Deregulation Of Media: Dangerous To Democracy

DEREGULATION OF MEDIA: DANGEROUS TO DEMOCRACY

Gene Kimmelman, Senior Director for Public Policy and Advocacy
Consumers Union

What do the financial scandals involving Enron and other corporations have to do with media deregulation? More than you might think.

The financial scandals were rooted in an era when:

· a movement focused on "getting government off the backs" of people and business took appropriate concerns about governmental waste and abuse and inappropriately lumped them in with legitimate functions of government oversight;

· the theory of economic deregulation was glorified by opinion leaders without careful analysis of how regulated markets are appropriately and carefully transitioned to unregulated status;

· the public drumbeat for more competition through deregulation became so intense that few policymakers stopped to evaluate just how much competition was developing in conjunction with deregulated markets; and

· regulation became increasingly associated with impediments to market competition, and never a facilitator of the transition from monopoly to competition.

"Enron was a prime beneficiary of the relaxed regulatory climate of the 1990s," according to the Washington Post.(1) Enron chief Ken Lay hosted an energy summit in Washington on October 21, 2001, where he told policymakers that "with more energy deregulation Enron and the nation would continue to flourish." But in truth, "Enron had only 59 days to live," the Post said. (2)

It took Enron only 59 days to go from preaching the wonders of deregulation to the bowels of bankruptcy. It takes a little longer to see the problems and dangers of other deregulatory experiments. Consider telecommunications deregulation and the claims that corporate officials made to convince policymakers to begin deregulating cable television and telephone markets, as well as their current claims aimed at eliminating ownership limits in media markets.

Cable television companies and broadcasters, as well as the largest local and long distance telephone companies, promised that federal government deregulation would result in competition across industry sectors. Backed by the intellectual firepower of some of the nation's most esteemed economists, communications executives approached policymakers at all levels of the government for decades armed with studies showing how economic efficiency would be increased if their industries were deregulated. The industry claimed that further oversight would be unnecessary because cable television companies would sell telephone service and compete against the local Bell monopolies, the Bell monopolies would soon sell video service, and new entrants would come on the scene to compete against everybody.

Unfortunately, after regulators gave up dozens of important consumer protections in return for these promises, competition never really emerged.

It has been seven years since Congress passed the Telecommunications Act, the law that called for deregulation of cable and telecom markets. Consumers were promised more competition and lower prices. Instead, cable rates have shot up 48 percent nationwide since 1996. Cable rates have increased nearly three times as fast as inflation. 95 percent of Americans homes still have only one choice for a cable company.

As for local telephone service, rates have increased 23 percent since the Telecommunications Act was passed. Before deregulation, there were eight major companies providing local phone service, each to a different area of the country. Today those eight companies have shrunk to four as a result of massive consolidation. The two biggest companies, Verizon and SBC, each control 30 to 40 percent of the nation's local phone business. Long-distance rates have technically dropped over the last seven years, but for most consumers, the drop in rates is totally offset by the huge increase in long-distance fees. Most consumers are now paying just as much or more for long-distance than they did a few years ago, thanks to the tall stack of fees that long-distance companies now stick on your phone bills. Today, the only places where local and long-distance rates have been significantly reduced are the states where regulators have aggressively regulated -- not deregulated -- leasing arrangements that enable competitors to connect to the local telephone companies' monopoly infrastructure.

Looking ahead, many of the same companies are now trying to get rid of several of the remaining regulations by claiming that they infringe on their rights to corporate "free speech." In truth they are trying to assert the right to combine ownership of the newspaper, broadcast, and other media outlets that people rely on to compete against each other in providing news and information. Diversity of ownership is essential in providing the wide range of viewpoints necessary for meaningful public debate. Diversity among media outlets is also necessary to provide scrutiny of the media companies themselves.

Consider the Washington Post and its coverage of AOL Time Warner. Last year, Post reporter Alec Klein discovered that America Online had boosted its revenue through a series of unconventional deals over two years at critical times before and after its merger with Time Warner.(3) The newspaper reviewed hundreds of pages of confidential AOL documents. It conducted interviews with current and former company officials and their business partners.

In one unorthodox arrangement, AOL gave $9.5 million in cash to a Las Vegas software maker called PurchasePro. In return AOL received $30 million in stock warrants in the firm. AOL booked the difference -- $ 20.5 million -- as ad and commerce revenue. PurchasePro also bought advertising space from AOL and paid AOL commissions for selling PurchasePro software.

Deals like this one helped AOL beat Wall Street analysts' expectations for earnings per share -- a crucial profit yardstick for investors. The transaction raised many eyebrows inside the company, but AOL employees told the Post that executives were determined to meet certain revenue targets before its acquisition of Time Warner. Despite the concerns raised by insiders, AOL forged ahead and signed these shady deals.

