Full opinion text
PER CURIAM: In these 15 eases, consolidated for purposes of argument and decision, petitioners challenge various facets of four orders of the Federal Communications Commission which, taken together, regulate and limit the program fare “cablecasters” and “subscription broadcast television stations” may offer to the public for a fee set on a per-program or per-channel basis. Technically, the orders reviewed here amend previous, more stringent, Commission rules. While this procedural nicety has not gone unnoticed by those petitioners who attack only the amendments to the rules on the theory that they represent a major, but unexplained and hence arbitrary, change of prior Commission policy, it has largely escaped those who take the opposing view that any regulation exceeds the authority of the Commission. We accept neither view in full but instead uphold the orders challenged here insofar as they relate to subscription broadcast television and vacate the orders as arbitrary, capricious, and unauthorized by law in all other respects. I. THE FACTUAL BACKGROUND At the heart of these cases are the Commission’s “pay cable” rules, set out in the margin for convenience. The effect of these rules is to restrict sharply the ability of cablecasters to present feature film and sports programs if a separate program or channel charge is made for this material. In addition, the rules prohibit cablecasters from devoting more than 90 percent of their cablecast hours tc movie and sports programs and further bar cablecasters from showing commercial advertising on cable channels on which programs are presented for a direct charge to the viewer. Virtually identical restrictions apply to subscription broadcast television. To understand the function of these rules, it is useful to trace their .origins. The first application to establish a subscription broadcast television service was filed with the Commission in 1952. After a series of administrative proceedings and hearings before Congress, the Commission announced in 1959 that it would license a number of trial systems in order to gather information about the technical and economic aspects of subscription television. In its Fourth Report and Order, 15 FCC 2d 466, issued in 1968, the Commission analyzed in detail results achieved in the Hartford, Connecticut trial system and concluded that permanent subscription operations should be authorized with certain limitations. For present purposes, the relevant limitations included restrictions on feature films, sports events, and series programs that could be shown for a fee, and prohibited commercial advertising during subscription operations. The purpose of these limitations was twofold. First, the Commission had agonized over both its authority to dedicate one or more channels from the electronic spectrum to subscription operations and the desirability of doing so. Such channels are scarce, and opponents of subscription television had argued that they should be used for conventional programming which would, of course, be free to all viewers. The Commission ultimately concluded that it had the required authority, a position sustained by this Court in National Ass’n of Theatre Owners (NATO) v. FCC, 136 U.S.App.D.C. 352, 420 F.2d 194 (1969), cert, denied, 397 U.S. 922, 90 S.Ct. 914, 25 L.Ed.2d 102 (1970), but that subscription service would not be desirable unless the programming presented was distinct from that on conventional advertiser-supported television. As a result, the Commission placed restrictions on the number of hours of feature films and sports programs, both readily available on conventional television, that could be shown and prohibited commercial advertising in an effort to remove any economic pressure to appeal to a mass audience, a pressure to which the Commission attributed the sameness of conventional television fare. A second reason for restricting the feature films, sports events, and series programs that could be shown on subscription television was the Commission’s fear that the revenue derived from subscription operations would be sufficient to allow subscription operators to bid away the best programs in these categories, thus reducing the quality of conventional television. By limiting the subscription operator to material that would not otherwise be shown on television, the Commission hoped both to prevent such “siphoning” and to enhance the diversity of program offerings on broadcast television as a whole. The cable television industry has a similarly lengthy technical and regulatory history. Starting in the 1940’s as community antenna television systems (CATV) designed to bring better or more distant broadcast signals into the home, cable sys-terns developed through the 1960’s into media with enough channels to accommodate both retransmission of broadcast television programs and origination of special services such as weather or stock exchange reports. More recently, cable companies began cablecasting their own programs on channels not used for retransmission services, and the abundance of channels on modern systems (presently 