Federal judges yesterday issued a stinging rebuke to the Federal Communications Commission, saying the agency's justification for eliminating media-ownership limits "would receive a failing grade in any introductory statistics class."

The FCC's 2017 decision to eliminate newspaper/broadcast and television/radio cross-ownership rules could allow more media mergers. But the FCC order was vacated in a 2-1 vote by a panel of judges at the US Court of Appeals for the Third Circuit. Judges wrote that the FCC "did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities."

The FCC's 2017 order had to consider instructions from previous Third Circuit decisions that went against the commission. But the FCC did not comply with the court's instructions, the judges' ruling said.

The "most glaring" problem in the FCC analysis is that it "cited no evidence whatsoever regarding gender diversity," the judges wrote. The FCC claimed in a court filing that "no data on female ownership was available" yet also "purport[ed] to have complied with our instructions to consider both racial and gender diversity, repeatedly framing its conclusion in terms that encompass both areas," judges wrote.

“A failing grade”

The FCC's failure to seriously address the impact on female ownership would be "enough to justify remand" on its own, judges said. But the FCC also failed to properly examine the evidence on minority ownership, they said. The FCC's analysis of evidence on ownership by racial minorities "is so insubstantial that it would receive a failing grade in any introductory statistics class," the judges' ruling said.

The FCC mistake goes back to a 2016 decision issued when Tom Wheeler was chairman. The 2016 decision made only minor changes to the cross-ownership rules, but the evidence cited in that decision would later be used by Chairman Ajit Pai to eliminate the rules entirely in 2017, judges wrote.

The 2016 FCC order compared two different sets of data on minority-owned stations. But comparing the two data sets, one collected by the FCC and the other by the National Telecommunications and Information Administration (NTIA), "is plainly an exercise in comparing apples to oranges, and the Commission does not seem to have recognized that problem or taken any effort to fix it," judges wrote.

The opinion continued:

Even if we could treat the use of these two data sets as reliable, the FCC's statistical conclusions are woefully simplistic. They compare only the absolute number of minority-owned stations at different times, and make no effort to control for possible confounding variables. The simplest of these would be the total number of stations in existence. We do not know, for example, whether the percentage of stations that are minority-owned went up or down from 1999 to 2009.

The 2017 order that eliminated the cross-ownership rules "invoked the same evidence as the 2016 Report & Order to conclude that this would not meaningfully affect ownership diversity," judges wrote.

The newspaper/broadcast station cross-ownership rule that the FCC eliminated prohibits a single entity from owning a full-power broadcast station and daily newspaper in the same market. The radio/TV rule sets limits on how many radio and TV stations a single entity can own in one market.

Yesterday's court ruling also vacated a 2018 FCC order that created an "incubator" program designed to help new entrants into the broadcast industry. The FCC's definition of "new entrant" made "no overt reference to race, gender, or social disadvantage," the court said. The court ruling said that neither one of the vacated orders adequately considered the effect on diversity in broadcast media ownership.

In addition to vacating two of Pai's orders in their entirety, the court also vacated one part of the 2016 FCC decision. The vacated portion of the 2016 decision related to a rule designed to increase ownership opportunities for "eligible entities" such as companies owned by minorities or women. The FCC defined "eligible entity" based on revenue in order to promote small-business ownership, but yesterday's court ruling vacated the revenue-based definition and said the FCC must consider the impact of the definition on ownership by women and minorities.

FCC to appeal

The FCC "intend[s] to seek further review" of the judges' ruling, Pai said yesterday. Pai claimed the judges ignored evidence in their ruling:

For more than twenty years, Congress has instructed the Federal Communications Commission to review its media ownership regulations and revise or repeal those rules that are no longer necessary. But for the last 15 years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace. It's become quite clear that there is no evidence or reasoning—newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever—that will persuade them to change their minds."

Pai had argued in 2017 that the newspaper/broadcast cross-ownership rule, issued in 1975, has been made obsolete by cable news and online news sources.

"With the newspaper industry in crisis, it makes no sense to place regulatory roadblocks in the way of those who want to purchase newspapers," Pai said at the time. "The media landscape has changed dramatically in the last 42 years, and the idea that a company could dominate a media market by owning a radio station and a newspaper is utter nonsense."

FCC Democrats applaud court ruling

Republican FCC commissioners Brendan Carr and Michael O'Rielly also issued statements criticizing the court ruling yesterday. The commission's two Democrats supported the court decision, however.

"The court rightly sent the FCC's handiwork back to the agency because the FCC's analysis was so 'insubstantial,'" Commissioner Jessica Rosenworcel said. "The FCC shouldn't be in the business of cutting corners when it comes to honoring our long-held values when updating media ownership policies."

Commissioner Geoffrey Starks said yesterday that the court "rejected the agency's deregulatory efforts because of a failure to consider the impact of these policy changes on station ownership by women and people of color. Unfortunately, the miniscule [sic] number of diverse owners in this country speaks for itself.

"Today's opinion is clear: the FCC's approach to setting our media ownership rules needs a dramatic overhaul," Starks continued. "We must recommit to our goals of promoting competition, localism, and diversity. We can no longer get by with the bad data and shoddy analysis—problems that have been highlighted far too often by courts and interested observers in recent years."

This was the fourth time the Third Circuit court "rejected some or all of the FCC's efforts to deregulate over the past 15 years due to the agency's failures to study the public impact of its policy changes," advocacy group Free Press said. Free Press was one of the public interest groups that sued the commission.

The "ruling is a tremendous victory for the public," Free Press VP Jessica González said. "It admonishes the Trump FCC for its complete failure to consider the impact of its ownership policies on women and people of color. This marks the fourth time this court has rejected the relentless attempts from the FCC and the broadcast industry to weaken media-ownership limits regardless of the damage such drastic deregulation would cause local communities."