One week after the Post published its findings, the SEC launched a civil probe into the accounting practices of AOL Time Warner. One week after the SEC probe was announced; the Justice Department opened a criminal investigation.

The question is, would the Washington Post have published this story if AOL Time Warner owned it? Would the Post have even bothered to investigate the story? Media ownership rules exist to prevent large media companies like AOL from becoming so powerful that they can control a community's most critical sources of news, like the Washington Post, and influence what the news sources are willing to investigate or report about.

Consumers Union believes that there is a clear connection between the financial scandals and the telecommunications implosion: overzealous deregulation where market forces fail to provide checks and balances results in fraud and abuse of both consumers and investors. This logic applies as well for the media. Efforts to deregulate media ownership limits in the name of corporate free speech are not only dangerous to the preservation of competition in the marketplace of ideas; excessive consolidation of media ownership threatens the very checks and balances that are the pillars of our democratic society.

Media ownership rules are intended to ensure that there are multiple media owners and diverse media viewpoints in a community. The rules aim to prevent one company from having too much control over the media content available in any one place. The rules provide a "check and balance" system for much of American media.

The FCC oversees these rules. However, the FCC is seriously considering a move to relax or eliminate their rules this year. Weakening the nation's media ownership rules could have a drastic effect on the independence of news media. It could spark a wildfire of mergers that would reduce competition and diversity in the media. One company in a town could control the most popular newspaper, TV stations, and cable company, giving it excessive control over how news and information is presented to consumers. Not only would this harm the cultural and political discussion in a community, it could also raise the costs of advertising in local media -- costs which are passed on to consumers.

Media ownership rules are essential to a healthy democracy. Americans depend on mass media to learn about current affairs, keep abreast of local issues, and make informed political choices. These rules were adopted to ensure that the public would receive a wide range of contrasting perspectives from the media, not simply the opinions of a handful of conglomerates. They protect the public's First Amendment rights to a diverse media marketplace of ideas. The stakes for consumers, citizens, and the nation are enormous.

Congress has directed the FCC to periodically review its regulations. The latest review over the past two years, a federal appeals court has wiped out several media-ownership regulations because the court felt that the FCC had not adequately justified them.

Today, the FCC has a number of regulatory proceedings underway to review several important media ownership rules: rules that prevent cross-ownership of newspapers and television broadcasters in the same community; rules that prevent ownership of multiple broadcast licenses in the same community; the national limit on cable ownership; and the limit on how many local TV stations a national broadcaster may own.

The FCC proceedings are framed as inquiries into whether these ownership limits are still necessary to promote competition, diversity and localism. In fact, the proceedings pose much larger questions about the scope of congressional directives and the basic principles of democracy articulated in the United States Constitution.

The fundamental question raised by the FCC's review of rules is whether the essence of our democracy, the First Amendment goal of information dissemination from diverse and antagonistic sources-which fuels political participation and debate about policy, social norms, cultural values, individual aspirations and community needs in our society-can be preserved if different forms of media are allowed to be cross-owned in the same community, or national limits on ownership are eliminated.

For example, consider the rule that prohibits cross-ownership of newspapers and TV stations in the same community. If the FCC does away with this rule, it would undermine the marketplace of ideas by weakening the independence of local newspapers and the institutions that provide in-depth analysis, opinion and investigative reporting. And such deregulation would threaten the unique institutional motivation and perspective that newspapers bring to public debate. These unique contributions have not been replaced by broadcast or other media, and are not likely to be substitutable by other media any time soon. Eliminating the rules that keep newspaper and local broadcast television ownership separate would take away their incentives to serve as checks and balances on each other's business interests and editorial bias, thereby impoverishing, not enriching, civic discourse.

As Justice Brandeis explained in his concurrence in Whitney v. California:

Those who won our independence believed that the final end of the State was to make men free to develop their faculties; . . . that the greatest menace to freedom is an inert people; that public discussion is a political duty; and that this should be a fundamental principle of American government.(4)

While broadcast is an important means of getting information for many people, in a fully functioning democracy, broadcast must be supplemented by less-passive information sources. The kind of "couch potatoism" that broadcast responds to, and possibly fosters, is precisely the danger of an "inert people" which Justice Brandeis foresaw. Couch potatoes staring at the TV set are not enough for democracy to work. If a broadcast/newspaper combination undermines in any way the depth of reporting that newspapers provide, resulting in shallower public debate, that consolidation runs directly counter to the purpose of the First Amendment and the democratic process.

