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Report: FCC Media Ownership Analysis Fundamentally Flawed

For Immediate Release:
July 21, 2003
Mark Cooper (301) 807-1623
Gene Kimmelman (202) 462-6262
For the full report (in PDF format only) click here.


Diversity Index Allows Majority of Media Markets to Become Highly Concentrated By Ignoring Market Share

Washington, DC — An analysis released today by the Consumer Federation of America and Consumers Union finds the Federal Communications Commission’s (FCC’s) Diversity Index is an intentional distortion of market analysis driven by a desire to allow more media consolidation.
“The FCC cooked the books to come up with the result they wanted—and the books aren’t even half baked,” said Mark Cooper, Director of Research for the Consumer Federation of America (CFA) and author of the study.
The Diversity Index is cited in the FCC’s June 2 order as central to determining where to allow newspaper-broadcast cross-ownership mergers.
The study, “Abracadabra! Hocus-Pocus! Making Media Market Power Disappear With the FCC’s Diversity Index,” demonstrates how the FCC’s media ownership rules will allow the overwhelming majority of media markets in the U.S. to become highly concentrated.
“The FCC’s Diversity Index makes a mockery of meaningful antitrust and competitive market analysis for the sole purpose of allowing media giants to grow larger. This index is so nonsensical that it finds the New York Times to be a less meaningful source of news about New York than the Multicultural Radio Corp.,” says Gene Kimmelman, Director of Advocacy and Public Policy, Consumers Union (CU).
Cooper noted, “Incredibly, the Diversity Index never considers the actual market share of media outlets. The FCC decided to ignore the audience of the individual media outlets that will actually do the merging and swapping.”
As a result of this fundamental methodological flaw, the FCC’s Diversity Index produces bizarre results that do not reflect media market reality. For example:
• In New York City, Shop at Home TV and the Dutchess Community College TV each has more weight than the New York Times.
• In the Tallahassee area, the Thomasville Tribune with daily circulation just under 10,000 per day is given equal weight with the Tallahassee Democrat, whose more than 50,000 daily circulation puts it at almost two thirds of the daily circulation; the Thomasville Tribune is given twice as much weight as the local CBS affiliate, which has over 50,000 viewers a day.
• In Altoona, PA the Fox affiliate, Peak Media, is given twice the weight of the NBC and CBS affiliates, even though both NBC and CBS have over four times the viewing audience of Fox.
The FCC contradicts itself repeatedly in arriving at the Diversity Index.
• In justifying the decision to abandon the prohibition of newspaper-television cross ownership, it repeatedly cited market shares and measures of the influence of outlets, but in applying the Diversity Index, it refused to consider these factors.
• In arriving at the Diversity Index, it claimed that news production could expand at little cost, but in claiming the relaxation of the duopoly rule would increase economic efficiency, it said it is expensive to expand news production, exactly the opposite.
• In relaxing the duopoly rule the FCC said weaker UHF signals should be discounted 50%, allowing a single network to own more stations, but in relaxing the newspaper-TV cross ownership rule it dropped the discount, making it easier for TV stations to merge with newspapers.
“We believe that because of the importance of mass media in democratic debate, the FCC must devise ownership rules based on clear and consistent facts about market realities, not selective, inconsistent concepts that don’t pass the laugh test,” said Kimmelman.
The Diversity Index underestimates concentration of media markets because its simple voice count approach under-weights the market effects of cross-ownership by the largest players in the market and over-weights small and non-commercial outlets, while its valuation of different media types vastly overstates the importance of radio stations, weekly newspapers and the Internet. As a result,
• Instead of depicting New York City as a very unconcentrated market with the equivalent of 27 equal-sized competitors, it should be seen as having about 10, just at a level considered moderately concentrated where antitrust authorities would become concerned about mergers.
• In small markets like Charlottesville, VA the distortion created by the FCC’s Diversity Index is even more troubling. Instead of painting a picture of a moderately concentrated market with the equivalent of over seven equal-sized competitors, the proper picture should be a very highly-concentrated market with the equivalent of just over three equal-sized competitors.
To underscore the misguided nature of the FCC approach, CFA and the CU applied the Diversity Index approach to the facts of the Microsoft case in which the DC Appeals Court found on a 7-0 vote that Microsoft had a monopoly. According to the FCC’s methodology the market would not even be moderately concentrated and Microsoft would have less market power than Apple—despite the fact that Microsoft is found on over four times as many personal computers.
“Every contradiction, incorrect assumption and misstatement of fact in the proposed rules is biased in favor of allowing more mergers,” Cooper concluded. “We believe these and other flaws in the Order will lead the courts to overturn it, but the court of public opinion appears to have rejected it already and Congress is sending the same message.”
For the full report (in PDF format only) click here.
Paper copies of the report are available by request to mcooper@consumerfed.org
The Consumer Federation of America is the nation’s largest consumer advocacy group, composed of two hundred and eighty state and local affiliates representing consumer, senior, citizen, low-income, labor, farm, public power and cooperative organizations, with more than fifty million individual members. CFA is online at www.consumerfed.org.
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only consumers. CU is comprehensive source for unbiased advice about products and services, personal finance, health and nutrition, and other consumer concerns. Since 1936, CU’s mission has been to test products, inform the public, and protect consumers. CU’s income is derived solely from the sale of Consumer Reports and its other services, and from noncommercial contributions, grants, and fees. CU is online at www.consumersunion.org.