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Wednesday, May 30, 2018

Be Wary of the Regulatory Regime, Not Sinclair Broadcasting

All things considered, we should be skeptical of the current regulatory regime, not the right to a free press.

The media carousel has taken another turn of self-examination. The latest round is the uproar over Sinclair Broadcast Group pushing a script on their many local news stations, a script which amusingly warns of fake news. As is the way with these things, the complaints quickly turned to Sinclair’s perceived market power. One outlet headline complained of a “loophole that enables Sinclair to own too many TV stations.” This panic has, of course, found its way into the Senate where some have called for a Federal Communications Commission (FCC) investigation into Sinclair Broadcasting.

This “loophole” is an FCC rule which divides television frequency between VHF (very high frequency) and UHF (ultra high frequency). FCC regulations cap market share for national providers, but UHF is discounted to allow for a greater overall reach. The real “loophole” is not an FCC regulation, however, but the First Amendment. Specifically the freedom of the press. The effect is—in real terms and especially with technological improvements that have altered the range of UHF—a company with a substantial share of UHF stations can reach a much broader geographic market than without and still meet regulatory guidelines.

The First Amendment Loophole

The real “loophole” is not an FCC regulation, however, but the First Amendment. Specifically the freedom of the press.

St. George Tucker, a lawyer and law professor at William & Mary, explained that “[e]very individual, certainly, has a right to speak, or publish, his sentiments on the measures of government.” This right—to publish in addition to speaking—was endorsed by other jurists and scholars of the era, including William Blackstone, Justice James Iredell, and Justice Joseph Story.

Modern-day analogs for the colonial press, including high-tech presses, websites, radio communications, and, of course, television broadcasts, currently occupy this protected space. As Professor Eugene Volokh at UCLA, and of Volokh Conspiracy fame, explains, freedom of the press “protect[s] the right to use the press as technology—everyone’s right to use the printing press and its modern technological heirs.”

This usage may appear odd to our ears, as the press is spoken of as those dedicated to news coverage, but the original meaning of “press” indicates that it is much less about those engaged in journalism, as the freedom of speech covers that activity, but the instruments of the press. This concern was partially born from licensing laws which created barriers to entry for newcomers and those without the government’s seal of approval. The freedom of press is then a protection against prior restraint.

New Deal Errors in Broadcast Regulation

Sadly, the Supreme Court has been reluctant to fully protect the right of a free press in the context of the broadcast spectrum. The court believed that without government control, “the result was chaos” and that broadcast frequencies “could be regulated and rationalized only by the government.” A failure to regulate, they insisted, would give way to a “cacophony of competing voices.” The result has been a complex and vast regulatory regime beginning in 1910 with the Mann-Elkins Act and 1912 with the Radio Act, granting power to the Secretary of Commerce and Labor to monitor radio for emergency purposes including the power to revoke licenses and levy fines.

New Dealers made erroneous assumptions that the government both created the rights and were also required to regulate the distribution of said rights.

As it does, the authority and power of the government grew with new laws aimed to regulate radio and telephone services further, eventually culminating in the establishment of the Federal Communications Commission (FCC) in 1934. All of this was part of, beginning with early Progressives, an effort to regulate commerce under a centralized regime motivated by various concerns such as common carrier problems, monopoly, and vague public interests justifications.

But these concerns were almost entirely mistaken. New Dealers, among others, made erroneous and unmerited assumptions about radio wave rights, that the government both created the rights and were also required, perhaps encouraged, to regulate the distribution of said rights. As former economist at the FCC Thomas Hazlett summarized, “arguing that federal licensing of broadcaster was necessary to eliminate the interference threat endemic to common property, mistakenly compacted two distinct functions—rights definition and rights assignment—into one.” By blurring the line between the definition and assignment of property, the government has maintained a regulatory scheme that needlessly puts burdens on providers and stifles freedoms of speech and press.

