Opinion for the court filed by Circuit Judge TAMM.
Dissenting opinion filed by Circuit Judge SCALIA.
TAMM, Circuit Judge:
The network non-duplication rules generally provide that a cable system located within a certain distance of a network-affiliated television station must delete the duplicative network programming of a distant station that is carried on the system. An exception to the rules, which is found in 47 C.F.R. § 76.92(g), is that a cable system need not delete the programming of a television signal that is significantly viewed in the community where the system is located. The policy of the Federal Communications Commission (Commission or FCC) is to keep a station on the list of significantly viewed stations even if the station is actually no longer significantly viewed. KCST-TV sought a waiver of section 76.92(g) on the ground that a distant station, KNBC-TV, is no longer significantly viewed in San Diego County. The Commission refused to consider evidence of KNBC's lack of significant viewing because KCST did not demonstrate the rule's economic impact on KCST. We find that section 76.92(g) has no logical application in the face of a showing that a distant station is not significantly viewed, and we find no apparent policy basis for requiring a showing of economic impact before considering evidence of lack of significant viewing. Therefore, the Commission acted arbitrarily in not giving KCST's waiver application a "hard look." We set aside the Commission's order and remand the case for further proceedings.
I. REGULATORY FRAMEWORK
The major television networks usually grant each of their affiliates exclusive rights to network programming within the affiliate's market. See First Report and Order in Dockets 14895 and 15233, 38 F.C.C. 683, 703 n. 29 (1965). Since the early 1960's, the FCC's "network non-duplication rules" have required cable systems to protect this network program exclusivity. Id. at 742-43.
In 1978 the FCC adopted a new exception to the network non-duplication rules. See Network Programming Exclusivity Protection — CATV, 67 F.C.C.2d 1303, 1305-06 (1978), aff'd, Spartan Radiocasting Co. v. FCC, 619 F.2d 314 (4th Cir.1980) (codified at 47 C.F.R. § 76.92(g) (1981)). The exception provides that a cable system is not required to delete the duplicating signal of any station that is "significantly viewed" in the cable system's community. 47 C.F.R. § 76.92(g) (1981). The Commission reasoned that significantly viewed stations are over-the-air competitors of local stations and, therefore, should be treated as local stations rather than distant ones. Network Programming Exclusivity Protection — CATV, 67 F.C.C.2d 1303, 1305 (1978).
The term "significantly viewed" was created in 1972 when the FCC adopted new rules for determining when cable systems were required or permitted to carry specific television signals. See Cable Television Report and Order, 36 F.C.C.2d 143, 170-71, 174-76 (1972).
Significantly viewed signals in a given county are those that are listed in the Reconsideration of the Cable Television Report and Order, 36 F.C.C.2d 326, 379-463 (1972), plus those that have been proven significantly viewed since 1972. 47 C.F.R. § 76.54 (1981). The FCC's 1972 list was based on figures from Arbitron audience measurement surveys taken during three one-month periods in 1970 and 1971. Reconsideration of Cable Television Report and Order, 36 F.C.C.2d 326, 347 (1972). The Commission listed all television stations in each county in the nation that came within its definition of significantly viewed. To have been included in the 1972 list, a station had to achieve a minimum three percent share of total non-cable television viewing in the county and a non-cable net weekly circulation of at least twenty-five percent. Id. at 345 (codified at 47 C.F.R. § 76.5(k) (1981)).
II. FACTUAL BACKGROUND
KCST-TV is a UHF station in San Diego, California, and is an affiliate of the NBC television network. Until 1978 San Diego cable systems
Counties are the geographic unit that the television audience measurement services
When the FCC compiled the 1972 list, KNBC met the significantly viewed test in San Diego County. The other two Los Angeles network affiliates, KABC and KNXT, did not achieve significantly viewed status. Therefore, the adoption of the 1978 exception to the network non-duplication rule, which employs the 1972 list in determining which stations are significantly viewed, eliminated KCST's right to network non-duplication protection. However, the ABC and CBS affiliates in San Diego retain their network non-duplication protection because KABC and KNXT are not on the 1972 list.