35 or more) promises that program origination will remain an important part of cable programming. The Commission’s regulation of cable television reflects its technological development. At first the Commission eschewed regulation altogether. However, as CATV systems with multiple channels developed, the Commission asserted jurisdiction over cable operations to prevent fragmentation of audiences and revenues between local broadcasters and competing cable systems which were bringing distant broadcast signals into local markets. In 1968 the Commission launched a further, broad-ranging inquiry into the uses to which cable television might be put in the national communications network. The outcome of these proceedings was a series of regulations which, among other things, required cable systems in major markets to provide cablecasting services, to set aside “access channels” on which members of the public could rent time to produce and transmit their own shows, and to furnish chan-neis for government and educational use. The Commission specifically declined, however, to promulgate rules for cable television similar to those adopted for subscription broadcast television. See First Report and Order, 20 FCC2d 201, 204 (1969). The reasons given were that the Commission had no information which would indicate that pay cable television could penetrate any television market to the extent needed to “siphon” programming, see id. at 204 & n.4, and that the Commission would in any event be able to act in time to correct any adverse effects on conventional broadcasting, see id. at 204. Nine months later the Commission reversed its course and applied the rules developed in the subscription broadcast field to cable television. See Memorandum Opinion and Order, 23 FCC2d 825 (1970). The reasons for such a quick reversal are not clear in the Order and a number of the petitioners here filed petitions to reconsider imposition of the subscription broadcast rules on the ground that the Commission’s abrupt change of course was arbitrary and not adequately explained. See Notice of Proposed Rule Making and Memorandum Opinion and Order, 35 FCC2d 893, 894 n. 5 (1972), JA 2. These petitions for reconsideration were denied. See id. at 899, JA 7. In this same order Docket 19554, which spawned the orders reviewed here, was established. In its First Report and Order in this docket, 52 FCC2d 1 (1975), JA 25, the Commission re-adopted, with minor modifications, the pay cable rules originally announced. Petitions for reconsideration of this Report and Order were denied, except to the extent that some petitioners sought to establish reporting requirements designed to enhance enforcement of the rules. Memorandum Opinion and Order, 54 FCC2d 797 (1975), JA 117. Contemporaneously the Commission issued a Second Further Notice of Proposed Rule Making, 52 FCC2d 83 (1975), JA 107, eliciting additional information on the rules relating to series programming. On the basis of that information the Commission deleted any restriction on subscription use of series programs. Second Report and Order,-FCC2d-, 35 P & F Radio Reg.2d 767 (1975), JA 131. To understand the postulated “siphoning” phenomenon and its potential harm, it is useful to consider the structure of the television industry today. In 1975 there were 70.1 million American homes with television sets, of which 9.8 million had access to some cable system. Although the number of cable subscribers is large, individual cable systems are quite small, with the largest having only 101,000 customers and with only 224 of approximately 3,405 systems having more than 10,000 subscribers. The number of homes that presently have access to pay cable facilities is about a half million and is growing rapidly. Most of these homes are located outside major television markets, with the exception of the New York City area and parts of California. Extension of service to other urban areas might be accomplished at a capital cost of some $8 billion, but laying cable to reach that half of the American population which lives in rural areas would by any estimate be extremely expensive, perhaps requiring an additional $240 billion. Because of these capital requirements, extension of cable service with cablecasting capability to the country as a whole does not seem possible in the immediate future. Similarly, access of all Americans to cable seems foreclosed by the cost of cable service. Cable service charges are generally separated into two distinct fees, one basic fee entitling the viewer to receive only broadcast signals, the other entitling the viewer to see cablecast programs as well. The basic fee is approximately $5-$6 monthly. Technical capability exists today to distribute and bill for cablecast programs on a program-by-program basis, but this is not currently done. Instead a single fee of $5-$7 monthly, in addition to the basic fee, is charged for access to the cablecasting channels. Nonetheless, as the name of one petitioner suggests, it is quite literally possible to turn the home receiver into a “Home Box Office,” thereby marketing television features