Order Code RL32460
CRS Report for Congress
Received through the CRS Web
Legal Challenge to the
FCC’s Media Ownership Rules:
An Overview of Prometheus Radio v. FCC
Updated June 27, 2005
Angie A. Welborn
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

Legal Challenge to the FCC’s Media Ownership Rules:
An Overview of Prometheus Radio v. FCC
Summary
On June 2, 2003, the FCC adopted a set of comprehensive rules addressing six
different aspects of media ownership, including cross-ownership of broadcast and
print media, local televison and radio ownership, and national television ownership.
On June 24, 2004, the United States Court of Appeals for the Third Circuit, in
Prometheus Radio v. FCC, remanded several of these rules back to the Commission
for further consideration finding that the Commission failed to adequately justify the
numerical limitations used in the rules. This report provides an overview of the
Commission’s 2002 Biennial Review from which the 2003 rules originated and the
Prometheus case, and addresses the status of the Commission’s regulations. It will
be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2002 Biennial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
National Ownership Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Local Ownership Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Court’s Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Status of Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Legal Challenge to the FCC’s Media
Ownership Rules: An Overview of
Prometheus Radio v. FCC
Introduction
The Telecommunications Act of 1996 sought to create a “pro-competitive,
deregulatory national policy framework designed to accelerate rapidly private sector
development of advanced telecommunications and information technologies and
services to all Americans by opening all telecommunications markets to
competition.”1 Among other things, the act eliminated limits on national radio
ownership, raised the cap on the percentage of the national audience that a single
station owner may reach, set new limits for local radio ownership, and directed the
Federal Communications Commission to conduct a rulemaking proceeding to
determine whether to retain, modify, or eliminate the local television ownership
limitations.2 The act also directed the Commission to review its broadcast ownership
rules every two years to “determine whether any of such rules are necessary in the
public interest as the result of competition.”3
The Commission initiated its 2002 Biennial Review in September of 2002 with
a Notice of Proposed Rulemaking announcing that it would review four of its
broadcast ownership rules: the national audience reach limit; the local television rule;
the radio/television cross-ownership (“one-to-a-market”) rule; and the dual network
ownership rule.4 The Commission had previously initiated proceedings regarding the
local radio ownership rule and the newspaper/broadcast cross-ownership rule.5
Those proceedings were incorporated into the Biennial Review.
On June 2, 2003, the Commission adopted a Report and Order modifying its
ownership rules.6 In the Order, the Commission concluded that “neither an absolute
1 S.Rept. 104-230, p. 1 -2 (1996).
2 Telecommunications Act of 1996, P.L. 104-104 (1996).
3 P.L. 104-104, Sec. 202(h).
4 In the Matter of 2002 Biennial Regulatory Review – Review of the Commission’s
Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the
Telecommunications Act of 1996
, 17 FCC Rcd 18503 (2002).
5 See 16 FCC Rcd 19861 (2001) and 16 FCC Rcd 17283 (2001).
6 In the Matter of 2002 Biennial Regulatory Review, Report and Order and Notice of
Proposed Rulemaking, 18 FCC Rcd 13620 (2003). Hereinafter, cited as Report and Order.
For more information on the Commission’s media ownership rules, see CRS Report
(continued...)

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prohibition on common ownership of daily newspapers and broadcast outlets in the
same market (the "newspaper/broadcast cross-ownership rule") nor a cross-service
restriction on common ownership of radio and television outlets in the same market
(the "radio-television cross-ownership rule") [remained] necessary in the public
interest.”7 The Commission found that “the ends sought can be achieved with more
precision and with greater deference to First Amendment interests through [its]
modified Cross Media Limits ("CML").”8 The Commission also revised the market
definition and the way it counted stations for purposes of the local radio rule, revised
the local television multiple ownership rule to permit the common ownership of up
to three stations in large markets, modified the national television ownership cap to
raise the national audience reach limit to 45%, and retained the dual network rule.