III. CASE HISTORY
In April 1978 KCST filed a petition for special relief
In June 1981 the Cable Television Bureau, acting on authority delegated by the FCC, denied KCST's petition. The Bureau held that "signals listed by the Commission as significantly viewed are not subject to subsequent deletion," and, therefore, the showing that KNBC is no longer significantly viewed is "irrelevant to the instant proceeding." KCST-TV, Inc., CSR-1270, mem. op. and order at 4 (Cable Television Bureau, FCC June 11, 1981), J.A. at 42. The Bureau also held that a station must produce evidence of the economic impact of the rule on it, which KCST did not do, to receive special relief. Id. at 5, J.A. at 43. Finally, the Bureau stated that even if the level of KNBC's off-air viewership were relevant, the studies done on a county-wide basis, as opposed to a community-specific basis, would be unacceptable. Id.
In July 1981 KCST petitioned the full Commission for review of the Bureau's decision. KCST's petition was unopposed. In October 1981 the Commission denied the petition. It held that it would consider granting a waiver of the significantly viewed exception "only upon a showing of some need for regulatory intervention in order to preserve local television broadcast service." KCST-TV, Inc., FCC 81-494, mem. op. and order in CSR-1270 at 3 (FCC Oct. 28, 1981), J.A. at 58 (quotation marks omitted). Further, the Commission stated that even if the issue were relevant, countywide data of the kind submitted by KCST would be insufficient. Id. at 3-4, J.A. at 58-59.
On appeal from the FCC decision, KCST argues that the Commission acted arbitrarily and capriciously in holding irrelevant its data showing that KNBC is no longer significantly viewed, its showing that the rule works to the competitive disadvantage of a UHF station, and its showing that KNBC is not a local competitor in San Diego County. Respondent United States of America, in a brief independent of the FCC's brief, agrees with KCST that the FCC arbitrarily denied the waiver request. Although otherwise defending its decision, the Commission argues that we need not address whether KCST's data, if it were relevant, would be insufficient because it is county-wide rather than community-specific. See Brief for Respondent FCC at 15 n. 17.
We must uphold the Commission's actions unless we find that they were "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A) (1976). A reviewing court may not substitute its judgment for an agency's and must affirm an agency's decision if a rational basis for it is presented. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). The arbitrary and capricious standard of review presumes agency action to be valid. Id. at 415, 91 S.Ct. at 823. "Presumptions of regularity apply with special vigor when a Commission acts in reliance on an established and tested agency rule. An applicant for waiver faces a high hurdle even at the starting gate." Wait Radio v. FCC, 135 U.S.App.D.C. 317, 321, 418 F.2d 1153, 1157 (1969). Nevertheless, an agency must take a "hard look" at meritorious applications for waiver, id., and
The FCC held that the data showing KNBC not to be significantly viewed was irrelevant because KCST produced no evidence of adverse economic impact. The Commission's often-stated policy is to refuse to depart from its general rules concerning cable television in the absence of a showing of a rule's debilitating economic effect on a station. See, e.g., Virginia Television Co., 51 R.R.2d 1048, 1050 (1982); Virginia Broadcasting Corp., 89 F.C.C.2d 1152, 1159 (1982); Valley Cable TV, Inc., 51 R.R.2d 225, 228 (1982); Texas Community Antennas, Inc., 68 F.C.C.2d 1271, 1279 (1978); Cable Television Report and Order, 36 F.C.C.2d 143, 179 (1972); 4 Radio Regulation ¶ 85:92 (2d ed.1982) (collection of FCC decisions).
An allegation that a distant station is not significantly viewed, however, is fundamentally different from an allegation that the rules place a station at a competitive disadvantage or that another station is not truly local. 47 C.F.R. § 76.92(a) provides network non-duplication protection because the Commission believes that the protection is necessary to protect local service. See Blytheville TV Cable Co., 68 F.C. C.2d 1065, 1067 (1978). 47 C.F.R. § 76.92(g) removes a local station's protection against significantly viewed stations because the Commission believes that the stations are over-the-air competitors and that extending the competition to the cable market is not unreasonably damaging to local service. See Network Programming Exclusivity Protection — CATV, 67 F.C.C.2d 1303, 1305 (1978). Section 76.92(g) is premised on the distant station being significantly viewed. If the distant station is not in fact significantly viewed, the logic of applying section 76.92(g) collapses.