in much the same way that movies are marketed in theaters today. As with other box offices, however, only those with enough money to buy a ticket can get in to see the show. Siphoning is said to occur when an event or program currently shown on conventional free television is purchased by a cable operator for showing on a subscription cable channel. If such a transfer occurs, the Commission believes, the program or event will become unavailable for showing on the free television system or its showing on free television will be delayed (since the commercial appeal of the cable showing is the assurance of earlier access to program material, an assurance that might itself be brought about by agreement between the seller of the program or event and the subscription cablecaster). In either case a segment of the American people — those in areas not served by cable or those too poor to afford subscription cable service — could receive delayed access to the program or could be denied access altogether. The ability of the half-million cable subscribers thus to preempt the other 70 million television homes is said to arise from the fact that subscribers are willing to pay more to see certain types of features than are advertisers to spread their messages by attaching them to those same features. For example, according to Commissioner Robinson, subscribers may be willing to pay 15 to 30 cents per viewing hour for the privilege of viewing a recent feature film, while advertisers are willing to pay only three cents per viewer. As a result a pay audience of one million could routinely buy a film away from a nonpaying audience of five to ten million. Whether such a siphoning scenario is in fact likely to occur and, if so, whether the result of siphoning would be to lower the quality of free television programming available to certain areas of the country or to certain economic strata of the population are matters of great dispute among the Commission and the various petitioners and' intervenors seeking review of the Commission’s regulations in this case. Other petitioners both here and before the Commission argue that the rules which ostensibly place cable in a subordinate role in order to increase program diversity — a goal which has been basic to a number of Commission regulations — in fact diminish diversity by prohibiting subscription cable operators from showing the programs that are most likely to be the financial backbone of a successful cable operation. As a result, it is claimed, cultural and minority programming that could otherwise “piggyback” on a cable system supported by more broadly popular fare is precluded. Indeed, some petitioners argue that the subscription broadcast television rules had the effect of killing that medium in its infancy by denying it access to necessary programming — a charge supported by the apparent lack of any viable commercial applications of subscription broadcast television today and left unrefuted by the Commission — and urge us not to let the Commission similarly snuff out pay cable. Finally, other petitioners take the position that the threat of siphoning is very real and that the Commission’s rules do not adequately cope with this threat to conventional television service. II. PAY CABLE RULES A. Statutory Authority In determining the Commission’s authority to promulgate the pay cable rules, we by no means write on a clean slate. This court has recognized that the Communications Act of 1934, 47 U.S.C. § 151 et seq., must be construed at least in some circumstances to allow the Commission to regulate cable television system operations. See Carter Mountain Transmission Corp. v. FCC, 116 U.S.App.D.C. 93, 321 F.2d 359, cert, denied, 375 U.S. 951, 84 S.Ct. 442, 11 L.Ed.2d 312 (1963); Buckeye Cablevision, Inc. v. FCC, 128 U.S.App.D.C. 262, 387 F.2d 220 (1967). This view has been adopted by other Courts of Appeals, see, e. g., American Civil Liberties Union v. FCC, 523 F.2d 1344, 1351 (9th Cir. 1975), and confirmed by the Supreme Court, see United States v. Midwest Video Corp., 406 U.S. 649, 92 S.Ct. 1860, 32 L.Ed.2d 390 (1972); United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968). As the Supreme Court explained in Southwestern Cable, supra, to construe the Communications Act narrowly would be to defeat the purpose of Congress “ ‘to maintain, through appropriate administrative control, a grip on the dynamic aspects of radio transmission.’ ” 392 U.S. at 172, 88 S.Ct. at 2002, quoting FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 138, 60 S.Ct. 437, 84 L.Ed. 656 (1940). Yet, despite the latitude which must be given the Commission to deal with evolving technology, its regulatory authority over cable television is not a carte blanche. Unless these regulations are “justified by reasons which are properly the concern of [the Commission],” Hampton v. Mow Sun Wong, 426 U.S. 88, 116, 96 S.Ct. 1895, 1912, 48 L.Ed.2d 495 (1976), they must be set aside. 