In 1945, Justice Black rendered the Supreme Court's opinion in Associated Press v. United States(6) stating that "[the First] Amendment rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public…". Since then, no decision has either diminished the Commission's authority, or its responsibility, to ensure the public's access to such information diversity. It is of particular note that the D.C. Circuit's recent Time Warner v. Federal Communications Commission(7) decision in no way alters the Commission's authority and responsibility to protect this diversity principle. That case was about a horizontal cable ownership limit, not the Commission's obligation under the public interest standard; that court in no way challenged Supreme Court precedent in the line of cases following Turner(8), Associated Press (9), and Red Lion (10) .

A broad and expanding view of civic discourse promoted by media ownership rules is grounded squarely in constitutional principles, communications law and Supreme Court interpretation of both the Constitution and Communications Act. The language adopted by the Supreme Court in 1945 recognizes that democratic discourse is not a simple target or one-dimensional measure of output, like a balanced budget. In dealing with the print media, the Court adopted an open-ended goal on the theory that newspapers play a critical role in promoting the wide-open debate that freedom of speech under the First Amendment is designed to protect:

The First Amendment, far from providing an argument against application of the Sherman Act, here provides powerful reasons to the contrary. That Amendment rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public, that a free press is a condition of a free society. Surely a command that the government itself shall not impede the free flow of ideas does not afford non-governmental combinations a refuge if they impose restraints upon that constitutionally guaranteed freedom. Freedom to publish means freedom for all and not for some. Freedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not. Freedom of the press from governmental interference under the First Amendment does not sanction repression of that freedom by private interests.(11)

The decision in Associated Press provides the launching point for what media ownership rules are all about. The Supreme Court has not only repeatedly called for the widest possible dissemination of information from diverse and antagonistic sources but it included that goal for mass media technologies and recognized that diversity includes points of view and institutions providing varying depths and breadth of analysis.

Under this dynamic principle, there is no such thing as "enough" public debate. The Supreme Court has interpreted the Constitution in a manner that protects private and public activities that promote the widest possible dissemination of information as the goal. There need be no embarrassment in raising the bar as technology improves. When it comes to public debate, our nation's democratic principles require that public policy respond to evolving market conditions in a manner that continues to promote the widest possible dissemination of information from diverse and antagonistic sources.

As the means of communications have changed over the course of the twentieth century, from print to radio, to broadcast television, to multi-channel cable and satellite TV, to interactive digital media, Congress(12) and the Supreme Court(13) have renewed their commitment to diversity and richer civic discourse. At each stage of development, public policy has required that each new means of communications promotes diversity; that policy has sought to preserve a variety of different kinds of media institutions, with differing business models and journalistic cultures, to promote public debate. (14)

It is paramount to maintain focus on the role of broadcast television and newspapers as the most significant sources of local content. When the presence of locally relevant Internet sites is invoked as the reason for eliminating cross-ownership restrictions, we should remember that much of that Internet content is derived from local newspapers' and local broadcasters' sites. The "efficiencies" that will result from combining newsrooms may not only signify a loss of independent broadcast and newspaper voices, but the loss of online content as well.

Eight of the top 20 news Web sites in the U.S. during January were affiliated with newspapers, and the most popular news site of all is affiliated with NBC, according to audience statistics from Nielsen//NetRatings.

Had the Supreme Court not adopted an open-ended goal, it would have been all too easy for public policy to declare victory in the struggle to deepen and defend public debate, and our democracy would be much poorer as a result. After all, in 1945,(15) when this principle was adopted for the print media, commercial television had not been deployed, less than half (46 percent) of all households had a telephone and just over half (55 percent) of all households had a radio.(16) The public was not well educated, with only about one in five adults being high school graduates and barely one in 2,000 being college grads.

By 1970, however, there were many more sources of information and we were a much better educated people. Twice as many people had telephones (91 percent). Radios were still in half of all households (47 percent), but almost an equal number of households had television (45 percent), and one in 12 households already had cable (8 percent). People were much better educated too, with almost half (44 percent) having graduated high school and more than one-in-nine having graduated college.

If some absolute standard of information availability and human intellectual capacity had been adopted by the Supreme Court in 1945, then by the 1970s -- when many ownership rules were promulgated -- the goal would have certainly been achieved. Because the Court viewed civic discourse as a moving target that expands to enrich our democracy as technology opens new possibilities, neither the Supreme Court, nor the Congress intended for media regulation to disappear when a specific number of media outlets developed.

Today, some want to declare victory in the struggle to enrich public debate in the media and abandon the public policies that promote diversity of ownership and viewpoints. In the first years of a new century with a dramatic new communications technology spreading, they propose to roll back existing policies that are intended to accomplish this goal.

