a robust number of diverse media sources and that the diversity of viewpoints would not be jeopardized by certain newspaper/broadcast combinations" that would actually produce "more news coverage for consumers" in some circumstances.
Based on this reasoning, the FCC adopted a presumption that a waiver of the cross-ownership ban is appropriate when: 1) a daily newspaper seeks to combine with a radio station in a top 20 Designated Market Area ("DMA") or a newspaper seeks to combine with a television stations in a top 20 DMA and (a) the television station is not among the top four ranked stations in the market, and (b) at least eight major media voices would remain in the DMA.
Outside of these circumstances, the FCC established a presumption against granting a waiver for a merger, except if three separate sets of conditions can be established by clear and convincing evidence. The Commission will reverse the presumption against waiver if: "a newspaper or broadcast outlet is failed or failing," with failed or failing defined by a specific set of criteria, or "a proposed combination results in a new source of a significant amount of local news in a market...of at least seven hours per week on a broadcast outlet that otherwise was not offering local newscasts prior to the combined operations," or the proposed merger satisfies a four-factor test.
The four-factor test in turn includes a consideration of: 1) the extent to which, according to the FCC’s analysis, cross-ownership will increase the amount of local news produced by the media outlets involved in the proposed combination; 2) whether the media outlets in the combination will be able to exercise their own independent news judgments; 3) the level of concentration that exists in the DMA; and 4) the financial conditions of the media outlets, and, "if the newspaper or broadcast station is in financial distress, the owner’s commitment to invest significantly in newsroom operations."
The consideration of these factors and the other two exceptions to the presumption against cross-ownership outside of the top twenty DMAs represents the FCC’s attempts to balance its purported interest in localism and viewpoint diversity, while also providing an avenue for these "old media" outlets to achieve "synergies" or efficiencies that the FCC believes are necessary for them to remain viable.
In constructing this complicated presumption/waiver system the FCC was seemingly trying to avoid judicial review of a system that defines what does or does not count as sufficient diversity in a market with a hard number that applies across the board – a kind of review that the FCC has failed repeatedly in recent Circuit Court decisions – by building in a system of exceptions and presumptions that actually undermine the hard limits the rule purports to establish in the first instance.
However, in creating this system, the FCC has created so many loopholes as to make any restriction on cross-ownership seemingly illusory, even outside the top 20 DMAs. According to the dissenting opinion of Commissioner Copps, critical language changes made some time after the 11th hour of the rulemaking process will prevent the FCC from having to consider all four of the factors in its new four-factor test in making a decision about whether it should reverse the presumption against granting a waiver for a newspaper/broadcast combination, creating a much lower bar that must be cleared before the agency approves a proposed merger. Also, given the Commission’s rather lax license review process, there is very real concern that the agency would ever enforce the requirement that a jointly owned broadcast outlet produce at least seven hours a week of local news broadcasting.
Additionally, besides the questionable way in which these new regulations allowing further concentration were pushed through the FCC’s rulemaking process and the fact that the Commission did little more than pay lip service to the public comments that were overwhelmingly opposed to relaxing the cross-ownership rules, the FCC’s reasoning also falls short in its analysis of the economic circumstances that are driving the current crisis in more traditional media outlets.
There is little doubt that the last several years have seen major upheavals in the newspaper business. Declining circulation and profit margins have led major media companies to either shut down newspapers or dramatically reduce their staffs. For example, the Journal Register Company, which owns five daily newspapers in Connecticut, announced plans in early November 2008 to close two papers in Bristol and New Britain that they claimed were no longer profitable unless they could find buyers for the papers. Gannett, the largest corporation in the newspaper industry, announced in late November that it plans to lay off ten percent of its total workforce after already cutting over 3500 jobs in 2007, while McClatchy, the third-largest newspaper outlet in the country is in the process of laying off 2,550 employees (in addition to the 2000 people the company let go in a prior round of layoffs).
In justifying these cutbacks, media conglomerates point to the fact that two major sources of newspapers’ revenue, ad sales and classified ads have been sharply reduced. According to a recent report, newspapers’ share of total U.S. ad expenditures has declined from twenty percent in 1999 to an estimated ten percent in 2009 (with contemporaneous increases in ads placed online and on cable networks), with classified ads now only accounting for twenty-six percent of a newspapers’ total revenue (down from thirty-six percent just three years ago).
However, because of its uncritical acceptance of the proposition that a merged media entity will be more financially viable, the Commission fails to grapple with the reality that increased consolidation actually facilitates the newsroom cutbacks and that other "efficiencies" that have a negative net impact on media outlets’ performances and economic viability.