Because this line has been blurred, broadcast rights have long been subjected to a level of regulation and prior restraint inapplicable in most First Amendment contexts. Yet, a print publication such as the The New York Times owns no license to their printing press, such a requirement has long been considered unconstitutional. This mistreatment of broadcast versus print famously lead to the fairness doctrine, a requirement for broadcasters to represent opposing views, regardless of agreement or even pay.

Property Rights to the Press Protect Broadcasters and Speech

Adhering to the original meaning of a free press creates a complementary protection to speech, allowing speakers not only the right to express themselves but to the means necessary for their views to be distributed. This right is supported by the economic case for diminished regulation of broadcast rights which should instead focus on establishing and protecting property rights, not distributing and licensing them.

So long as transaction costs are sufficiently low and property rights are clear, market actors will transact to move rights to the highest users.

Ronald Coase, a Nobel laureate in economics, addressed the issue of difficult property right assignment in his 1960 paper “The Problem of Social Costs.” Coase argued that so long as transaction costs are sufficiently low and property rights are clear, market actors will transact to move rights to the highest users. Coase had even addressed some concerns in a paper aimed at the FCC, much of which debunked the claim that radio frequencies are scarce and therefore require government management, not that they aren’t, but all resources have scarcity constraints.

Coase took aim at the court’s reasoning, stating, “The Supreme Court appears to have assumed that it was impossible to use the pricing mechanism when dealing with a resource which was limited in supply. This is not true.” Coase illustrates this principle by referencing fine art, “Despite all efforts of art dealers, the number of Rembrandts existing at a given time is limited; yet such paintings are commonly disposed of by auction.” With established property rights, market actors will allocate resources, via the pricing mechanism, to the highest user.

While the licensing and regulatory approach of the FCC has, in some regards, liberalized since Coase opined on the matter, the Sinclair scenario reminds us that it remains needlessly restrictive and costly, imposing limits on broadcasters based on geographic reach, artificially constraining those who participate as the modern press. But nothing compares to the political temptation that accompanies this regulatory scheme. We should worry that the context that has inspired calls for regulatory clampdown was the exercise of expressly protected freedoms of the press and speech used in a way that some found objectionable. If the First Amendment protects against anything, this is likely it.

The Sinclair Threat

Sinclair Broadcasting is far from a monopoly. As Politico reported, “Today, the United States has 1,775 total television stations, about 5,200 cable systems run by 660 operators reaching 90 percent of homes.” Sinclair may have a geographic footprint reaching close to 72 percent of households—assuming they achieve the full benefits of their merger with Tribune Co., part of what is driving this panic—but those households have numerous options to choose from, not to mention the rise of new media such as streaming services and other Internet-based platforms.

The threat of censure hangs over Sinclair and other broadcasters, as we have already seen.

Returning to the more stringent FCC rule, ending the UHF discount would create a more costly environment without any real benefit. It would force broadcasters to artificially limit their reach and drive up costs by preventing operators from harnessing economies of scale.

And there is also the harm of prior restraint. As the Supreme Court recognized in a different context, “[t]he power of the licensor against which John Milton directed his assault by his ‘Appeal for the Liberty of Unlicensed Printing’ is pernicious not merely by reason of the censure of particular comments, but by reason of the threat to censure comments on matters of public concern.”

The threat of censure hangs over Sinclair and other broadcasters, as we have already seen. The regulatory scheme is currently backward from a free-speech and -press perspective. The burden should instead be on the government to prove the harm and subsequent need for a well-tailored solution, as is constitutionally required for protected rights, instead of placing Sinclair in the political and regulatory cross-hairs which arise from licensure.

As economic benefits in broadcast media have been constrained by ambiguous and questionable regulation, muddled by government interference, and justified through erroneous economic and legal assumptions, so too can they be strengthened by enforcing relevant constitutional provisions and protecting property rights.

All things considered, we should be skeptical of the current regulatory regime, not the right to a free press.

Reprinted from Medium.

  • James Devereaux is an attorney. All views are his own and not representative of employers or affiliations. 

    Husband and father of four. Graduate of Brigham Young University with a B.S. in Psychology and William & Mary School of Law.