After all, today not only do 98 percent of all households have a television and about 95 percent have a telephone, but over 80 percent have a multi-channel video service and more than half have the Internet at home.(17) Over 80 percent of adults have graduated high school and one-quarter have completed college. With hundreds of TV channels available and the ability to link to a global network of computers and other communications devices there cannot possibly be any concern for a lack of diverse and antagonistic sources of information. Enough is enough, they argue. We do not need public policy to ensure diversity, just let private parties in the marketplace decide who gets to speak using which technologies.

Yet neither the Supreme Court nor Congress has been willing to reduce public debate through the media to simple economics. A narrow, economically driven view of civic discourse misreads the aspiration of the First Amendment as interpreted by the Supreme Court for more than half a century. The Constitutional and legislative basis of media ownership rules was never rooted solely in an economic argument or principle. Eliminating cross-ownership rules that have promoted diverse and antagonistic sources of information will not only forego the opportunity to make a substantial advance in the quality of public debate, but it risks diminishing the quality of civic discourse. Failing to strengthen civic discourse in the face of powerful new technologies could dramatically reduce the capacity for the enlightened debate that the Supreme Court has determined is essential to American democracy.

Public debate through the media is more than economic efficiency. Justice Frankfurter, concurring in Associated Press, made this much clear:

A free press is indispensable to the workings of our democratic society. The business of the press, and therefore the business of the Associated Press, is the promotion of truth regarding public matter by furnishing the basis for an understanding of them. Truth and understanding are not wares like peanuts and potatoes. And so, the incidence of restraints upon the promotion of truth through denial of access to the basis for understanding calls into play considerations very different from comparable restraints in a cooperative enterprise having merely a commercial aspect.(18)

Congress has repeatedly declared, and the Supreme Court repeatedly upheld, principles for communications media that go far beyond simple economics. Economic efficiency is but one consideration among many and is not more effective in achieving a multiplicity of viewpoints than other public policy tools. Moreover, it is clear that reliance on commercial market forces alone will not assure the opportunity for diverse points of view to be heard through the print and broadcast media.

Even if the economic media marketplaces were composed of significant numbers of small firms competing aggressively with one another, an unfettered commercial mass media market might not lead to a vibrant marketplace of ideas that our Constitution attempts to promote; diverse sources of information are not the object of commercial competition. Profit maximization in increasingly centralized media conglomerates promotes standardized, lowest common denominator products that systematically exclude minority audiences and unpopular points of view, eschew controversy, and avoid culturally uplifting but less commercially attractive content. It favors entertainment at the expense of information. The Federal Communications Commission cannot reduce its obligation to promote diversity and the public interest to simple economic considerations, even where the economic marketplace is working.

Owen Fiss articulates this point well:

… the market brings to bear on editorial and programming decisions factors that might have a great deal to do with profitability or allocative efficiency (to look at matters from a societal point of view) but little to do with the democratic needs of the electorate. For a businessman, the costs of production and the revenue likely to be generated are highly pertinent factors in determining what shows to run and when, or what to feature in a newspaper; a perfectly competitive market will produce shows or publications whose marginal cost equals marginal revenue. Reruns of I Love Lucy are profitable and an efficient use of resources. So is MTV. But there is no necessary, or even probabilistic, relationship between making a profit (or allocating resources efficiently) and supplying the electorate with the information they need to make free and intelligent choices about government policy, the structure of government, or the nature of society. This point was well understood when we freed our educational systems and our universities from the grasp of the market, and it applies with equal force to the media.

None of this is meant to denigrate the market. It is only to recognize its limitations. The issue is not market failure but market reach. The market might be splendid for some purposes but not for others. It might be an effective institution for producing cheap and varied consumer goods and for providing essential services (including entertainment) but not for producing the kind of debate that constantly renews the capacity of a people for self-determination. (19)

To the extent that economics is a consideration, economic competition in commercial mass media markets cannot assure diversity and antagonism. It has long been recognized that the technologies and cost structure of commercial mass media production are not conducive to vigorous, atomistic, competition. Print and broadcast media have unique economic characteristics. On the supply side they require substantial fixed costs, and on the demand side they involve very strong consumer preferences (inelasticity), and very little substitutability to meet consumers' tastes. The development of media markets allowed by recent relaxation of rules restricting the accumulation of economic market power reveals that they are anything but atomistic ally competitive - rather, they are evolving toward tight, differentiated oligopolies. Each time a structural rule is lifted an increase in concentration and reduction in the number of independent voices takes place.