In a decision analogous to the present case, OkeAirCo, Inc., 44 R.R.2d 166 (1978), the Commission waived the non-duplication rules without a showing of economic impact when the petitioner showed the invalidity of the rules' underlying premise. OkeAirCo, a cable system, sought a waiver of the rule requiring cable systems to black out simultaneous distant network programming within 55 miles of certain local stations. See 47 C.F.R. § 76.92 (1981). The rule presumes that local stations are viewed within the entire 55-mile zone. OkeAirCo proved that the local station was not in fact viewed within the portion of the 55-mile zone that OkeAirCo served. In granting the waiver, the Commission stated, "A party demonstrating with persuasive evidence the invalidity of this underlying premise is entitled to waiver." OkeAirCo, Inc., 44 R.R.2d 166, 168-69 (1978). In the present case, KCST has similarly attempted to show the invalidity of the underlying premise of section 76.92(g).
The Commission justified applying section 76.92(g) by stating, "We have consistently held that signals listed by the Commission as significantly viewed are not subject to subsequent deletion."
To achieve the FCC's goal of not disrupting viewing patterns, it was never necessary to bar the deletion of stations from the 1972 list for the purposes of the network non-duplication rules, as opposed to for the purposes of the station carriage rules.
Likewise, under the current rules there is no apparent rationale for not granting a waiver of the non-duplication rules when a party shows that a station is not significantly viewed. First, granting waivers would not disrupt established viewing patterns. If the signal a viewer normally watches were deleted, he would merely have to turn the channel to find his regular program.
We find that section 76.92(g) has no logical application in the face of a showing that a distant station is not significantly viewed, and we find no apparent policy basis for requiring a showing of economic impact before considering evidence of lack of significant viewing.
The Commission's order is set aside, and the case is remanded to the Commission for proceedings not inconsistent with this opinion.
SCALIA, Circuit Judge, dissenting:
I cannot call the Commission's action in this case arbitrary, capricious or abusive of discretion, and must therefore dissent. I set forth my views at some length because I believe that our readiness to entertain challenges of this sort, and to require the type of "fine-tuning" the majority demands, is one of the factors contributing to regulatory delay and to the increasing caseload of the courts.
Still accepting the majority's premise that the ultimate objective of section 76.92(g) is to permit duplication of signals that are currently "significantly viewed," the Commission's rule assumes, in effect, that stations significantly viewed in 1970 (the year of the surveys on which the Commission's 1972 Cable Television Report and Order was based) are still significantly viewed. For all we know on the basis of the evidence before us that may be, overall, a pretty good approximation. But in any event the two factors I have described above would require, in the present circumstances, only a relatively rough one.
As to (1) the importance of the rule to public and private interests: The public interest served by insulating television stations from cable-carried competition is prevention of deterioration in local broadcast service caused by financial distress or failure of licensees.
The private interest involved is, of course, the broadcaster's loss of the profits that would accrue from the restriction of competition. Were there a legal entitlement to these profits, the rule affecting them would have to be quite precise. That is not the case, however, since the Communications
As for (2) the relative ease of adopting a more precise approximation: The use of current surveys would obviously involve substantial administrative inconvenience to both the Commission and cable systems, producing a recurrent phasing in and phasing out of various stations as viewing patterns and other factors change back and forth. The majority's last footnote suggests that this inconvenience could be avoided by requiring lower viewing percentages for the retention of "significantly viewed" status than for its acquisition in the first place. That amounts to acknowledging that a healthy degree of imprecision in this matter is not only inevitable but positively desirable. The degree produced by the majority's approach is undoubtedly somewhat lesser (since it permits case-by-case evaluation) than continual reliance upon the 1970 surveys. But that indeterminately greater precision comes at some expense, and I cannot say that the Commission's method is arbitrary or indeed even less desirable. I suppose that after a very large number of years it will be true that the 1970 surveys are inordinately unindicative of current viewing patterns, even for purposes of a "first cut" at the problem the Commission wishes to address. But I have no basis for saying that on the present record. I suspect, moreover, that the Commission is not only a much better judge of that than we but also has adequate incentive to remedy the difficulty — namely, the incentive of having to process the increased number of applications for case-by-case exemption that the disparity will produce.
