Academic journal article Harvard Journal of Law & Public Policy

The FCC's Transaction Reviews and First Amendment Risks

Academic journal article Harvard Journal of Law & Public Policy

The FCC's Transaction Reviews and First Amendment Risks

Article excerpt

INTRODUCTION

In the run-up to the 2004 Presidential election, Pulitzer Prize-and Peabody Award-winning journalist, Carlton Sherwood, made a film featuring Vietnam POWs that cast Democratic nominee Senator John Kerry in an unfavorable light. (1) The Sinclair Broadcast Group, which owns TV stations scattered around the country, announced plans to air the forty-minute film but received significant criticism because of the timing before an election. Democratic politicians complained to the Federal Communications Commission about the film's lack of balance and advocacy groups vowed a multi-year regulatory challenge to Sinclair's airwave license renewals. (2) The Boston Globe and New York Times editorial pages requested the FCC investigate Sinclair for countenancing to air the film. (3) MSNBC television host Deborah Norville captured the mood when she asked a Sinclair vice president on air, "Why would Sinclair Broadcasting, which has a license from the FCC, risk that very, very precious license by going forward with a program like this?" (4) Former FCC Chairman Reed Hundt similarly asked Sinclair executives, "Why should a broadcaster keep its licenses if it behaves in this manner?" (5)

Sinclair got the message. Financial analysts and FCC staff predicted the controversy posed political and financial risks to Sinclair and other FCC-licensed stations--what one analyst report called "the Sinclair payback provision" (6)--and Sinclair stock value quickly dipped 17%. (7) Within days, Sinclair abruptly backed off and chose to broadcast only four minutes of the film. (8)

The Sinclair episode illustrates the power the FCC holds over some media outlets and gives a glimpse into how political actors and activists are able to channel the FCC's regulatory process to chill unwanted speech. Quite simply, many U.S. firms that carry and distribute speech, like Sinclair, must remain in the FCC's good graces--via license renewals and approvals of license transfers--to operate. Over the last twenty years, the FCC has increasingly used its leverage during licensing proceedings as an opportunity to engage in ad hoc merger review that substitutes for formal rulemaking. Through license renewals and--the focus of this Article--through transaction approvals, the agency allows special interest groups to influence media content, business models, and operations.

Neither the FCC nor the courts have put meaningful limits on what the FCC can extract during license transfers, leading to arbitrary and unpredictable results. (9) Today, regulated companies--including broadcast TV and radio, satellite TV and radio, cable TV, and Internet service providers--are the primary producers and distributors of mass media and publications. Increasingly, the FCC extracts nominally voluntary concessions from firms--including programming decisions, hiring practices, and "net neutrality" compliance--via coercive conditions to transaction approvals. In many cases, the FCC is legally barred from enforcing or unwilling to enforce these policies through the normal regulatory process. (10)

Not much has changed in the fifteen years since Bryan Tramont, then-Legal Advisor to Commissioner Harold Furchtgott-Roth, wrote that "procedural loopholes and circumstance create opportunities for the Commission to operate free of the discipline imposed by the statute and administrative procedure" during license transfer approvals and consent decrees. (11) If anything, the severity of the problem may be getting worse. (12) Scholars criticize lawmakers' "jawboning"--a boning"--a term for informal regulation and threats using dubious legal authority--of Internet and media companies outside of transparent regulation. (13) Professor Derek Bambauer notes that "[i]nformal enforcement... cloaks what is in reality state action in the guise of private choice," (14) and such "regulation by transaction" has far-reaching legal and constitutional effects.

Once an acquisition or license transfer is before the Commission, the applicants and the FCC engage in a secretive bargaining over what "voluntary" commitments the applicants must make to remain in the agency's good graces. …

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