Prof. C. Edwin Baker elucidates this point:

Monopolistic competition theory applies to media goods. They, like utilities, characteristically manifest the "public good" attribute of having declining average costs over the relevant range of their supply curves due to a significant portion of the product's cost being its "first copy cost," with additional copies having a low to zero cost. There are a number of important attributes of monopolistic competition that are relevant for policy analysis and that distinguish it from the standard model of so-called pure competition, the standard model that underwrites the belief that a properly working market leads inexorably to the best result (given the market's givens of existing market expressed preferences and the existing distribution of wealth). The first feature to note here is that in monopolistic competition often products prevail that do not have close, certainly not identical, substitutes. Second, this non-substitutability of the prevailing monopolistic product will allow reaping of potentially significant monopoly profits. . .

. . . within this type of competition, products' uniqueness or monopoly status often permits considerable margin for variation while still remaining profitable. The "potential" profit of the profit maximizing strategy can be realized and taken out as profit-which is what the corporate newspaper chains are accused of doing. However, the market itself does not require the profit maximizing response as it does in a model of pure competition. Rather the potential profit can instead be spent on indulging (or "subsidizing") the owners' choices about content or price. (20)

Public debate in the media is not primarily about entertainment and not primarily about variety or the number of media outlets. Public debate is about information from diverse sources that are independently owned. Multiple outlets with single owners are only one voice. The FCC cannot reduce its obligation to promote diversity and the public interest to a count of entertainment programs available.

Institutional diversity-different media business models, with different cultural and journalistic traditions-plays a special role promoting public debate in media. Unique perspectives provided by different institutions are highly valued as sources of information. Judge Learned Hand painted a picture of diversity that was properly complex, noting that a newspaper "serves one of the most vital of all general interests: the dissemination of news from many different sources, and with as many different facets and colors as possible."(21)

A recent law review article describes the discussion of diversity of sources in the Associated Press case as follows:

[I]t is problematic, or as Judge Learned Hand asserted "impossible," to treat different new services as "interchangeable…" A newspaper reflects the biases and views of its writers, editors, and perhaps owners. One newspaper may downplay and truncate a news wire story, while the other newspaper may carry it as a headline. These are non-fungible commodities. Thus, the marketplace is not about consumers switching from one homogenous product to another. Rather, it is the net increase in consumer welfare from having many competing news sources and editorial voices. As Judge Hand aptly stated about the marketplace of ideas - and it bears repeating - "it is only by cross-lights from varying directions that full illumination can be secured. Unlike restraints on ordinary commodities (where consumers may turn to less-desirable alternatives but the overall societal impact is not significant), for restraints in the media, the alternative may be inherently unsatisfactory and the costs imposed on society may be significant. (22)

A narrow view that all media information is fungible fails to recognize the unique role of newspaper reporting as a fourth estate, checking waste, fraud and abuse of power by governments and corporations. It ignores the difference between national and local news markets and the tendency of nationally oriented media, which maximize profit by presenting programming attractive to national audiences and national advertisers, to homogenize the local point of view out of existence.

These courts have recognized that news comes from many sources: newspapers, television, radio, magazines and more recently the Internet. These sources all arguably compete for the public's attention. But these courts have found that both the format and nature of information in local daily newspapers distinguish them from news and entertainment provided by other sources. Daily local newspapers provide a "unique package" of information to their readers. National newspapers lack the local news and advertising. Radio and television are primarily dedicated to entertainment and their news content lacks the breadth and depth of daily newspapers. (23)

In addition, it is critical to realize the ways in which these media provide checks and balances against each other. As Ben Bagdikian (former Dean of the Graduate School of Journalism at the University of California at Berkeley) notes:

In most major markets, local newspapers regularly print critical reviews of local television station programs. The reverse is true in periodic broadcast station reporting and commenting on a newspaper in the same market under different ownership.

It has been the experience of many observers, including this writer's, that this cross-media mutual criticism and evaluation becomes minimal when both the local newspaper and a local broadcast station come under common ownership. In fact, a corollary effect is that far from offering mutual criticism, the two media under common ownership use this to have each of its properties, i.e. the newspaper and the broadcast station, to become promotional media publicizing the other subsidiary, to the exclusion of similar positive notification of competing newspaper and/or broadcast stations. (24)

Furthermore, the most important effect that institutional diversity plays may be its deterrent effect on negative behavior. As Baker notes:

Different ownership distributions may also differ in ways that provide positive externalities that are not well described as involving differences in the actual normal content of media products. One example is the value that dispersal of ownership may create in respect to what could be described as potential content. The (disputable) value of a nuclear arsenal lies not in its actual use but in the protection (the deterrence) its potential use supposedly provides. A society's capacity to maintain its democratic bearings or its ability to resist demagogic manipulation may be served by a broad distribution of expressive power, especially media-based power. Such a distribution may be harder for a demagogue to manipulate or control or may be better able to deter political abuses because of being more difficult to control. On this account, the value of a wide distribution of media ownership lies not in any particular media product that this ownership produces on a day to day bases (such that the value will be reflected in market sales) but the democratic safeguards that this ownership distribution helps provide.(25)

The simplistic economic approach that counts variety of entertainment outlets and variety of channels takes a unidimensional view of output that fails to consider whether there is a need for more effective means of public debate. If citizen participation in civic discourse is to continue to be or become more effective, a substantial improvement in the means of communications at the disposal of the public-far beyond commercial mass media influences-must be promoted through public policy.

