You Can’t Have One Without the Other: FCC Restores UHF Discount to National Cap

by Pillsbury - CommLawCenter
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While the great American songwriter Sammy Cahn felt it was Love and Marriage that were inseparable (as they “go together like a horse and carriage”), the FCC today found the UHF Discount just as inseparable from its 39% National TV Ownership Cap.  By a 2-1 party-line vote, the FCC this morning restored the UHF Discount, reversing a decision of the Wheeler FCC released just seven months ago.  The FCC indicated that it would consider the future of the UHF Discount in a comprehensive review of its broadcast ownership rules commencing later this year.

Most rules aimed at preserving competition focus on a competitor’s market share as the trigger for restricting further growth.  Oddly, the National TV Ownership Cap instead focuses exclusively on a television broadcaster’s mere geographic presence as being the danger.  Using that logic, you would expect Sears to be able to easily crush Amazon since Sears has far more locations than Amazon.  However, if you were ever to make that argument in public, the laughter would be long and loud.

Those unfamiliar with the Cap might assume a 39% limit means an entity is restricted to having no more than a 39% nationwide share of either advertising revenue or viewers (depending on which “market” the government thinks is the relevant one).  That is certainly the way a regulatory cap works in most industries.  In fact, before a court tossed it out for other reasons, the FCC’s own national cable cap rule prohibited ownership of cable systems having more than 30% of all U.S. subscribers.

In contrast, the National TV Ownership Cap just totals the households in each TV market served by a broadcaster (regardless of whether those viewers actually watch or can even receive the station at issue) and yells “Stop!” when the total market population reaches 39% of national TV households.  Even if a broadcaster’s stations have a less than a 1% audience/ad revenue share in each of those markets, it is still treated as a competitive behemoth whose growth must be halted.

In the real world, a station’s over-the-air signal often doesn’t cover all the households in its market, meaning that the Cap is not just measuring the wrong thing, but is doing so inaccurately by attributing all TV households in a market to that station.  Unlike the Cap itself, the UHF Discount acknowledges the illogic of this, and counts only half the TV households in a UHF market toward the Cap in an effort to approximate real world coverage.  Even if the digital transition had actually eliminated the disparity between VHF and UHF coverage (look here for a contrary argument), it doesn’t change the fact that the approach upon which the UHF Discount is based—trying to assess actual signal reach—is far more logical than the treatment of VHF stations under the Cap, which arbitrarily counts all TV households in a geographic market.

So if you are willing to overlook the flawed premise of the Cap itself—that geographic presence rather than actual market share is what is relevant—then the method of counting households under the UHF Discount is actually far more defensible than the arbitrary treatment applied to VHF stations by the Cap.  If the treatment of UHF and VHF stations needs to be conformed, the answer would not be to eliminate the UHF Discount, but to instead conform the treatment of VHF stations and make a similar assessment of their actual population coverage.

There are certainly those who would vigorously challenge that conclusion, and they would likely present two arguments to support their case.  The first is that the Cap is intended not merely to preserve competition, but also to preserve Americans’ access to diverse content.  The second is that cable and satellite carriage now relays a station’s signal to all corners of its market, making it reasonable to attribute all households in that market to the station.  However, these two arguments cancel each other out.

Even with cord-cutting, well over 80% of TV households are cable/satellite subscribers.  That sounds like a point in favor of the “you should count all households” approach, right?  But in those pay-TV households, retransmitted broadcast channels are surrounded by hundreds of other program streams.  As a result, these households have available a level of program diversity that was unimaginable when the National Cap rule was first created in 1985.  That in turn dilutes the potential influence of any one program source, eliminating the need for broadcast ownership restrictions with regard to these households.

It is therefore only in non-cable/satellite households that the Cap could theoretically serve its claimed purpose.  However, if the concern underlying the Cap is a broadcaster having influence over viewers in households lacking a multitude of competing program sources, less than 20% of all U.S. TV households would even be at risk of that (and that assumes we are talking about a broadcaster with a TV station in every market in the country).  While the Cap currently limits a broadcaster to having this influence in markets containing 39% of TV households, it has become physically impossible have such influence in even 20% of TV households.  And of course, all of this overlooks Internet video sources, which are likely heavily utilized in non-cable/satellite households since many are cord-cutters now relying on Internet video services.

Whether or not the UHF Discount is in place won’t alter any of this.  It’s not the UHF Discount that has outlived it usefulness, but the Cap itself.  The UHF Discount merely reduces the damage caused by a now outdated Cap.

Still, there are those who disagree with the FCC’s stated goal of reviewing the Cap and the UHF Discount together, arguing that if there is no longer a UHF/VHF disparity, the FCC should ignore the forest and focus on just that one tree.  However, Chairman Pai correctly noted that, in eliminating the UHF Discount, the “Commission vote[d] to substantially tighten the national audience reach cap,” and the FCC’s action would “substantially change the impact of the national cap.”  The notion that one can be eliminated without affecting the other is indeed a fiction.  By eliminating the UHF Discount without assessing whether the Cap as modified by that action was in the public interest, the FCC failed to meet its most fundamental statutory mandate.  Today, the FCC rectified that error.

So the FCC will now move on to a more unified and comprehensive review of its broadcast ownership rules.  In that review, it will have to recognize that the UHF Discount is just as inseparable from the current Cap as Sammy Cahn’s lyrical horse and carriage.  It might also conclude that, like the horse and carriage, the National Cap has become a relic of another time.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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