Supreme Smackdown Over Speech

News Corp.'s Peter Chernin wants FCC "out of the indecency business"
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While America will be busy at the polls on Nov. 4, Fox has a different, pressing Election Day appointment at the Supreme Court. That’s where the network’s reps will battle the FCC over fleeting profanities that drew an indecency finding from the commission. Fox has elected to take aim at the FCC’s powers to regulate any broadcast speech whatsoever.

News Corp. President and COO Peter Chernin was in Washington last week to receive a free speech award from The Media Institute, the First Amendment think tank. He sat down with B&C’s John Eggerton to talk about why he believes the FCC “should be out of the indecency business,” the issue of online privacy and marketing, and much more.

Chernin says Fox wouldn’t have aired the profanities that got the network in trouble with the FCC if it had had a choice in the matter, but adds that the commission shouldn’t be hammering the network, or anybody else, over fleeting, unscripted profanity or nudity.

That puts Fox on the wrong side of the government body that controls Fox’s regulatory fate. For the sake of principle and the health of its business, that’s the ground Fox needs to stake out, Chernin says.

It costs money to fight the FCC in court. The commission controls TV licenses and your ability to make deals, and they didn’t fine you over the Billboard Awards broadcast that they concluded was indecent. Why is Fox fighting this so hard?

It sounds corny but it is fundamentally an issue of principle to us. We think they are wrong. We think that it is wrong for the country, and that they should not be intruding on the First Amendment, and we think that as a media company it is an important enough issue for us that we should be vigorously defending or pursuing our point of view in this case.

Number two, we think it has a potentially significant negative impact on our business. The size of the fines has gotten larger—not in this case—but [the FCC] should be out of the indecency business. If the size of the fines is significant enough, we think it has a potentially chilling impact on our ability to do high quality, innovative, interesting programming.

And we think it is fundamentally, competitively unfair to the broadcasting business that 85% of Americans are getting these broadcast signals through their cable, telco and satellite systems adjacent to completely unregulated signals. The consumer has no idea of the difference between one and the other. It’s just a channel to them, and the idea that one of them is regulated and the one next door may not be is silliness.

You’re not saying that, as a fallback position, the FCC should regulate cable and satellite and level the playing field that way, as some broadcasters have argued for?

No, we don’t think that is the correct approach, nor do we think that is particularly likely. As much as in their hearts [the FCC] might like to regulate everything, they are not capable of it. What feels anachronistic to me is this entirely unregulated universe and then this holdover of a few broadcast signals that are regulated in a way that does not feel like it is particularly in touch with the times.

So, let’s say the Supreme Court simply sends the decision back to the FCC to better justify its policy on punishing fleeting profanity and nudity. That is obviously not enough for Fox, though it is for some other broadcasters.

On the one hand, it is the Supreme Court; whatever it is [is] enough for us because we are done at that point. But no, we would like to see this ruled on as broadly as possible. But we will take whatever we are given.

Let’s say you got the decision you wanted, a reversal on broad First Amendment grounds and the FCC was out of the indecency regulation business. How would Fox operate differently the day after that decision than the day before?

I don’t think we would be different at all. We are essentially unregulated from 10 p.m. to 6 a.m. and I am not sure anyone thinks our air looks completely different.

This is such an interesting case because we would not allow Cher or Nicole Richie to say the words that they said [at the 2002 and 2003 Billboard Awards shows, respectively] if we had control over it, but these were fleeting things done unscripted and live that we had no control over. We don’t believe we should be fined or held responsible or judged because of that. But if everything were removed, I don’t think anything would change.

You said that the crackdown was having an impact on your business. In what way?

We had a huge amount of conversations about whether we need to change the way we carry sports because we were terrified about what gets said on the sidelines. We ultimately made decisions not to change the way we do things, but if we were to lose these cases we would have to look at the way we carry sports. We would be nervous about doing live news coverage, or a live rally of some candidate because people might swear in the crowd and we might get fined for that.

I think you see silliness, too. Since 2004 we’ve had to pixilate Stewie’s bare ass in Family Guy; that’s laughable. The idea that we are pixilating a 1-year-old cartoon character’s behind is silliness, and yet we are doing that.

Does it affect how we program a show like Mad TV that is political satire and pushes boundaries? There are all sorts of areas where it has affected our business.

But if all these regulations were removed, there is not like a big backlog of dirty shows. But we are trying to respond to the taste of our audience before 10 o’clock, what would be the desires of our advertisers. Those are much better regulators, along with technology like the V-chip.

Do your concerns about the indecency crackdown dovetail with your philosophy of “death by mediocrity” because what the FCC regulations do is discourage you from programming on the edges?

Yes, but I would be careful about using the term “program on the edges” because what it does is certainly contributes to broadcasting television becoming blander than everything else and I am not sure the American public is interested in “bland.” They are interested in a wide spectrum of entertainment and information shows, some of which are very edgy, some of which are very safe, some of which are American Idol. Anything from Idol to Don’t Forget the Lyrics to Prison Break and 24 and The Simpsons, which lots of people think is a fairly edgy show. We do run the gamut and I think that is appropriate.

But if you get in a world where the FCC decides, ‘well, I like this, I don’t like that,’ I think this is a very insidious and slippery slope. Some might think we are crazy to take on the FCC, the folks who regulate us, but we think this is a very important issue.

Another issue that has gained importance in Washington is behavioral marketing, particularly given the increasing ownership and creation of Internet sites by traditional media companies. Are you concerned that could become the next media concentration battleground?