Following the publication of the Commission’s Order, several organizations
filed petitions for review of the new rules. The petitions for review were
consolidated and heard by the United States Court of Appeals for the Third Circuit.
After an initial hearing on September 3, 2003, the court entered a stay for the
effective date of the proposed rules, preventing their enforcement, and ordered that
the prior ownership rules remain in effect pending resolution of the proceedings.9 On
February 14, 2004, the court heard oral arguments and issued its opinion on June 24,
2004.10
2002 Biennial Review
As noted above, on June 2, 2003, the Commission approved a Report and Order
modifying its media ownership rules to provide a “new, comprehensive framework
for broadcast ownership regulation.”11 The Commission determined that new
technologies necessitated new rules and that the prior rules “inadequately [accounted]
for the competitive presence of cable, ignore the diversity-enhancing value of the
Internet, and [lacked] any sound basis for a national audience reach cap.”12
According to the Commission, the newly adopted rules were “not blind to the world
around them, but reflective of it,” and “necessary in the public interest.”13
6 (...continued)
RL31925, FCC Media Ownership Rules: Issues for Congress, by Charles B. Goldfarb.
7 Id at ¶ 2.
8 Id.
9 Prometheus Radio Project v. FCC, 2003 U.S. App. LEXIS 18390 (3rd Cir. 2003).
10 Prometheus Radio Project v. FCC, 2004 U.S. App. LEXIS 12720 (3rd Cir. 2004). The
court’s slip opinion is available at [http://www.ca3.uscourts.gov/opinarch/033388p.pdf].
All citations to the case in this report reference the slip opinion.
11 Report and Order, ¶ 3.
12 Id at ¶ 4.
13 Id at ¶ 8.

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National Ownership Rules
With respect to the ownership of broadcast stations on a nationwide level, the
Commission determined that while “a national TV ownership limit is necessary to
promote localism by preserving the bargaining power of affiliates and ensuring their
ability to select programming responsive to tastes and needs of their local
communities,” the evidence demonstrated that a 35% cap was not necessary to
“preserve that balance” and raised the limit to 45%.14 Under the new rule, a single
entity was prohibited from owning stations that would allow it to reach more than
45% of the national audience. The Commission also elected to retain the “UHF
discount,” which attributes UHF stations with only 50% of the households in their
DMA, despite the fact that many cable operators now carry UHF stations.
While it modified the national television ownership cap, the Commission
determined that its dual network rule, which prohibits common ownership of the top
four television networks, remained necessary in the public interest and did not
attempt to repeal or modify it.15
Local Ownership Rules
In the 2002 Biennial Review, the Commission either modified or repealed its
local ownership rules. The cross-ownership rules prohibiting the common ownership
of a full-service broadcast television station and a daily newspaper in the same
community and limiting the ownership of television and radio combinations by a
single entity in a given market were both repealed.16 The Commission determined
that neither rule remained necessary in the public interest and replaced both rules
with a single set of cross-media limits based on market size. In large markets,
defined as those with more than eight television stations, cross-ownership was
unrestricted.
The Commission combined an earlier remand from the D.C. Circuit Court of
Appeals17 of its modified “duopoly rule” with the 2002 Biennial Review and adopted
14 Id at ¶ 507.
15 Id at ¶ 592.
16 Id at ¶ 327.
17 Sinclair Broadcast Group v. FCC, 284 F.3d 148 (D.C. Cir. 2002). The
Telecommunications Act of 1996 directed the FCC to determine whether to “retain, modify,
or eliminate its limitations on the number of television stations that a person or entity may
own, operate, or control, or have a congnizable interest in, within the same television
market.” Pub. L. 104-104, Sec. 202(c)(2). In response to this directive, the Commission
modified its rules in 2000 to allow an entity to own two television stations in a DMA
(designated market area), provided that (1) the Grade B field strength contours of the
stations do not overlap; and (2) at least one of the stations is not ranked among the top four
highest-ranked stations in the DMA, and at least eight “independent voices” would remain
in the DMA after the proposed combination. The United States Court of Appeals for the
D.C. Circuit reviewed this rule, and remanded it to the Commission to justify its definition
of “voices,” which included only broadcast television stations and not other types of non-
(continued...)

