Friday, February 27, 2009

The FCC’s 5 Greatest Regulatory Mistakes Of the Past 3 Decades

Note: This is a re-print of an article I wrote just a year ago. In light of what has happened in the past weeks to the Broadcast Industry, I offer it again--as originally written--for your consideration. --John

Historically, the FCC has regulated the Broadcast Industry—and radio in general—with the understanding that Broadcasters held themselves to a higher standard than the Communications Act of 1934 (as Amended). Professional and Amateur Radio Licensees voluntarily exceeded FCC Regulations—up until those Regulations were gone. Then, things changed.

Here are, what I believe, the 5 Greatest Regulatory Mistakes the FCC has made in the past 30-years.

#5--AM Stereo
Five systems were developed by private industry to produce AM Stereo: Motorola’s CQAM, Harris, Magnavox, Delco and Kahn’s systems all produced a stereo signal—with greatly improved audio-- on AM. Once the FCC chose a standard, receiver manufactures would build receivers. But, the FCC chose not to set a standard, leaving broadcasters and receiver manufactures in a quandary as to what to build—so they built nothing.
Eventually, FM took over completely and there was no reason to continue to invest in Stereo on AM. Bottom line: AM Stereo worked—HD on AM Radio still doesn’t.
The result: AM is the only commercial service in the 21st Century still broadcasting in Monaural—which puts AM right up there with two-way radios, telephones and walkie-talkies.

#4--The Suburban Question
AM and FM Stations licensed to suburbs wanted to increase their reach into the metros they surrounded. The FCC had strict rules about City of License, studio location and programming to the city of license. Some licensees were able to cover much of their neighboring metros and built offices and remote studios in those metro cities…but still had to maintain offices and a main studio in their City Of License.
Again, the FCC failed to make a decision. Eventually, a deregulated marketplace allowed what we now call “Move-Ins” and “Rim Shots”. The result: these stations completely abandoned the suburban markets they were originally licensed to serve.
And now, the FCC is considering reinstating those rules. Congress is considering legislation reinstating those rules. Any reinstatement of those rules will now result in chaos in the Broadcast Industry.

Broadcasters had to renew their licenses every three years. The Renewal Application was usually anywhere from one to three inches thick and represented nearly a year’s worth of work for the Station, which included a process called “Ascertainment”…or more correctly, “Ascertainment Of The Problems And Needs Of The City Of License” the station served. It required interviews with community leaders and citizens conducted by station management. From Ascertainment, the station published a “Problems & Needs” list and had to develop Public Affairs Programming to meet those Problems & Needs.
The NAB and State Broadcast Associations pushed for a reduction in this process and, under the Reagan Administration, got it. For budgetary reasons, we’re told, the FCC eliminated most of the renewal process requiring only a postcard renewal application completed every 7-years. At the same time, the FCC removed itself from regulating programming of radio stations.
The result: a great deal of confusion still exists today on programming and decency standards.

#2--Docket 80-90
The FCC, under intense pressure for greater diversity in station ownership, determined the best method of doing that was to create more radio stations. To accomplish this, they decided to open up the FM band to development. Docket 80-90 literally gave away FM licenses to anybody who would build, maintain and operate the station. Applications from Minorities were given preferential treatment in issuing these licenses. The net result: thousands of radio station licenses were created.
FCC Chairman Charles Ferris, in a speech before the NAB in the early 1980’s, infuriated broadcasters by saying that the Commission would continue to issue licenses until the “last station went broke”.
The result: see Mistake #1.

The FCC, faced with thousands of radio stations—FM’s with limited audiences and AM’s that couldn’t compete in a Stereo world—were on the brink of going out of business and going dark, thus leaving communities without broadcast service.. The idea was to allow successful operators to “adopt” underperforming stations, thereby keeping them on the air.
What happened was truly remarkable. A Buyer’s Market ensued and the first regulatory limitations on the number of stations owned by one company were quickly reached. Further deregulation—with an eye to controlling only “Concentration Of Media” in local markets—lifted controls on the number of station a company could own nationally. The result: another buying frenzy, mergers and the creation of mega-companies.
In truth, the FCC got Consolidation partly right: giving local broadcasters the ability to become program aggregators in local markets was—and this writer believes—still is a sound business model. When the Commission lifted all limitations on how many markets a company could own, the mega companies attempted to program locally from a national source—mostly as a money-saving venture.

Radio has always been the medium of the local market.
Local communities have kept radio stations profitable with audiences and advertisers in order to keep a vital local service. Once radio became—in the eyes of the local community—simply a Profit Center, that loyalty began to deteriorate.

The one common thread in these 5 Regulatory Mistakes is simply that.

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