1. The Standard for Determining Statutory Authority Midwest Video Corp. and Southwestern Cable Co. hold that the Commission may only exercise authority over cable television to the extent “reasonably ancillary” to the Commission’s jurisdiction over broadcast television. United States v. Southwestern Cable Co., supra, 392 U.S. at 178, 88 S.Ct. 1994; United States v. Midwest Video Corp., supra, 406 U.S. at 670, 92 S.Ct. 1860. See generally National Ass’n of Regulatory Utility Comm’rs v. FCC, 174 U.S.App.D.C. 374, 379-380, 394-395, 401-406, 533 F.2d 601, 606-607, 621-622, 628-633 (1976). This standard was first enunciated in Southwestern Cable Co., in which the Supreme Court was asked to pass on the Commission’s authority to promulgate rules prohibiting importation of “distant signals” into the San Diego television market. 392 U.S. at 159-160, 88 S.Ct. 1994. The purpose of these rules was to prevent division of audiences and revenues between cable television and fledgling UHF and educational television stations. Competition by cable operators, the Commission feared, would make these new ventures unprofitable, thereby frustrating the Commission’s long-standing and congressionally approved policy of attempting to provide locally controlled broadcast television service. See 392 U.S. at 173-177, 88 S.Ct. 1994. In finding that the Commission was authorized to promulgate the challenged rules, the Southwestern Court first held that cable television was an instrument of “interstate and foreign communication by wire or radio” within the meaning of Section 2(a) of the Communications Act of 1934, 47 U.S.C. § 152(a) (1970). 392 U.S. at 167-169, 88 S.Ct. 1994. For this reason the Commission was held to have “regulatory authority” over cable television. Id. at 173, 88 S.Ct. 1994. However, the Court chose not “to determine in detail the limits of the Commission’s authority to regulate [cable television]” under Section 2(a). Id. at 178, 88 S.Ct. at 2005. Instead, stressing that “ ‘the achievement of an agency’s ultimate purposes' ” was at stake, id. at 177, 88 S.Ct. at 2005, quoting Permian Basin Area Rate Cases, 390 U.S. 747, 780, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968), the Court noted that the rules were “reasonably ancillary to the effective performance of the Commission’s various responsibilities for the regulation of television broadcasting,” id. at 178, 88 S.Ct. at 2005, and that to carry out such responsibilities the Commission'vcould “issue ‘such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law’ as ‘public convenience, interest, or necessity requires.’ ” Id., quoting 47 U.S.C. § 303(r) (1970). In United States v. Midwest Video Corp., supra, a decision which affirmed the Commission’s jurisdiction by a narrow margin, a four-judge plurality of the Supreme Court again applied the “reasonably ancillary” standard to determine the scope of the Commission’s jurisdiction over cable television operations. Upholding the Commission’s rules requiring operators of large cable systems to cablecast programs on some channels, the plurality reiterated that Section 2(a) conferred regulatory power on the Commission, but that “§ 2(a) does not in and of itself prescribe any objectives for which the Commission’s regulatory power over [cable television] might properly be exercised.” 406 U.S. at 661, 92 S.Ct. at 1867. The plurality then stated that the test for determining whether a rule reflected a proper objective was whether it would “ ‘further the achievement of long-established regulatory goals in the field of television broadcasting.’ ” Id. at 667-668, 92 S.Ct. at 1870, quoting United States v. Southwestern Cable Co., supra, 392 U.S. at 654, 88 S.Ct. 1994. Under this standard the Commission was held to be authorized to require cable program origination since such a requirement furthered Commission policies with respect to both enhancement of local service and diversification of control of available television and cable programming. See 406 U.S. at 668-670, 92 S.Ct. 1860. The deciding vote in Midwest Video Corp. was cast by Chief Justice Burger, who wrote: Candor requires acknowledgment, for me at least, that the Commission’s position strains the outer limits of even the open-ended and pervasive jurisdiction that has evolved by decisions of the Commission and the courts. * * * 406 U.S. at 676, 92 S.Ct. at 1874. Nonetheless, the Chief Justice was willing to uphold the challenged regulations on the ground that “when [cable system operators] interrupt the signal and put it to their own use for profit, they take on burdens, one of which is regulation by the Commission.” Id. Justice Douglas, writing for four dissenting Justices, took yet a third position, apparently agreeing that the appropriate test for Commission jurisdiction was expressed by the “reasonably ancillary” standard, but finding that to uphold the regulations challenged in Midwest would “make the Commission’s authority over activities ‘ancillary’ to its responsibilities greater than its authority over any broadcast licensee.” Id. at 681, 92 S.Ct. at 1877. The Supreme Court’s opinions in Southwestern Cable Co. and Midwest Video Corp. thus look in two directions. First, they recognize an expansive jurisdiction for the Commission based on Section 