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a new rule that would permit common ownership of two commercial television
stations in markets that have seventeen or fewer full-power commercial and
noncommercial stations, and common ownership of three commercial stations in
markets that have eighteen or more stations.18 These limitations are subject to a
further restriction on the common ownership of stations that are ranked among the
market’s largest four stations based on audience share. The Commission also elected
to repeal the “Failed Station Solicitation Rule” related to the sale of failed, failing,
or unbuilt stations, which required notice of the sale to be provided to out-of-market
buyers.
With respect to local radio ownership, the FCC modified its prior rule by
adopting a new method for determining the size of a local market, but retaining the
rule’s prior numerical limits on station ownership.19 The Commission’s prior
regulations defined the local market by using the “contour-overlap methodology,”20
which the Commission abandoned in favor of the “geography-based market
definition used by Arbitron, a private entity that measures local radio audiences for
its customer stations.”21 The Arbitron markets include both commercial and
noncommercial stations. While it changed the definition of local market, the
Commission retained its numerical limits, which allow a single entity to own as many
as eight radio stations in markets of forty-five or more commercial stations.22
An additional modification to the local radio ownership rule created a new
system for the attribution of joint sales agreements (JSAs).23 Generally, a JSA
authorizes a broker to sell advertising time for the brokered station in return for a fee
paid to the licensee. The Commission noted that because the broker station normally
17 (...continued)
broadcast media. The Commission consolidated the Sinclair remand with its 2002 Biennial
Review leading to this challenge.
18 Report and Order, ¶ 186.
19 Id at ¶ 235 et seq. For more information, see CRS Report RL31925, FCC Media
Ownership Rules: Issues for Congress
, by Charles B. Goldfarb.
20 For a description of the “contour-overlap methodology,” see supra note 6 at Appendix F.
21 The Telecommunications Act of 1996 did not define local markets using any particular
methodology.
22 The Telecommunications Act of 1996 established the current numerical limits. Under the
‘96 Act, in a radio market with 45 or more commercial radio stations, a party may own,
operate, or control up to 8 commercial radio stations, not more than 5 of which are in the
same service (AM or FM); in a radio market with between 30 and 44 (inclusive) commercial
radio stations, a party may own, operate, or control up to 7 commercial radio stations, not
more than 4 of which are in the same service (AM or FM); in a radio market with between
15 and 29 (inclusive) commercial radio stations, a party may own, operate, or control up to
6 commercial radio stations, not more than 4 of which are in the same service (AM or FM);
and in a radio market with 14 or fewer commercial radio stations, a party may own, operate,
or control up to 5 commercial radio stations, not more than 3 of which are in the same
service (AM or FM), except that a party may not own, operate, or control more than 50
percent of the stations in such market. Pub. L. 104-104, Sec. 202(b).
23 Report and Order, ¶ 317.

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assumes much of the market risk with respect to the station it brokers, it typically has
the authority to make decisions with respect to the sale of advertising time on the
station. Under the prior rules, JSAs were not attributable to the brokering entity and
were not counted toward the number of stations the brokering licensee may own in
a local market. The new rules made the JSAs attributable to the brokering entity for
the purpose of determining the brokering entity’s compliance with the local
ownership limits if the brokering entity owns or has an attributable interest in one or
more stations in the local market, and the joint advertising sales amount to more than
15% of the brokered station’s advertising time per week.
The Court’s Decision
Several organizations filed petitions for review of the new rules upon their
publication. The numerous petitions for review were consolidated and the case was
heard by the United States Court of Appeals for the Third Circuit in Philadelphia.
