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Volume 51; 1998-1999 • Issue 3

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Editor’s Note

New Approaches to Minority Media Ownership
Columbia Institute for Tele-Information, Columbia University

Equality in the Information Age
by William E. Kennard

Equity Pooling and Media Ownership
by Peter Chinloy

This Article outlines a method of pooling equity for acquiring a portfolio of media properties. Each participant receives a security containing an investment return and a management right. The management right goes only to one successful bidder, offering a cash payment to other investors as an access price. By offering repeat bidding on several properties, different members of a pool achieve ownership while diversifying their risk. Alternatively, an investor not wishing management receives a higher compensating return. The procedure is particularly suited to media properties dependent on local advertising such as radio, “free” community newspapers, and television outlets. These properties are more vulnerable to downturns in local markets. The pooling procedure allows local risks to be diversified away into the larger economy.

The Digital Dilemma: Ten Challenges Facing Minority-Owned New Media Ventures
by Marcelino Ford-Livene

Minority-owned companies competing in print publishing, radio, broadcast television, cable, and telecommunications industries have had no shortage of challenges, setbacks, and failures. Minority-owned companies are struggling to stake a claim in the new media frontier. Some challenges they face are unique to the underlying technology, uncertainty, and international reach of the Web. There should be a sense of urgency with respect to minority participation on the Web. If the promise of broadband leads to new media outlets that are profitable and more dynamic than traditional media, then minorities cannot afford to be left out.

Private Equity Funding for Minority Media Ownership
by Vance H. Fried

This Article details the importance of private equity financing to all sizes and types of media companies. Much of the rapid growth of the Internet has been financed by private equity. The private equity market is an important source of funds for minority media companies. It is a large market, able to meet a variety of financing needs. However, the minority media entrepreneur must realize that this is strictly a profit-oriented investment market. The same investment process and criteria will be applied to minority media proposals as will be applied to non-minority media proposals. This process may present some problems for minority entrepreneurs since most private equity investors are not minorities.

Measuring the Nexus: The Relationship Between Minority Ownership and Broadcast Diversity After Metro Broadcasting
by Allen S. Hammond, IV

In Metro Broadcasting, Inc. v. FCC, the Court found a nexus between minority ownership and diversity of viewpoint. The recent Lutheran Church-Missouri Synod v. FCC decision dismissed the government’s arguments that a nexus exists between minority employment in broadcast stations and greater diversity in broadcast programming, and that the government has an interest in fostering such diversity. Given the challenge of the Lutheran Church opinion and potentially significant changes in the regulation and operation of the broadcast market, sole reliance on Metro Broadcasting’s holdings may be ill advised and a new study documenting the continued existence of the nexus may be warranted.

Use of Designated Entity Preferences in Assigning Wireless Licenses
by Thomas W. Hazlett & Babette E.L. Boliek

The FCC is mandated to distribute wireless licenses quickly, efficiently, and to a diverse group of licensees. This Article examines the social costs and benefits associated with designated entity preference programs implemented in conjunction with FCC license auctions. The Authors focus on the auctions of licenses for Regional Narrowband Personal Communications and Personal Communications Services C block, finding that while the benefits to designated entity applicants are bid away in the auction process, substantial costs to consumers have accrued from lengthy delays in designate entity license assignments.

The FCC’s Minority Tax Certificate Program: A Proposal for Life After Death
by Erwin G. Krasnow & Lisa M. Fowlkes

In 1995, Congress eliminated the Federal Communications Commission’s (FCC) Minority Tax Certificate Program—a nonintrusive method of encouraging increased participation of minority entrepreneurs as owners in the broadcast and cable industries. Since that time, minorities have faced increased difficulties competing in all facets of the communications industry. These difficulties can be attributed to: (1) increased consolidation within the broadcast industry as a result of provisions of the Telecommunications Act of 1996 relaxing certain broadcast ownership limitations; (2) recent court decisions adverse to minority-specific programs; and (3) continued obstacles faced by minorities in accessing sufficient capital to acquire licenses and compete in the communications industries. This Article examines the history and benefits of the FCC’s Minority Tax Certificate Program and Congress’s reasons for eliminating it. This Article also suggests ways in which a new tax certificate program could be created to address Congress’s concerns.

Investment in Minority-Owned Media: A Social Investor’s Perspective
by Lloyd Kurtz

Access to capital for minority media remains problematic in the pension and mutual fund world, even among those organizations that practice “socially responsible” investing. The reasons for this include the behavior traits of all institutional investors and the relatively undeveloped state of socially responsible investing. However, modern social research suggests that large media conglomerates, such as Disney, Time-Warner, and Viacom, might be potentially approachable sources of capital for minority media.

