[Federal Register Volume 60, Number 128 (Wednesday, July 5, 1995)]
[Proposed Rules]
[Pages 34959-34961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16374]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 95-90; FCC 95-226]
Broadcast Services; Network/Affiliate Rule; Advertising
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This Notice of Proposed Rulemaking proposes to re-examine the
Commission's rules prohibiting a broadcast television licensee from
entering into agreements with a network that limits the licensee's
ability to alter its advertising rates and from being represented for
the sale of advertising by a network with which it is affiliated. This
action is needed to determine if the costs of these rules exceed their
benefits.
DATES: Comments are due by August 28, 1995, and reply comments are due
by September 27, 1995.
ADDRESSES: Federal Communications Commission, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT:
Paul Gordon (202-776-1653) or Tracy Waldon (202-739-0769), Mass Media
Bureau.
SUPPLEMENTARY INFORMATION: This a synopsis of the Commission's Notice
of Proposed Rule Making in MM Docket No. 95-90, adopted June 14, 1995
and released June 14, 1995. The complete text of this NPRM is available
for inspection and copying during normal business hours in the FCC
Reference Center (Room 239), 1919 M Street, N.W. Washington, D.C., and
also may be purchased from the Commission's copy contractor,
International Transcription Service, (202) 857-3800, 2100 M Street,
N.W., Suite 140, Washington, DC 20037.
Synopsis of Notice of Proposed Rule Making
1. With this Notice of Proposed Rule Making (NPRM), the Commission
continues its reexamination of the rules regulating broadcast
television network/affiliate relationships in light of changes in the
video marketplace. This NPRM takes a fresh look at 47 CFR 73.658 (h)
and (i) (the Commission's ``network control of station advertising
rates'' rule and the ``network advertising representation'' rule,
respectively). Section 73.658(h) prohibits agreements by which a
network can influence or control the rates its affiliates set for the
sale of their non-network broadcast time, and Section 73.658(i)
prohibits broadcast television affiliates that are not owned by their
networks from being represented by their networks for the sale of non-
network advertising time. Both rules address station relationships with
any broadcast television network, i.e., any organization that provides
and identical program to be broadcast simultaneously by two or more
stations.
2. In reconsidering these rules, our central focus is on whether
they continue to effectively serve this Commission's cornerstone
interests of promoting diversity and competition. In this NPRM, after
first reviewing the initial premises for these rules, we will look at
the changes in the competitive environment over the years since the
rules were adopted, and we will consider the current marketplace in
which they operate. We will inquire whether networks would have the
capability and the incentive to exercise undue market or bargaining
power in the absence of these rules and will examine public interest
3. The network rules governing control of station rates and network
advertising representation were originally adopted to protect the
ability of affiliates to serve as viable, independent sources of
programming, and to foster competition in the provision of advertising.
As the Commission stated in 1941, ``[c]ompetition between stations in
the same community inures to the public good because only by attracting
and holding listeners can a broadcast station successfully compete for
advertisers. Competition for advertisers[,] which means competition for
listeners[,] necessarily results in rivalry between stations to
broadcast programs calculated to attract and hold listeners, which
necessarily results in the improvement of the quality of their program
service. This is the essence of the American system of
broadcasting.''\1\ The Commission still believes, fifty years later,
that healthy and vigorously competitive television advertising markets
are in the public interest.
\1\Report on Chain Broadcasting, Commission Order No. 37; Docket
5060, at 47, quoting Spartanburg Advertising Co., Docket No. 5451,
(January 9, 1940).
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4. Having discussed why network influence over national spot
advertising rates implicates our public interest concerns, we turn to
the practical questions of whether networks, under current market
conditions, have the ability to exercise this influence, and whether
they would choose to exercise it. The first question asks the degree to
which a network could pressure its affiliates to act in a manner that
benefits the network, but which may not be in the best interests of
either the public or the licensee. The second question asks whether a
network, even if it had such power, would have any incentive to
exercise it. Finally, we request comment on whether the existing rules
effectively perform their functions and whether elimination or
modification of the rules would serve the public interest.
5. The public interest may be harmed if networks possess sufficient
bargaining power over their affiliates such that exercise of this
bargaining power would result in reductions of affiliate advertising
revenues significant enough to inhibit the affiliate's ability to
present programming that best serves its community. In order to assess
whether networks today have a substantial degree of bargaining power
with respect to their affiliates, we must define the relevant
alternatives available to the two parties. To the extent that an
affiliate has alternative opportunities to affiliate with a given
network, network bargaining power could be reduced. In the same manner,
it is also presumed that the more potential affiliates in a market, the
more bargaining power the network will have.
6. We ask parties to comment on whether, and if so the extent to
which, the balance of bargaining power has shifted toward affiliates in
the years since these advertising rules were promulgated, and what
effect the current balance of bargaining power has on our related
public interest concerns of diversity and competition.