As noted above, after an initial hearing, the court entered a stay for the effective date
of the proposed rules.24 On February 14, 2004, the court heard oral arguments and
issued its opinion on June 24, 2004.25
With respect to the national ownership rules, the court did not address the
Commission’s decision to raise the national audience reach cap from 35% to 45%
citing Congress’ modification of the rule in the 2004 Consolidated Appropriations
Act.26 Section 629 of the act directed the Commission to modify the rule by setting
a 39% cap on national audience reach.27 The court determined that because the
Commission was under “a statutory directive to modify the national television
ownership cap to 39%, challenges to the Commission’s decision to raise the cap to
45 were moot.”28
Additional challenges to the UHF discount provisions in the rule were also
deemed moot even though the UHF discount rules were not mentioned in the 2004
Consolidated Appropriations Act. The court determined that the UHF discount was
intrinsically linked to the 39% national audience reach cap because “reducing or
eliminating the discount for UHF stations audiences would effectively raise the
audience reach limit.”29 The court also noted with respect to the UHF discount that
the 2004 Consolidated Appropriations Act specifically provided that the periodic
review provisions set forth in the amendment did not apply to “any rules relating to
24 Prometheus Radio Project v. FCC, 2003 U.S. App. LEXIS 18390 (3rd Cir. 2003).
25 Prometheus Radio Project v. FCC, 2004 U.S. App. LEXIS 12720 (3rd Cir. 2004).
26 Pub. L. 108-199, Sec. 629.
27 Section 629 also amended section 202(h) of the Telecommunications Act of 1996 to
change the review period from a biennial review to a quadrennial review, and it exempted
the 39% cap on national audience reach from review.
28 Prometheus at 44.
29 Id at 45.

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the 39% national audience limitation,” and as a rule “relating to” the national
audience limitation, Congress intended to insulate the UHF discount from review.
None of the parties bringing the Prometheus case challenged the retention of the
dual network rule, so this was not addressed by the court.
With respect to the Commission’s local ownership rules, the court agreed with
the Commission’s decision to modify these rules in many respects. However, the
court found fault with the numerical limits set by the FCC in each of the local
ownership rules. The court stated that “[t]he Commission’s derivation of new Cross-
Media Limits, and its modification of the numerical limits on both television and
radio station ownership in local markets, all have the same essential flaw: an
unjustified assumption that media outlets of the same type make an equal
contribution to diversity and competition in local markets.”30
The court determined that the Commission’s decision to repeal the ban on
broadcast/newspaper cross-ownership was justified and supported by evidence in the
record and found that the Commission’s decision to retain some limits on common
ownership was constitutional and not in violation of the Communications Act.31
However, the court found that the FCC failed to provide reasoned analysis to support
the specific limits that it chose with respect to the new “cross-media” rules, stating
that the limits “employ several irrational assumptions and inconsistencies.”32 The
court rejected the Commission’s use of a “diversity index,”33 because of what the
court saw as the fallacies upon which it was based and because the Commission
failed to provide adequate notice of the new methodology in the rulemaking
proceedings leading up to the 2002 Order.34 The court remanded the cross-media
limits and advised the Commission to make any “new metric for measuring diversity
and competition in a market . . . subject to public notice and comment before it is
incorporated into a final rule.”35
The court in Prometheus upheld the restriction on common ownership of the
market’s top four broadcast television stations, but remanded the numerical limits
“for the Commission to harmonize certain inconsistencies and better support its
30 Id at 124.
31 Id at 48 - 57.
32 Id at 58.
33 The Commission’s diversity index was not based on the actual market shares of
companies, but rather on the assumption that each television station in a market provides the
same diversity impact regardless of the actual size of its audience, and the same for each
newspaper, each radio station, etc. The court rejected the contention that each outlet
provides the same diversity impact, saying that “[a] diversity index that requires us to accept
that a community college television station makes a greater contribution to viewpoint
diversity than a conglomerate that includes the third-largest newspaper in America also
requires us to abandon both logic and reality.” Prometheus at 70.