The Value of the Tax Certificate
by Kofi Asiedu Ofori & Mark Lloyd

Tax certificates are an example of successful incentive regulation. Prior to its repeal in 1995, section 1071 of the Internal Revenue Code permitted the tax-free sale or exchange of media properties to effectuate policies of the Federal Communications Commission. Enacted by Congress in 1943, this provision was originally used to soften the hardship created by involuntary sales of broadcast properties made necessary to reduce ownership concentration in the radio industry. In 1978, the tax certificate was used to promote goals to increase minority ownership of a variety of communications properties. This Article discusses the “value” of tax certificates as a public policy tool and measures that tool’s efficacy in promoting the particular goal of increased minority ownership. It also discusses the importance of tax certificates in an environment of increased ownership concentration in the radio industry.


Self-Regulation and the Media
by Angela J. Campbell

Self-regulation has been portrayed as superior to government regulation for addressing problems of new media such as digital television and the Internet. This Article reviews the literature on self-regulation to define what is meant by the term, to identify the purported advantages and disadvantages of self-regulation, and to identify the conditions needed for its success. It then analyzes the effectiveness of self-regulation by examining instances where self-regulation has been employed in connection with media. After describing and analyzing past uses of self-regulation in broadcasting, children’s advertising, news, alcohol advertising, comic books, movies, and video games, this Article concludes that self-regulation rarely lives up to the claims made for it, although in some cases, it has been useful as a supplement to government regulation. The Article identifies five factors that may account for the success or failure of self-regulation. These include industry incentives, the ability of government to regulate, the use of measurable standards, public participation, and industry structure. Applying these five factors to digital television public interest responsibilities and privacy on the Internet, this Article concludes that self-regulation is not likely to be successful in these contexts.

Legal Opinions in Corporate Transactions Affected by FCC Regulation: An Economic Approach
by John C. Quale & Brian D. Weimer

In 1996, a subcommittee of the Federal Communications Bar Association published a report on legal opinion practice in corporate transactions involving FCC licensees (the FCBA Report). The FCBA Report, although inspired by the American Bar Association’s Legal Opinion Accord and Guidelines (the Accord), deviated from the Accord in many important respects. The FCBA Report likewise is at variance with the recent report of the TriBar Opinion Committee (the TriBar Report), which presents a comprehensive treatment of customary legal opinion practice. Given recent developments in case law expanding the liability of lawyers to third parties for their legal opinions, the departure of the FCBA Report from the approach of the Accord and the TriBar Report could expose communications practitioners to unnecessary risk. Communications practitioners should only be asked to opine with respect to matters for which they have a reliable source of factual information and for which they are the least-cost source of the opinion sought. To the extent that the FCBA Report departs from these principles, practitioners should follow the approach of the Accord and the TriBar Report.


False Alarm?
by Henry H. Perritt, Jr. & Margaret G. Stewart


The Copyright Dilemma Involving Online Service Providers: Problem Solved…for Now
by Christian C.M. Beams

The Internet environment has presented copyright law with a development unlike any other this century. The illegal trading of copyrighted works has become easier than ever. Until recently, it was possible to hold online service providers strictly liable for the infringing actions of their users, regardless of whether the provider had knowledge of any infringing activity. While promoting the policy of copyright law, upholding such a standard had the potential to limit Internet speech and retard its growth. Seeing this, Congress began to debate on legislation that would protect innocent service providers from this liability. This Note argues that with the recent passage of the Digital Millennium Copyright Act, Congress did what was necessary: It provided an exemption to the notion of vicarious liability for online service providers that are innocently unaware of infringing activity. Further, it did so in such a way that providers can be confident in their understanding of the precautions that need to be taken so as to avoid such liability.

Private Property, Economic Efficiency, and Spectrum Policy in the Wake of the C Block Auction
by Brian C. Fritts

In the original spectrum auctions of Personal Communications Services, the FCC designated a portion of the spectrum for woman and minority-owned small businesses (the C block). The Supreme Court’s decision in Adarand v. Pena caused the FCC to redesign the auction with the result that many bidders overvalued this spectrum. Due to this overvaluation, many bidders could not meet their obligations to the FCC. This Note analyzes FCC auction history, the FCC’s response to the original C block auction, how to fix these problems within the given congressional and FCC framework, and argues that the best solution would be to treat spectrum like private property.

Not in My Backyard: The Siting of Wireless Communications Facilities
by Malcolm J. Tuesley

Given the increasing prominence of wireless communications within the broader realm of technological advancement, the deployment of a national infrastructure capable of meeting the demands of PCS is critical. The Telecommunications Act of 1996 takes substantial steps to ensure the expeditious deployment and ultimate success of such technology. The spur of the 1996 Act is necessary to bring otherwise disinterested communities to the table with providers. While the 1996 Act greatly enhances the position of service providers as they deal with local communities, education and cooperation between federal, state and local governments, and service providers offer the greatest potential for effective resolution of problems. States and municipalities working with providers in the crucible of their jurisdictions continue to develop innovative solutions to the complex issues that they face. As a result, their profound contributions have and will continue to advance the communications revolution.