Regulation of Media Industries

Regulation

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

• Ensure free markets

Regulation of media

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

• Public interest provisions

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)

FRC continued

• FRC classified stations & assigned frequencies

• made rules to prevent interference

• established power and location of transmitters

• established coverage areas

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

• 1983 new section encouraged provision of new technologies and favoring more competition in the marketplace to “serve the public good”

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 children’s programming

• “Fin-syn” rules (1970-1993) – prevented television stations owning their own programming

Key concepts

• common carrier

• natural monopoly

• public interest regulation

Common Carrier

• Akin to a “public utility”

• access to communication should be non-discriminatory

• rates should be just and reasonable

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

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.

Public interest

• Vaguely defined by regulators

• Over time, increasingly defined, informally, as economic interest

• E.g., what’s good for media industries is good for the public

1996 Telecommunication Act

BROADCAST

• 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.

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

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).

Cable

• Incentives for establishing cross-platform competition among services

• e.g. cable into telephony, phone companies into video service

• All rate regulation for non-basic tier services is abolished

• This benefits large existing cable companies.

• Encourages competition among existing large players; does not encourage entrants.

Cable still has public interest obligations

required local carriage of local broadcast signalsfranchise obligations imposed by local authorities.

Some Outcomes

• Local telephone markets quickly consolidated from 7 to only 4

• E.g., CA has only 2 major providers of local land lines: SBC and Verizon

• Little choice of cable provider• 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.

Outcomes cont.

• 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

• 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%

June 2003 FCC ruling

Regulations Relaxed• Newspaper/television Cross-Ownership• Natl television Ownership Cap (35% to 45%)

2003 changes currently on hold • Citizen complaints• Congressional scrutiny• Cases currently in the courts

Concerns about recent FCC rulings

• Lead to greater consolidation

• Monopolies non-competitive

• Mergers limit number of independent voices in media

• Localism & community

• Corporate accountability

• Facilitates censorship

Public Concerns About FCC

• Public input into FCC decisions generally lacking

• Few public hearings, poorly advertised

• Current controversy over “hidden” reports & “packed” meetings

• Activist groups continue to pressure Congress and FCC