The foregoing discussion has assumed the validity of the majority's assumption: that the ultimate purpose of the rule was to reach a rough approximation of current viewing patterns. In fact, however, I think that is not so. In my view the purpose of the rule was, is, and may properly be, to establish quite simply a "once-in, always-in" regime. That is to say, once a cable system has been given the right and the obligation to carry a particular signal as a local signal, it retains that right and obligation permanently. Actual viewing patterns are thereafter irrelevant to the Commission's policies, except that they may be one of many factors considered in ruling upon a request for network nonduplication protection by a station that can demonstrate economic
I am led to this conclusion first, by the clear language of the rule itself. It used the term "significantly viewed station," but that was a term of art which meant a station that:
It could not be clearer that the Commission was adopting neither a test that requires current achievement of particular viewing or circulation percentages, nor even a test that is designed to indicate current achievement of particular viewing or circulation percentages. The latter is evident from the fact that, while some provision is made for subsequent inclusion as a "significantly viewed" station on the basis of actual, current viewing patterns, see 47 C.F.R. § 76.54(b), (d), no provision is made for subsequent deletion on that basis. Moreover, even the provisions for subsequent inclusion are not designed to take account of changes in viewing patterns over time, but rather to accommodate stations (presumably new stations) not covered by the 1970 survey, 47 C.F.R. § 76.54(d), or to permit demonstration, through community-specific surveys, that the viewing patterns shown by the county-wide surveys were not representative of the viewing patterns within the cable system's particular service area, 47 C.F.R. § 76.54(b).
There are extremely good reasons why the Commission adopted a "once-in, alwaysin" approach. To begin with, it avoids the disruption of the public's viewing patterns. It is true (as the majority states) that since the 1980 elimination of limitations on distant signals, a station's loss of "significantly viewed" status will not require a cable system to drop that station or another distant signal. But it is also true, since the mandatory carriage and network nonduplication rules operate in tandem,
Another compelling reason for the "once-in, always-in" approach is the distortion of the over-the-air viewing percentages caused by cable carriage once it is permitted. Assume, for example, a county in which a distant signal met the "significantly viewed" percentages in the 1970 survey because of large off-the-air viewership in the county's northeast quadrant. Assume, further, that a cable system has since "wired" 80% of the homes in that northeast quadrant, so that four out of five viewers who previously watched the station "off the air" no longer do so. The station would then no longer meet the "significantly viewed" standard, even though it is no less "local" than it ever was. There is, in other words, no way to reconstruct off-the-air viewing patterns once cable has been carrying the signal. It seems very likely that those viewers most loyal to a relatively weak not-so-distant distant signal would have been first in line to "get wired." To be sure, the Commission's approach permits significant viewing to be considered as one of the relevant factors where financial distress has been shown, but in that context it can be discounted for the sort of distortion just described and in any event need not determine the outcome.
The Commission's statements and practice are entirely consistent with the alternative view of the network non-duplication exception I have suggested. The Commission stated in its 1972 Cable Television Report and Order that the list of "significantly viewed" stations would not be subject to deletion on the basis of "some special showing or later survey." 36 F.C.C.2d at 175 n. 45. It has never permitted such deletion. And in granting or even considering exemption from the "significantly viewed" exception to the network nonduplication prohibition it has — as it originally said it would
The majority cites WAIT Radio v. FCC, 135 U.S.App.D.C. 317, 321, 418 F.2d 1153, 1157 (1969), for the proposition that the agency "must take a `hard look' at meritorious applications for waiver." Maj. Op. at 1191. Unless one reads the word "meritorious" in such fashion as to drain the statement of all meaning (so that for some rules there can be no meritorious applications); or unless one assumes (with equally emasculating consequences) that it is permissible to take only a "soft look" at whether the application is meritorious; as a generally applicable proposition that statement seems to me neither self-evident, nor logically supportable, nor sustained by the holdings, or even the internal practices, of the courts. It would mean, in effect, that there could be no rules but only case-by-case adjudication. What is true, and what in my view WAIT represents, is the proposition that a rule which otherwise might be impermissibly broad can be saved by the "safety valve" of waiver or exemption procedures.