7. Even if a network has undue bargaining power over its
affiliates, it may not have the incentive or ability to exercise that
bargaining power to influence national video advertising rates in a way
that would harm the public interest. Presumably, a network would find
it in its interest to manipulate the national spot advertising rates of
its affiliates only if it could earn higher profits by doing so.
Whether a network could profit form this activity depends on the
availability of other sources of advertising time to which advertisers
can turn that are ``reasonably interchangeable'' with network
advertising time. Understanding the goals of advertisers and the role
of the national advertising representatives is critical in determining
whether national spot advertisements are reasonably
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interchangeable substitutes for network advertisements. We must also
consider whether there are products, in addition to national spot
advertisements, that might substitute for broadcast television network
advertising. If these other products provide competitive alternatives
to network and national spot advertisements, the ability of a network
to adversely influence rates in the national video advertising market
will be substantially diminished.
8. In this regard, we propose to use the same analytical framework
as in our pending television ownership proceeding.\2\ In that item, we
sought comment on whether the advertising time supplied by broadcast
television networks, program syndicators, cable networks, and perhaps
cable multiple system operators were reasonably interchangeable. We
noted that the amounts of advertising time sold by other suppliers,
such as direct broadcast satellite, wireless cable, or video dialtone
program providers, were too small to have an appreciable effect on
national broadcast advertising.
\2\Further Notice of Proposed Rule Making in MM Docket 91-221,
60 FR 6490 (Feb 2, 1995).
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9. The Report on Chain Broadcasting argued that a network would
exert pressure on its affiliates to raise their national spot ad rates
so as to make network ads more attractive to advertisers, and thus more
profitable. In this way, the network's profits would increase at the
expense of its affiliates' profits. The 1980 Network Inquiry Report\3\
argued that a network and its affiliates together had incentives to
manipulate the network and national spot advertising rates so that all
parties' profits increased. Under either of these scenarios, if
networks or networks and their affiliates together have the incentive
and the market power to manipulate national video advertising rates to
their advantage, the Commission's goals of diversity and competition
could be adversely affected in the absence of the rules.
\3\Network Inquiry Special Staff, New Television Networks:
Entry, Jurisdiction, Ownership and Regulation, Final Report,
(October 1990).
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10. The ability of a network or a network and its affiliates to
influence national video advertising rates depends again upon the
availability of reasonably interchangeable substitutes. If we were to
conclude on the basis of the record that each network's advertising
time competes vigorously with: (1) the advertising time of the other
networks; (2) the advertising time for national spot ads sold by
affiliates and independent stations; and (3) advertising time offered
by syndicators and cable networks, then networks, either with or
without their affiliates, will likely be unable to affect prices
significantly in the national video advertising market. Under this
scenario, if a network, or a network and its affiliates, were to
attempt to raise their advertising rates above competitive levels,
national advertisers would have several alternative suppliers to go to,
and they would likely switch their patronage to these alternatives. We
request comment on the ability of advertisers to switch to these
alternative advertising providers and the resulting effect on station
revenues. Commenters should focus on the degree to which these
potential and actual competitors limit the ability of a network and/or
its affiliates from profitably raising national television advertising
rates above competitive levels.
11. Alternatively, if we were to conclude on the basis of the
record that networks face few competitors in the national video
advertising market other than each other and broadcast television
stations (through national spot sales), we must still determine whether
a network, or a network and its affiliates, could affect national
television advertising rates in a manner that should concern us.
Including only these competitors in the relevant market, we seek
comment on whether any network, or a network and its affiliates acting
in concert, could adversely affect national video advertising rates.
12. Finally, the record that we develop in this proceeding may
indicate that network and national spot advertisements do not compete
for the same advertisers. Should that be the case, changes in the rates
for national spot advertisements will likely have no impact on the
demand for network advertising and, consequently, no impact on network
advertising rates. Such a finding would lead us to question the
continued need for our advertising rules. We seek comment on what basis
if any exists that would support retention of our advertising rules if
we determine that network advertising time and national spot
advertising time do not compete with each other for the same
advertisers.
13. We also seek comment and information on the nature and extent
of the services currently provided by national television advertising
representatives. If general industry practice is for a television
licensee to instruct the representative what rates to charge (leaving
the latter no discretion to alter them), we question what harm there
would be in allowing networks to represent their affiliates. On the
other hand, licensees might generally provide their representatives a
range of rates within which to charge advertisers, thereby giving the
representatives some latitude in managing the stations' transactions.
We ask whether this would facilitate the adverse consequences in the
national television advertising market and the resulting public
interest concerns that were previously discussed.