2(a) of the Communications Act and the need to give the Commission sufficient latitude to cope with technological developments in a rapidly changing field. But the opinions are also narrow. Even the broadest opinion, that of the plurality in Midwest Video Corp., recognizes that the Commission, can act only for ends for which it could also regulate broadcast television. Indeed, even this standard will be too commodious in certain cases, since as we discuss in Part III infra the scope of the Commission’s constitutionally permitted authority over broadcast television in areas impinging on the First Amendment is broader than its authority over cable television. Finally, the opinions in both cases go no farther than to allow the Commission to regulate to achieve “long-established” goals or to protect its “ultimate purposes.” That these cases establish an outer boundary to the Commission’s authority we have no doubt, cf. National Ass’n of Regulatory Utility Comm’rs v. FCC, supra; Staff of Subcomm. on Communications, Comm, on Interstate and Foreign Commerce, Cable Television: Promise Versus Regulatory Performance 80-83 (1976) (Subcomm. Print), and if judicial review is to be effective in keeping the Commission within that boundary, we think the Commission must either demonstrate specific support for its actions in the language of the Communications Act or at least be able to ground them in a well-understood and consistently held policy developed in the Commission’s regulation of broadcast television, cf. Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 394, 444 F.2d 841, 852 (1970), cert, denied, 403 U.S. 923, 91 S.Ct. 2229, 2233, 29 L.Ed.2d 701 (1971). 2. Applying the Jurisdictional Standard The purpose of the Commission’s pay cable rules is to prevent “siphoning” of feature film and sports material from conventional broadcast television to pay cable. Although there is dispute over the effectiveness of the rules, it is clear that their thrust is to prevent any competition by pay cable entrepreneurs for film or sports material that either has been shown on conventional television or is likely to be shown there How such an effect furthers any legitimate goal of the Communications Act is not clear. The Commission states only that its “mandate to act in the public interest requires that [it] strive to maintain the public’s ability to receive the informational and entertainment programming now provided by conventional television at no direct cost," First Report and Order, supra, 52 FCC2d at 43, JA 67, and that its action “is designed to enhance the integrity of broadcast signals and is a proper execution of our responsibility under Section 2(b) [sic] of the Communications Act * * *,” id. at 45, JA 69. Insofar as the Commission places reliance on such conclusory phrases as “enhance the integrity of broadcast signals,” we think it has crossed “the line from the tolerably terse to the intolerably mute.” Greater Boston Television Corp. v. FCC, supra, 143 U.S.App.D.C. at 394, 444 F.2d at 852. Beneath such generalities, however, the Commission seems to be making two more specific arguments which relate the public interest to retention of the conventional television structure. First, the Commission appears to take the position that it has both the obligation and the authority to regulate program format content to maintain present levels of public enjoyment. For this reason, and because the Commission also seems to assert that the overall level of public enjoyment of television entertainment would be reduced if films or sports events were shown only on pay cable or shown on conventional television only after some delay, it concludes that anti-siphoning rules are both needed and authorized. Second, and closely related, is the argument pressed here by counsel for the Commission that Section 1 of the Communications Act, 47 U.S.C. § 151 (1970), mandates the Commission to promulgate anti-siphoning rules since cable television cannot now and will not in the near future provide a nationwide communications service. See Transcript of Oral Argument at 57-58. Before considering each of these arguments in turn, we note that we do not understand the Commission to be asserting that subscription cable television will divide audiences and revenues available to broadcast stations in such a manner as to put the very existence of these stations in doubt. See Memorandum Opinion and Order, supra, 54 FCC2d at 800-802 (1110, 11,18), JA 120-122; Second Report and Order, supra, - FCC2d at -, 35 P & F Radio Reg.2d at 772, JA 136 (“[w]e possess no evidence which indicates that the advertising revenues generated by conventional television will be diminished as a result of subscription operations”). See also First Report and Order, 20 FCC2d 201, 216-217 (1969). The Supreme Court’s opinion in Southwestern Cable Co. is not, therefore, directly applicable. The question of the Commission’s obligation or authority to regulate television to maintain public enjoyment is one whose analysis takes us into a thicket of disagreement between this court and the Commission. See Citizens Committee to