While it is certainly true that there is a great deal more information available to more educated citizens, it is also true that they need more information. The same changes in the information environment that have made the development of more complex and rapid communications possible also make it more difficult for citizens to comprehend and respond effectively to new conditions. As the world becomes a more complex place, the need for diverse sources of information becomes more important. Globalization of the economy and communication networks, mobility and social fragmentation place greater demands on the communications network to enable citizens to be informed about increasingly complex issues and express their opinions more effectively in civic discourse.

The power of digital communication will be greatly enhanced by improved video images with impact heightened by real-time interactivity and personalized ubiquity. Dramatic increases in the ability to control media messages could result in a greater ability to manipulate and mislead rather than a greater ability to educate and enlist citizens in a more intelligent debate. The Commission must not become so mesmerized by the new technology that it loses sight of the Supreme Court's directive to ensure that diverse and antagonistic sources of information can use such technology to preserve the democratic process.

The new distribution technologies are still controlled by the giants of the commercial mass media. The technologies of commercial mass media are extremely capital intensive and therefore restrictive of who has access to them. A small number of giant corporations interconnected by ownership, joint ventures and preferential deals now straddle broadcast, cable and the Internet. Access to the means of communications is controlled by a small number of entities in each community and distribution proprietors determine what information the public receives. Individual members of society need new communications skills and access to technology to express themselves and evaluate the information presented by more powerful messengers.

At this point in time, the hope that new technologies will strengthen civic discourse is just that-a hope. Claims that dramatic changes have already rendered policies to promote diversity obsolete are premature. There has been far less fundamental change in the marketplace of ideas than meets the eye.

There is very clear evidence that different types of media-in this case, print and broadcast-represent distinct product and geographic markets. While the advocates of convergence equate all media, the reality is that different media serve different needs, have different content, and differ widely in their impact and effect. People use different media in different ways, spend vastly different amounts of time in different media environments, consume services under different circumstances and pay for them in different ways. In economic terms, these are separate markets with weak substitution effects. As a result, competition between the media is muted in the marketplace and, in some respects; the specialization of each is worth preserving because of the unique functions provided in the marketplace of ideas.
While there has been an increase in non-primetime cable TV viewing, the big three networks are still "primetime programming juggernauts." The addition of four new broadcast networks that provide little news and public interest programming has not altered the fact that the big three networks still account for the overwhelming majority of high impact news and information shows - 80 or 90 percent.

Nor has the overall commercial media marketplace changed to any significant degree. Network broadcast TV is predominantly national, accounting for 60 percent of national advertising revenues; newspapers are local, accounting for 60 percent of local advertising revenues. There has been little change in advertising market shares. In 1985, broadcast accounted for a tad less than one-third of all advertising dollars spent on these media; in 2000, broadcast accounted for a little more than one-third of all advertising dollars. In 1985, newspapers accounted for just over one-half of all advertising dollars. In 2000, they accounted for just under one-half. In 1985, radio accounted for one-seventh of advertising; and, in 2000, it accounted for one-seventh.

In 1985, the Internet was just beginning its commercial phase, accounting for virtually no viewing time or advertising revenue. Fifteen years later, it accounts for only 4 percent of total viewer time and less than two percent of advertising dollars. The Internet revolution has provided a wonderful new functionality that allows people to conduct commercial transactions and daily activities in a more efficient manner, but has not yet significantly altered the dynamics of mass media. It provides little if any local content. It does not provide independent voices or balance the immense power of traditional mass media to influence public opinion, particularly when public policy has allowed existing media owners to increasingly control the communications infrastructure underlying the Internet and to direct the flow of information on the Internet.

Within each of the media market segments, concentration, corporatization and conglomeration are growing. Each of the market segments is becoming dominated by a small number of large, vertically integrated corporations that pursue profit maximization at the expense of professionalism in journalism and public interest programming. Economies of scale create barriers to entry, particularly in the provision of network facilities. Inadequate rules of fair access have allowed vertically integrated companies to leverage their control over facilities into content markets. As a result, potentially vigorous competition in content markets has been dampened by the much weaker competition in distribution markets. Rather than eliminate the broadcast-newspaper cross ownership rule, we believe the Commission should take action to prevent recent trends in horizontal consolidation and vertical integration from reducing the independent media voices and opportunities for public debate that are critical to our democracy.