But the incursion into agency management effected by the majority opinion goes further than merely telling the FCC it cannot have an inflexible rule. It tells the agency it cannot have a flexible rule which contains only a single exemption process. The "safety valve" referred to in WAIT does exist. The agency has assumed, in the words of WAIT, 418 F.2d at 1157, 135 U.S. App.D.C. at 321, the "obligation to seek out the `public interest' in particular, individualized cases." As noted earlier, the only public interest at issue is avoiding the deterioration of broadcast service caused by financial distress; and waiver of the present rule is always available where such distress can be shown. What the majority opinion demands is a second "safety valve," seeking to assure not the public interest but a more
Finally, I believe the decision today to be inconsistent with earlier opinions of this court approving the Commission's refusal to afford any applicant a dispensation from its cable television rules without a prior showing of economic harm that imperils broadcast service. KIRO, Inc. v. FCC, 203 U.S. App.D.C. 318, 631 F.2d 900 (1980); Pikes Peak Broadcasting Co. v. FCC, 137 U.S. App.D.C. 234, 242-43, 422 F.2d 671, 679-80, cert. denied, 395 U.S. 979, 89 S.Ct. 2134, 23 L.Ed.2d 767 (1969). The majority opinion distinguishes these cases by asserting that "[a]n allegation that a distant station is not significantly viewed ... is fundamentally different from an allegation that the rules place a station at a competitive disadvantage ...." Maj. Op. at 1192. I do not see why. What is crucial in determining whether a waiver must be granted is not violation of the abstract "logic" of the rule at issue (assuming, what is not true, that the logic would be violated here) but rather frustration of the public policy which the rule is meant to pursue. It seems to me that assertion and proof of competitive harm comes much closer to establishing frustration of the policy at issue here (financial viability of broadcast stations) than does the assertion that a competing distant signal is not "significantly viewed." Indeed, the latter is merely a step towards proving the former.
The Commission has established a scheme which, if it falls short of possible further refinement (which I doubt), does not clearly do so, and does not do so in a degree that can be regarded as arbitrary. Indeed, I think the approach which the Court now imposes upon the Commission is a better candidate for that designation, since it would give automatic legal effect to off-the-air viewing surveys in communities where — since the cable genie is already out of the bottle and cannot be pushed back in — such surveys are meaningless.
For these reasons, I respectfully dissent.
A cable system that is required to delete a distant station's program may offer alternative programming on the distant station's cable channel, may carry the signal of the protected local station both on its regular cable channel and on the cable channel of the distant station, or may carry nothing on the distant station's channel.
As used in this opinion, "local stations" are those within whose specified zone the community of the cable system is located. All others are "distant stations." See 47 C.F.R. § 76.92(b) (1981).
Cable Television Report and Order, 36 F.C.C.2d 143, 171 (1972).
The Commission's policy of requiring economic impact is well established and tested, Spartan Radiocasting Co. v. FCC, 619 F.2d 314, 322 (4th Cir.1980), and, therefore, waiver refusals receive a vigorous presumption of regularity, Wait Radio v. FCC, 135 U.S.App.D.C. 317, 321, 418 F.2d 1153, 1157 (1969).
The dissent implies that our holding, because the mandatory carriage and network non-duplication rules operate in tandem, will permit San Diego cable systems to stop carrying KNBC and will thereby disrupt established viewing patterns. Dis. Op. at 1198-1199. The dissent, however, ignores the limited nature of our holding, which does not address the validity of the Commission's general policy of not deleting stations from the 1972 list. See note 21 supra. Moreover, the dissent finds it "strange" to "require cable systems to carry stations and then in turn require them to delete those stations' most widely viewed programming." Dis. Op. at 1199 n. 7. Actually, this situation is not "strange," for this was the exact state of the law between 1972 and 1978, when cable systems were required to carry significantly viewed stations and there was no significantly viewed exception to the non-duplication rules.
The dissent justifies the "once-in, always-in" approach by stating that off-the-air viewing surveys are now "meaningless" because "the cable genie is already out of the bottle," i.e., there is "no way to reconstruct off-the-air viewing patterns once cable has been carrying the signal." Dis. Op. at 1199, 1201. There is no basis in the record for the dissent's argument, and, for obvious reasons, the Commission has never raised the point. First, the Commission regularly relies on these "meaningless" surveys when granting significantly viewed status to stations pursuant to subsections 76.54(b) and (d). Many of the stations acquiring the status undoubtedly have long been carried on cable in the areas for which they are receiving the status. Second, cable-connected homes are not included in the surveys, and the majority of homes in San Diego County and in most other areas are not connected to cable. San Diego County has about forty percent cable penetration, which is considered heavily cabled.
Report and Order in Dockets 20988 and 21284, 79 F.C.C.2d 663, 666 (1980).
47 C.F.R. § 76.54 (1981).