34 Id at 76 - 78.
35 Id at 78.

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assumptions and rationale.”36 In making its decision, the court found that the
Commission had presented evidence in the record to adequately support the “top-four
restriction,”37 while failing to justify the market share assumptions used as the basis
for the numerical limits. The court stated that “[n]o evidence supports the
Commission’s equal market share assumption, and no reasonable explanation
underlies its decision to disregard actual market share.”38 The court also remanded
the Commission’s repeal of the Failed Station Solicitation Rule, finding that the
Commission failed to consider “the effect of its decision on minority television
station ownership,” and thus failed “‘to consider an important aspect of the problem’
[amounting] to arbitrary and capricious rulemaking.”39
In addition to upholding the Commission’s restriction on common ownership
of a market’s top four broadcast television stations, the court upheld the
Commission’s new definition of local markets with respect to radio finding that the
Commission’s decision was “in the public interest” and that it was a “rational
exercise of rulemaking authority.”40 The court also found that the Commission
justified the inclusion of noncommercial stations in the new definition. However,
with respect to the numerical limits retained by the Commission, the court concluded
that while the numerical limits approach was rational and in the public interest, the
Commission failed to support its decision to retain these particular limits with
“reasoned analysis.”41 The court rejected the Commission’s contention that five
equal-sized competitors would ensure that local markets are competitive, and found
that even if it were to justify the “five equal-sized competitors” benchmark, that it
failed to sufficiently demonstrate that under the existing numerical limits five equal-
sized competitors would actually emerge.42 The court remanded the numerical limits
to the Commission “to develop numerical limits that are supported by a rational
analysis.”43
With respect to the new rules providing for the attribution of joint sales
agreements, the court affirmed the Commission’s decision, finding that the
Commission changed its rules as the result of “reasoned decisionmaking,” and that
such a change was “necessary in the public interest” due to “the potential for
brokering entities to influence the brokered stations.”44
36 Id at 78.
37 Id at 90.
38 Id at 93.
39 Id at 95 - 96.
40 Id at 106.
41 Id at 119.
42 Id at 121.
43 Id at 123.
44 Id at 113 -114.

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Status of Regulations
The stay prohibiting enforcement of the Commission’s modified media
ownership rules remains in effect pending the Third Circuit’s review of the
Commission’s actions on remand.45 On September 3, 2004, the Third Circuit granted
the Commission's motion requesting a partial lifting of the stay to allow those parts
of the rules approved by the court in its June 24 decision to go into effect.
Specifically, the stay was lifted with respect to the use of Arbitron metro markets to
define local markets, the inclusion of noncommercial stations in determining the size
of a market, the attribution of stations whose advertising is brokered under a Joint
Sales Agreement to a brokering station's permissible ownership totals, and the
imposition of a transfer restriction. The stay remains in place with respect to all other
aspects of the Biennial Review Order.46
On January 27, 2005, the United States Solicitor General and the FCC decided
not to appeal the Third Circuit’s decision.47 However, several media companies filed
a formal appeal with the Supreme Court asking for a review of the Third Circuit’s
decision.48 On June 13, 2005, the Supreme Court denied certiorari in all relevant
appeals.49 The Commission is likely to revise its regulation to comport with the
Third Circuit’s decision.
45 Id at 125.
46 Prometheus Radio v. FCC, 03-3388 (3rd Cir., Sept. 3, 2004).
47 Feds Leave Broadcasters Alone in FCC Media Ownership Appeal, Communications
Daily, January 28, 2005.
48 Media Group Asks Supreme Court to Hear Ownership Case, Communications Daily,
January 31, 2005.
49 Media Gen., Inc. v. FCC, 2005 U.S. LEXIS 4807 (June 13, 2005).