Beyond market structure, it is critical for the Commission to take account of the importance of diversity of ownership and viewpoints to make our Constitution meet the Founding Fathers' goals. Media serve a much larger role than meeting individual consumers' preferences; in order to serve the goals of democracy and freedom of the press as articulated by the Constitution, media must also serve to enable consumers to function as informed citizens in our society:

Many constitutional provisions merely set up the structure of government and, in a sense, carry out various housekeeping tasks. The Constitution, for example, determines the number, minimum age, and term length of members of the House. In addition to these setting-up-government tasks, other provisions provide guarantees or protections for fundamental individual rights, which I just suggested is not the key to the Press Clause because it refers generally to collective entities such as newspapers or broadcasters, not to individuals. Finally, some provisions are designed to make the structure work both better and more legitimately. Provisions specifying a separation of powers and federalism fit this rubric. Building on the observation that a free press is almost universally recognized as an essential element of democracy, a "fourth estate," the Press Clause should be interpreted in a manner directed to furthering the legitimacy and effectiveness of democratic government. In that respect, the Press Clause can be seen as crucially "for the citizen." So the answer seems to be: "the press" is for the people. The institution's freedom is valued for its contribution to the people in both their roles as consumers and citizens. However, the constitutional guarantee of "freedom of the press" is for the citizen. (26)

If we allow massive media deregulation and another wave of media mergers, what do we lose? Reflecting on our recent history is again instructive. The entities that have been sounding the alarm in this deluge of accounting scandals and bankruptcies is precisely those media entities that would like to consolidate their operations. But in the end, it is the multiplicity of media voices -- and competition among these voices -- that preserves the integrity of our market economy.

Imagine what would have happened had there not been the constant drumbeat of journalists requesting oversight of WorldCom, Enron, and others. If those journalists had not been investigating these financial wrongdoings-such as the Washington Post's coverage of AOL Time Warner's fishy accounting practices-many cases of fiscal malfeasance might have remained covered.

Now is not the time to endanger the fundamental competitiveness within and across media. If we get it wrong, we will do irreparable damage. Once all the media entities that now antagonistically report on one another, that now aggressively chase down leads, seeking to beat the other paper or the other station to the scoop-once they merge with one another and lose the aggressive edge that antagonism provides, opting instead for the cozy shared bottom line-once that happens, there will be fewer watchdogs to report the demise of competition in the media, because too many watchdogs will have been put to sleep.

Until recently, public policy for telecommunications involved handing out public benefits or assets, such as the airwaves or local monopoly franchises, in return for obligations to meet public needs - broadcasting to meet local civic and educational needs, and ensuring universally affordable telephone service. This straightforward quid pro quo left companies that were dependent on public assets obligated to meet public needs that market forces failed to satisfy. Now, in the era of deregulation, public benefits or assets have increasingly been handed out in return for nothing more than corporate promises - promises to deliver High Definition Television, cross-industry competition, and expanded availability of open platforms providing broadband services. Unfortunately, this new approach to policy means inadequate industry accountability and opens the door to competitive and consumer/investor abuse. It is time to restore accountability through reinforcing the appropriate mechanisms to deliver public benefits in return for public assets or subsidies.

It is time for policymakers to step in and make sure that the laws and regulations governing the media, cable television, and the telecommunications industry provide the checks and balances that current market conditions require to promote a vibrant democracy and ensure reasonable prices, high quality services and maximum choice.

Consumers Union simply asks for one thing: for policymakers to align public policy with real market conditions. Public policy should match up with today's market reality, not with what industry tells us market conditions will be next year, not what corporate executives promise the market will look like if only policymakers deregulate a little more. Time has shown that the parades of promises delivered by these CEOs were worth about as much as the air used to utter them.

Because of the importance of media to our democracy, we cannot afford to experiment and risk the same disaster we have seen in telecommunications markets. While in telecommunications, the result of loss of competition is higher prices and lower quality service for consumers, the cost in deregulating media is potentially much higher. The cost of market failure in media markets is the price we pay when stories are not told, when sleazy business deals and bad accounting practices do not surface, when the watchdog decides that it would rather gnaw on the bone of softer news than chase down the more complicated realities that must be uncovered to make democracy function.

_______

(1) Peter Behr and April Witt, "The Fall of Enron: Catastrophe - Hidden Debts, Deals Scuttle Last Chance," Washington Post, August 1, 2002.

(2) April Witt and Peter Behr, "The Fall of Enron: Crisis - Losses, Conflict Threaten Survival," Washington Post, July 31, 2002.