I think it is a particularly real issue on the privacy side. We certainly think about his primarily from our own company’s point of view, and the targeted marketing and behavioral marketing we do on MySpace, where we have very significant behavioral marketing, we are only using data that our users make publicly available. We are not using cookies and following which Web sites you [surf], we are basically looking up what you declare on your MySpace profile page are the things you are interested in and allowing marketers to market them, which I don’t think is a violation of privacy.

Done properly, there is probably some consumer benefit to this.  As a consumer, to the degree you have to watch ads you would much rather watch ads on products that are of interest to you than on products that no relevance to you whatsoever.

So, I think the fundamental issue, and it is not a legal issue but for me personally, is the issue of transparency. I think that if consumers are aware of what you are doing and you are straightforward with what information you are using, and you should give them opt in/opt out possiblities, I don’t think it is that big an issue.

I think if you are not transparent and you are following them around and not giving them a choice what to do, I think it is a potential issue.

Do you think the industry will head off the issue with general do’s and don’ts?

I think you are seeing the industry move in that direction. But I don’t find so far that this has been nearly as big a consumer issue as some of the politicians make it. We run what is the largest Website in terms of page views on the Internet and we certainly do not hear privacy as being a significant issue from our users.

Only a couple of years ago, studios were reluctant to put their content on the Web. Now everybody is there. What happened?

I think that it is a combination of a number of factors. I think that only recently has there been an opportunity to create successful business models because there wasn’t really enough bandwidth until you got to reasonably widespread broadband distribution. So I think we were incentivized to do it.. There probably wasn’t enough video advertising. We began to create business models, like Hulu, that we thought worked for us. We have created successful pricing negotiations. On iTunes, we had reasonably successful pricing on television pretty quickly and we spent a year negotiating with them before we came up with a price that was acceptable to us to put out movies out there.

We also believe that we have had reasonably effective IP law following us, including the Napster decision.
In general, the silliness that was promulgated here was that there were certainly people saying that the studios were luddites and that we were against  all technology.  No one is quicker to embrace new technology or look for new ways to slice the salami and make money than Hollywood. We’re just trying to do it in a way that makes sense to us.

How concerned are you about Real DVD, the relatively cheap copying software that bypasses content protections.

It is a bad piece of technology. We have legally enforceable technology encrypted onto our DVD’s and we don’t believe that someone should create and sell a device that basically unencrypts them.

Some groups have asked the networks to release their presidential debate footage into the public domain. Some have indicated they would be amenable, but not Fox.

That is correct. To the degree that it is a pool feed, we are not the copyright holder. But for things that we are the copyright holder, our view from a principle point of view is that we can decide we can make anything available we want, but it is our copyrighted content and we should have the right to decide what we do with it.

You talked about the threat of content regulation to your business. Is another such threat the necessity to spread investment over a lot of different but somewhat overlapping content-delivery platforms: cable, broadcast, satellite, the Internet? Is there enough pie to go around or is there a shakeout coming?’

On a macro level, I don’t see any reason why they can’t all have a piece of that pie. What you are moving towards is a world in which content is distributed on multiple platforms at multiple different times. I don’t think by any stretch of the imagination that one platform precludes another.

If you look historically most of those arguments have been proved wrong. TV was going to put radio out of business, cable was going to put broadcast TV out of business. None of that has proved to be true. It has generally been that there are more opportunities for consumers to consume content.

Inside of that on a micro level there are certain technologies that will sunset. The VHS made way for the DVD and black and white made way for color. But most of these are more than capable of coexisting.

You teamed with NBC on Hulu, and just got together with LIN TV to program their TV station Websites. To what degree are media companies going to have to break down boundaries to survive?

I think implicit in the question is some level of desperation which I am not sure I would look at that way. We took over creating the LIN TV sites because we had built a technology platform that was capable of efficiently creating Websites for television stations. The case of Hulu was, I felt very strongly—and [President and CEO of NBCU] Jeff Zucker agreed with me—that consumers would be anxious for a site that aggregated content from numerous sources, rather than asking consumers [to search]. That was too much to ask [of] consumers, and an aggregated site where more premium video product was available was a real positive resource. That had nothing to do with economics.

But I think you will see us explore various newsgathering efficiencies with other television stations.  We should all be looking for ways to offer better services to consumers and do our jobs better. Sometimes that will mean drawing huge and significant moats around ourselves and in other cases it will lead us to various forms of cooperation.

Fox joined the other networks in asking the FCC to put its white spaces report out for public comment before holding a planned vote to allow unlicensed wireless devices to share the DTV spectrum band. What are your issues?

We have problems with allowing the devices in the first adjacent channel, and with the remote sensing devices. We don’t have problems with the geolocation devices or with non-first adjacent channels.

So you see a way to craft the rules to allow the mobile devices?

Yes, I think we would be open to looking at that.

A broadcast executive said recently that if he had a couple of billion dollars to spend, he wouldn’t be buying TV stations. Would you agree and what would you put that kind of investment in?

I guess we do have a couple of billion dollars and we just sold some TV stations, so you can read into that what you will.
Our company’s investment strategy tends to be opportunistic. We believe in pay television operations and continue to invest in those. We clearly believe in digital, and we clearly believe in international, particularly the developing world.
We make a decision not from “one thing is good and another is bad.” What we try to make decisions on is, what do we think is likely to grow the fastest. So, that’s not saying we think television stations are bad or a bad investment. We think there may be other investments that are likely to grow more rapidly and that is where we are putting our money right now.
We also have 27 TV stations and we did not choose to sell all of them.

Do you plan to sell any more?

We have no plans to.

Your contract is up in June 2009. Do you plan to stick around?

I’m in discussions right now.

And if you weren’t doing this?

I’d like to ski 200 days a year.

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