14. Finally, we must address the question of whether our rules
effectively prevent the harms they were designed to redress. Can
networks currently influence national spot advertising rates
indirectly, by using mechanisms other than possible influence or
control over affiliates' rates? For example, since a network currently
can control the amount of national spot time its affiliates have
available to sell during network programming, does this allow the
network indirectly to control the affiliates' national spot rates? If
we find that networks, with or without their affiliates, can easily
circumvent the advertising rules, then eliminating those rules would
appear to cause no additional harm.
15. Whether we repeal, modify, or retain the prohibitions on
network control of station advertising rates and network representation
of affiliates in the advertising market depends on the nature of the
competitive advertising interrelationships among the various video
program providers. Should the record indicate that neither television
broadcast networks nor networks and their affiliates have the ability
or incentive to manipulate the market price for network or national
spot television advertising time, we would consider eliminating or
modifying the rules if the record indicates that they are ineffective
in correcting the public interest harm they were designed to remedy. On
the other hand, should we determine that networks, or networks and
their affiliates, have the ability and incentive to manipulate the
market price for network or national spot television advertising time,
and that these rules effectively address any resulting public interest
harm, we would consider retaining the rules.
16. However, the record might indicate that we should eliminate one
rule, but not the other. For example, we might determine on the basis
of the record established that networks, acting as station advertising
representatives, in fact have no influence over national spot rates of
the stations they represent. If these representatives have no ability
to affect their clients' rates, we would likely be inclined to
eliminate the rule prohibiting network representation of affiliates in
the national spot advertising market, even though we may wish to
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retain the rule prohibiting network control of station advertising
rates. We ask for comment on the circumstance under which it might be
appropriate to repeal one rule but retain the other.
Administrative Matters
17. Pursuant to applicable procedures set forth in Sections 1.415
and 1.419 of the Commission's Rules, 47 CFR Sec. Sec. 1.415 and 1.419,
interested parties may file comments on or before August 28, 1995, and
reply comments on or before September 27, 1995. To file formally in
this proceeding, you must file an original plus four copies of all
comments, reply comments, and supporting comments. If you want each
Commissioner to receive a copy of your comments, you must file an
original plus nine copies. You should send comments and reply comments
to Office of the Secretary, Federal Communications Commission,
Washington, D.C. 20554. Comments and reply comments will be available
for public inspection during regular business hours in the FCC
Reference Center (Room 239), 1919 M Street, N.W., Washington, D.C.
20554.
18. This is a non-restricted notice and comment rulemaking
proceeding. Ex parte presentations are permitted, except during the
Sunshine Agenda period, provided they are disclosed as provided in the
Commission Rules. See generally 47 CFR Sec. Sec. 1.1202, 1.1203, and
1.1206(a).
Initial Regulatory Flexibility Analysis
19. Reason for the Action: This proceeding was initiated to review
and update the Commission's Rules concerning network control of station
advertising rates and affiliate advertising representation by networks
in light of changes in the video programming industry.
20. Objective of this Action: This Notice is intended to reexamine
the Commission's rules regulating broadcast television stations' sale
of advertising.
21. Legal Basis: Authority for the actions proposed in this Notice
may be found in Sections 4 and 303 of the Communications Act of 1934,
as amended, 47 U.S.C. 154 and 303.
22. Recording, Recordkeeping, and Other Compliance Requirements
Inherent in the Proposed Rule: None.
23. Federal Rules that Overlap, Duplicate, or Conflict with the
Proposed Rules: None
24. Description, Potential Impact, and Number of Small Entities
Involved: Approximately 1,500 existing television broadcasters of all
sizes may be affected by the proposals contained in this decision.
25. Any Significant Alternatives Minimizing the Impact on Small
Entities and Consistent with the Stated Objectives: The proposals
contained in this NPRM are intended to simplify and ease the regulatory
burden currently placed on commercial television broadcasters.
26. As required by Section 603 of the Regulatory Flexibility Act,
the Commission has prepared the above Initial Regulatory Flexibility
Analysis (IRFA) of the expected impact on small entities of the
proposals suggested in this document. Written public comments are
requested on the IRFA. These comments must be filed in accordance with
the same filing deadlines as comments on the rest of this Notice of
Proposed Rule Making, but they must have a separate and distinct
heading designating them as responses to IRFA. The Secretary shall send
a copy of this Notice of Proposed Rule Making, including the IRFA, to
the Chief Counsel for Advocacy of the Small Business Administration in
accordance with paragraph 603(a) of the Regulatory Flexibility Act.
Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq. (1981).
27. This Notice of Proposed Rule Making is issued pursuant to
authority contained in Sections 4(i) and 303 of the Communications Act
of 1934, as amended, 47 U.S.C. 154(i), 303.
List of Subjects 47 CFR Part 73
Television broadcasting.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-16374 Filed 7-3-95; 8:45 am]
BILLING CODE 6712-01-M