(3) Alex Klein, "Unorthodox Partnership Produced Financial Gains; Deals Allowed AOL, PurchasePro.com to Boost Revenue," Washington Post, July 19,2002.

(4) 274 U.S. 357 (1927).

(5) As Professor Yochai Benkler notes, "When a medium central to a polity's information environment (such as broadcast television in our polity) produces only 'safe' materials, it reinforces and makes more predictable the preferences of average consumers. This strengthens the tendency to under produce information that challenges broadly shared cultural precepts. From a political perspective, this threatens to engender what Justice Brandeis considered 'the greatest menace to freedom': '[A]n inert people.'" See Yochai Benkler, "Free as the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domain." 74 N.Y.U. L. Rev. 354 (1999).

(6) Associated Press v. U.S., 326 U.S. 1 (1945).

(7) Time Warner Entertainment Co., L.P. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001) (Time Warner III).

(8) Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 638-39 (1994)("Turner I").

(9) Associated Press, op. cit.

(10) Red Lion Broadcasting v. FCC, 395 US 367 (1969).

(11) Associated Press v. United States, 326 U.S. 1, 20 (1945)

(12) Congressional actions to further this policy include: in the print media National Newspaper Preservation Act; in Cable TV the Cable Consumer Protection Act. Congressional commitment to this policy is also evident in actions it took to prevent regulatory agencies from eliminating or restricting how they could change the rules attaching language to prohibit the FCC from spending funds in 1989, 1990, 1991, 1992 and 1993 "to repeal, retroactively changes in, or to begin or continue a reexamination of the rules and policies established to administer" the rules (see). The legislative history of the Telecommunications Act of 1996, Pub L. No. 104-104, 110 state 56(1006) included a rejection of an effort to repeal the rules.

(13) Supreme Court decisions that cite or reaffirm this commitment include: in the print media, New York times Co. v. Sullivan, 376 U.S. 254, 266 (1964), Citizens Publishing Co. v. United States, 394, U.S. 131, 139-40 (1969), Buckley v. Valeo, 424 U.S. 1, 49 (1976); in broadcast, Red Lion Co. v. FCC, 395, U.S. 367, 390 (1969), FCC v. National Citizens Comm. For Broadcasting, 436 U.S. 775, 796 (1978); in cable TV, Turner Broadcasting Systems, Inc. v. FCC, 512 U.S. 622, 663-664 (1994), Turner Broadcasting Systems, Inc. v. FCC, 520, U.S. 180, 189 (1997).

(14) Change is seen as the impetus to this proceeding with the Commission noting that when the rule was adopted the Commission declared that it "is obliged to give recognition to the changes which have taken place and see to it that the rules adequately reflect the situation as it is, not was" (Notice, p. 2). It is obvious that rules must reflect changed circumstances, but what the Commission seems to miss is that the standard may also change.

(15) U.S. Department of Commerce, Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (11975)

(16) The Commission opens its discussion by recounting the change in media outlets since 1975 (p. 1), The longer term perspective is taken here to make the point that a great deal of change had taken place in the three decades before the rule was adopted, perhaps as much or more than has taken place in the almost three decades since. The rules were adopted in spite of an immense amount of change, so that change is itself is not necessarily a basis for refusing to adopt rules. At the Roundtable On FCC Ownership Policies
October 29, 2001, Stanley Bessen incorrectly asserted that simply because rules had not changed, they could not be right. The argument is wrong for two reasons. First, the correct basis of a rule has nothing to do with its age. Second, the rules have been modified substantially over time.

(17) U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States: 2000,

(18) Associated Press, 326, U.S. at 17.

(19) Fiss, Owen. "Essays Commemorating the One Hundredth Anniversary of the Harvard Law Review: Why the State?"

(20) C. Edwin Baker, "Giving Up on Democracy: The Legal Regulation of Media Ownership."

(21) Associated Press, 52 F. Supp. at 372.

(22) Maurice Stucke and Allen Grunes, "Antitrust and the Marketplace of Ideas," Antitrust Law Journal, Vol. 69, 249 (2001)

(23) Id., at 273.

(24) Statement of Ben Bagdikian, In the Matter of Cross Ownership of Broadcast Stations and Newspaper; Newspaper/Radio Cross-Ownership Waiver Policy (MM Docket Nos. 01-235, 96-197).

(25) C. Edwin Baker, "Giving Up on Democracy: The Legal Regulation of Media Ownership." (2001).

(26) C. Edwin Baker, Media, Markets and Democracy (New York: Cambridge University Press, 2002).

View Files Sorted By Office: Consumers Union OPI, New York - Washington DC Office
West Coast Regional Office - Southwest Regional Office - Consumer Policy Institute

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