Regulation of Media Industries

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Regulation of Media Industries
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Regulation

• Generally speaking, why does the government
  regulate businesses and industries?
• Ensure free markets

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Regulation of media

• How are media regulations different from those of
  most other businesses?
• Public interest provisions

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Early Regulation

• Radio Act of 1927
• Created Federal Radio Commission (FRC) with power
  to grant federal licenses to stations for
  broadcasting over airwaves
• Required stations to serve the public interest,
  convenience and necessity
• Licenses given to for-profit broadcasters (not
  educational institutions)

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FRC continued

• FRC classified stations assigned frequencies
• made rules to prevent interference
• established power and location of transmitters
• established coverage areas

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Communications Act of 1934

• Created Federal Communications Commission (FCC)
  to replace FRC
• Recodified many features of earlier radio act
• Left public interest undefined
• Directed FCC to provide
• rapid, efficient communication service
• adequate facilities at reasonable charges
• distribution of service to all states and
  communities

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• Allocated radio spectrum
• assigned licenses (taking into account economic
  factors).
• NOTE license renewal increasingly a formality
• 1983 new section encouraged provision of new
  technologies and favoring more competition in the
  marketplace to serve the public good

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Examples of Media Regulation

• Anti-trust action FTC, Justice Department, FCC
  e.g. break up of motion picture monopoly in the
  1940s
• Fairness Doctrine (1949-1987) required
  commitment to different opposing positions on
  public issues of interest and importance
• Provision of childrens programming
• Fin-syn rules (1970-1993) prevented
  television stations owning their own programming

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Key concepts

• common carrier
• natural monopoly
• public interest regulation

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Common Carrier

• Akin to a public utility
• access to communication should be
  non-discriminatory
• rates should be just and reasonable
• control over content separate from control over
  networks

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Natural Monopoly

• One firm can provide product/service at lower
  cost than 2 or more
• A result of
• economies of scale
• single technology specifications
• cheaper to achieve universal service

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Problems with Natural Monopoly

• Rural areas often served by small independents,
  which lose access
• Natural monopoly often outcome of special
  interest predatory policies
• 1880s Western Union Bell
• 1926 ATT General Electric, Western Union etc.

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Public interest

• Vaguely defined by regulators
• Over time, increasingly defined, informally, as
  economic interest
• E.g., whats good for the television industry is
  good for the public

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Main Provisions of 1996 Telecommunication Act

• telecommunications
• broadcast services
• cable
• regulation
• obscenity and violence

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Broadcast Services

• Broadcasters may add to existing licensed
  spectrum to develop digital service,
• Spectrum taken away from low-power TV license
  holders, land mobile services and other small
  broadcasters.
• Broadcasters get their additional spectrum for
  free. But have to spend millions to outfit for
  digital
• Analog spectrum must eventually be returned.

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Radio

• All national ownership restrictions removed
• Local ownership restrictions relaxed according to
  the size of the market
• One owner cannot own more than half the local
  radio spectrum

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TV

• Single owner may buy stations that reach up to
  35 of the national audience
• In 50 largest markets
• may own more than one TV station or a radio and a
  TV station
• may own a TV station and a cable TV system in the
  same place
• may own more than one network (except biggest
  existing networks).

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• Virtually guarantees license renewal
• protects broadcasters from public scrutiny and
  from enforcement of public trustee obligations
• Cannot challenge incumbent's license unless FCC
  has already found the licensee unfit
• FCC can no longer find licensees unfit because of
  failure of public trusteeship

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• But for violence, broadcasters required to append
  to license renewals any written comments from
  listeners or viewers

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Cable

• Incentives for establishing cross-platform
  competition among services
• e.g. cable into telephony, phone companies into
  video service
• Permits network businesses to enter the cable
  environment.

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• Cable still has public interest obligations
• required local carriage of local broadcast
  signals
• franchise obligations imposed by local
  authorities.

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• All rate regulation for non-basic tier services
  is abolished
• This benefits large existing cable companies.

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• Bans mergers, joint ventures, and
  greater-than-10-percent investments between cable
  and phone companies that serve the same market.
• A number of exceptions encourage competition
  among existing large players, and do not
  encourage entrants.

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Regulatory Reform

• Explicitly equates competitive environment and
  public interest

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Obscenity and Violence

• Reemphasizes existing law requiring cable
  operators to block programming subscribers did
  not opt for, upon request
• Requires blocking or scrambling sexually explicit
  programming.

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• FCC to create a rating system, if the industry
  fails to do so within a year
• FCC to set standards for and to require TV sets
  to include a V chip that can receive signals
  labeling shows with
• Controls socially negative programming, not a
  tool to give TV viewers more choice in
  programming.

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Some Outcomes

• Local telephone markets quickly consolidated from
  7 to only 4 Baby Bells (BellSouth, Qwest, SBC and
  Verizon)
• E.g., CA has only 2 major providers of local
  land lines SBC and Verizon

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• Cable rates have increased significantly faster
  than consumer price index
• Satellite still controls only a small segment of
  the market
• Satellite by only 2 companies, one of which is
  News Corp.

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• Triggered a wave of mergers, mainly to protect
  against competition
• Greater concentration in radio
• In cable, the top 10 account for 75 of the
  industry

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• Greater commercialism many radio stations offer
  no local news at all.
• In some markets not a single station offers
  public affairs programming
• Overall, public affairs programming accounts for
  far less than 1 of content.
• Decline in minority ownership by 15

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June 2003 FCC ruling

• Regulations Relaxed
• Newspaper/television Cross-Ownership
• National television Ownership Cap
• 35 to 45
• Local Radio Ownership Rule
• Duopoly Rule
• Regulation Maintained
• Dual Network Rule

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Concerns about FCC changes

• Lead to greater consolidation
• Monopolies non-competitive
• Mergers limit number of independent voices in
  media
• Localism community
• Corporate accountability
• Facilitates censorship

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• 2003 FCC changes currently on hold (not
  implemented)
• Citizen complaints
• Congressional scrutiny
• Cases currently in the court

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Public Concerns

• Public input into FCC decisions generally lacking
• Few public hearings, poorly advertised
• Current controversy over hidden reports
• Activist groups continue to pressure Congress and
  FCC