As Commissioner Copps’ dissenting statement pointed out, among the first steps that a newly merged operation is likely to take is to cut jobs in order to prove to shareholders and other investors that it can successfully decrease costs and create the conditions for larger profit margins in the future. The resulting loss of jobs among reporters, producers, editors, and other staff cannot plausibly be seen as increasing the number of diverse voices that could be heard in a market and provide support for the proposition that, rather than stemming the tide of media job losses, these staff reductions are actually the result of increased media consolidation.
The cutbacks also often mean that news outlets have to do more with less staff and resources, eroding the quality of the product that the newspaper or broadcast outlet can produce, which subsequently leads to decreased audience share or readership and an accompanying reduction in advertising revenue, necessitating further cost cutting measures and, presumably, new mergers to achieve greater economies of scale in order to offset these new revenue reductions. And on and on it goes.
Additionally, there is some evidence that the FCC and the large companies that lobby it continue to misrepresent the true financial viability of traditional media operations. While there is little doubt that newspapers continue to close and that broadcast outlets and their print counterparts have repeatedly shed jobs over the last few years, the profits produced by media outlets themselves are actually strong. For example, newspaper profits on the whole averaged around 17.8% in 2007, a figure that puts their margins at roughly double the average S&P 500 average.
So while it may be true that total revenues may be down from where they once were and while there is little doubt that traditional media outlets have struggled to adjust their business models to deal with the realities of a more fragmented market in which they have to compete for advertising dollars with cable channels and Internet sites, it may be time to consider the possibility that individual media outlets – which may be profitable on their own – are actually harmed because they are merely one holding in a vast parent corporation that must cut costs and operate ever more efficiently in order to maintain high share prices and service the large debt loads that result from their newest, highly leveraged acquisitions.
For instance, there is little doubt that media outlets like the Los Angeles Times or The Baltimore Sun (both papers recently slashed hundreds of jobs) have suffered greatly because of the decision by the head of the Tribune Corporation to assume a massive debt load in order to take the company private or that the Miami Herald was adversely impacted by McClatchy’s decision to assume a large amount of debt in order to acquire the Knight Ridder papers in the first place.
However, all of the FCC’s recent decisions reflect a failure to examine the basic assumption – an assumption that is at the root of their drive towards permitting further ownership concentration – that consolidation is the answer instead of one of the problems that traditional media outlets face. This reluctance to seriously entertain challenges to the free market orthodoxy that guides their analysis hamstrings their decisionmaking process and leads them to artificially narrow conclusions about the options that could be considered given the expansive public interest, convenience, and necessity rubric under which they operate.
The FCC’s decision to loosen the rules regarding newspaper and broadcast cross-ownership also failed to recognize that, although newspapers and broadcast outlets may become more efficient because they are able to pool their newsgathering resources, these benefits may only flow in one direction.
This kind of one-way benefit could accrue when, for example, the television station uses its access to the newspaper staff to increase its ability to provide more in-depth reporting based on the stories covered by the paper that it also owns. While this is a net benefit for the quality of service that the broadcast station can provide, it means increased demands on the newspaper staff that may take away from its ability to cover other stories that may be relevant to the local community.
Meanwhile, if a smaller media outlet in a market decides that it cannot compete with the now robust news operation of a merged competitor, it may decide to end its own news broadcast rather than pour money into an enterprise that it decides lacks the resources to compete. In fact, a coalition of consumer groups, using data collected by the FCC’s own studies, actually concluded that other media outlets forced to contend with bigger conglomerates actually reduce their news coverage by a larger percentage than the cross-owned stations and newspapers increased their local news output.
In these ways, the loss of an independent news provider in a local market has a negative overall impact on the diversity of stories, issues, and points of view that can be considered by the public that the media is supposed to serve. These questionable "benefits" of consolidation, while they may provide for the possibility that one new local television news broadcast makes it on the air, do not mean that there are more reporters keeping tabs on government officials and do not create a new pool of editors who are able to allocate more time and resources to stories that they independently decide are important to the community.
In sum, the FCC’s latest balancing seems far too focused on helping major corporations achieve economic efficiencies and holds out little promise of ensuring the viability of a greater number of local news operations that perform vital functions in a democratic society.
In my next diary, I'll begin discussing why I think the regulation of media ownership is necessary in a democracy and why the FCC should put not permit further media ownership consolidation.