Federal judges opened the door for more TV industry consolidation last week, throwing out the FCC's 30% cap on one cable company's share of the audience.
Although the ruling directly affects only cable, the ruling casts doubt on the validity of the FCC's broadcast ownership cap, which bars TV station owners from reaching more than 35% of the U.S. audience, and buoys a Fox effort to have it jettisoned.
The ruling, handed down by the federal appeals court in Washington, came a week after the Supreme Court upheld the 1992 law that is the basis for the cable caps. But in ordering the FCC to establish new limits, the lower court said the FCC failed to explain why the specific restrictions were justified given the infringement on cable companies' free speech-rights. The suit against the FCC was filed by Time Warner and AT&T.
"The FCC must still justify the limits that it has chosen as not burdening substantially more speech than necessary," wrote Judge Stephen Williams. "The FCC must show a record that validates the regulations, not just the abstract statutory authority." He suggested a 60% limit as more appropriate.
The decision also ordered the FCC to set new channel-occupancy limits, which bar a cable company from devoting more than 40% of its channel lineup to programming it owns. The restrictions seem to have been "plucked from thin air," Williams added.
The judges ordered the FCC to rewrite some of the ways it tallies partial investments in cable systems. They found that the FCC hasn't justified why limited partnerships, generally exempt, must be counted if the limited investor supplies programming to the partnership. They also said the FCC showed no reason for its decision last year to drop the "single-majority-shareholder" exemption, which shields holdings of minority investors from attribution when a partner controls 51% or more of the partnership.
AOL Time Warner officials said the decision made for a "good day for cable operators' First Amendment rights."
Consumer groups predict the decision will squelch opportunities for independent cable programmers. "It is up to the FCC to create a new limit that will protect consumers from media consolidation," said Cheryl Leanza, deputy director, Media Access Project.
Some broadcasters cheer the ruling, which appears to leave their ownership cap vulnerable. "I think it has pretty significant importance for us," said one industry source who would like to see the 35% cap lifted. News Corp., owner of Fox Television Stations, has a challenge pending before the same federal panel.
The other Big Four networks also want the cap raised or eliminated. They now have ammunition against the political muscle of network affiliates and smaller station groups, backed by the NAB, that want to preserve it.
It's unclear whether immediate relief will be delivered to the one cable company impaired by the cap: AT&T, with a 42% share of multichannel subs. As part of the government's approval of the MediaOne Group purchase, it agreed to sell enough cable businesses by May 19 to get below the cap. FCC officials said when the merger was approved that they would hold AT&T to the deal regardless of how the court case turned out.
But AT&T is free to ask that merger terms be altered, and the FCC's view of ownership caps may change under Chairman Michael Powell.
AT&T officials would say only that they are "pleased" by the decision.