The U.S. Court of Appeals for the District of Columbia overturned cross-media ownership rules that had been set by the Federal Communications Commission. The case was brought by the major networks.
'Arbitrary and capricious'
The FCC had barred media companies from owning cable systems on which the TV signals of their own stations would be carried. The court said the ban on cross-ownership of broadcast companies and cable systems "was arbitrary and capricious and contrary to law."
The court also told the FCC to reconsider a second rule that prohibits any media company from using broadcast stations to reach more than 35% of households in the country. The court strongly questioned whether the limit could be justified.
Two media deals have put major media companies in excess of that limit. Viacom Corp.'s acquisition of CBS gives it a 41% reach of the national audience, while New Corp.'s Fox reached 40% through its recent acquisition of 10 Chris-Craft Industries TV stations. (The FCC in July approved Fox's purchase provided it shed one of the new stations and a property in New York, such as the New York Post.)
Broadcast and cable
If the cross-ownership decision stands after a likely appeal to the U.S. Supreme Court, the door will quickly open for networks to delve deeper into local cable. AOL Time Warner, one of the media companies suing the government, said the limit prevented it from acquiring TV stations in New York.
The decision "erodes the public's First Amendment rights to have a diversely owned media marketplace," said Jeff Chester, executive director of the Center for Digital Democracy. "It strips away a critical part of the few remaining checks-and-balances safeguards on media conglomerate power. The court was blind-sided by the argument that today's media marketplace is more competitive, and these rules are not needed."
The National Association of Broadcasters, which represented station owners opposed to the TV networks, warned that the court's decision could significantly alter the relationship between affiliate stations and the networks.
35% cap called 'critically important'
"The 35% ownership cap has been critically important in preserving the network-affiliate relationship that has made the U.S. system of free over-the-air broadcasting the envy of the world," said NAB President-CEO Eddie Fritts. "This rule has been instrumental in promoting localism and diversity."
Major networks had challenged the rules contending they were arbitrary, that the FCC, which is supposed to review them regularly, hadn't adequately done so, and that the rules violated the First Amendment, which limits the government from imposing restrictions on the media.
The court rejected the First Amendment argument, but said the FCC had failed to justify retaining the 35% ownership rule.