Save WEFM v. FCC, 165 U.S.App.D.C. 185, 191-207, 506 F.2d 246, 252-268 (1974) (en banc). Although this controversy has taken place in the context of the Commission’s obligation to regulate changes in radio broadcast formats, much of what has been said is directly relevant here. The traditional view of the Commission is well summarized by its then chairman, Dean Burch: It would be a simple matter for the Commission to dictate to each licensee of the 62 stations in the Chicago area which entertainment format each should use. Such an approach might maximize — at least in the short run — the diversity of formats and types of programming available to the public. But it would not be the approach contemplated by Congress when it created the Commission in 1934. Broadcast stations are, of course, licensed to serve the public interest, but as the Supreme Court observed back in 1940, the Communications Act also “recognizes that the field of broadcasting is one of free competition.” In short, “[t]he regulatory responsibility of the Commission in the broadcast field essentially involves the maintenance of a balance between the preservation of a free competitive broadcast system, on the one hand, and the reasonable restriction of that freedom inherent in the public interest standard provided in the Communications Act, on the other.” The Commission has struck this balance by requiring licensees to conduct formal surveys to ascertain the need for certain types of non-entertainment programming, while allowing licensees wide discretion in the area of entertainment programming. Thus with respect to the provision of news, public affairs, and other informational services to the community, we have required that broadcasters conduct thorough surveys designed to assure familiarity with community problems and then develop programming responsive to those identified needs. In contrast, we have generally left entertainment programming decisions to the licensee or applicant’s judgment and competitive marketplace forces. As the Commission stated in its Programming Policy Statement, 25 Fed.Reg. 7293 (1960), “[o]ur view has been that the station’s [entertainment] program format is a matter best left to the discretion of the licensee or applicants, since as a matter of public acceptance and of economic necessity he will tend to program to meet the preferences of his area and fill whatever void is left by the programming of other stations.” Zenith Radio Corp., 40 FCC2d 223, 230 (1973) (footnotes omitted). In addition, in many other proceedings the Commission has taken the position that the First Amendment and the anti-censorship provision of the Communications Act, 47 U.S.C. § 326 (1970), strip it of any authority to require or to prohibit broadcast of any particular material. See, e. g., Ad Hoc Comm, on the Sugar Bowl, 29 P & F Radio Reg.2d 70 (1973); Broadcast of Elections Projections, 38 FCC2d 378 (1972); Washington Women’s Strike for Peace, 6 P & F Radio Reg.2d 307, 308 (1965). As we understand the traditional position of the Commission, therefore, it is that regulation of entertainment program format is inconsistent with the Communications Act and as also unnecessary, but for reasons inapposite here. __s In WEFM this court en banc rejected the laissez faire approach of the Commission, holding: There is a public interest in a diversity of broadcast entertainment formats. The disappearance of a distinctive format may deprive a significant segment of the public of the benefits of radio, at least at their first-preference level. When faced with a proposed license assignment encompassing a format change, the FCC is obliged to determine whether the format to be lóst is unique or otherwise serves a specialized audience that would feel its loss. If the endangered format is of this variety, then the FCC must affirmatively consider whether the public interest would be served by approving the proposed assignment, which may, if there are substantial questions of fact or inadequate data in the application or other officially noticeable materials, necessitate conducting a public hearing in order to resolve the factual issues or assist the Commission in discerning the public interest. Finally, it is not sufficient justification for approving the application that the assignor has asserted financial losses in providing the special format; those losses must be attributable to the format itself in order logically to support an assignment that occasions a loss of the format. 165 U.S.App.D.C. at 201, 506 F.2d at 262. Our position is thus unmistakable: The Communications Act not only allows, but in some instances requires, the Commission to consider the preferences of the public, and the Commission in discharging this authority must regulate the entertainment programming which station owners can present whenever a significant segment of the public is threatened with the loss of a preferred broadcast format. Were WEFM the last word, it is at least possible that the Commission could promulgate the anti-siphoning rules under the theory of jurisdiction recognized by the plurality in Midwest Video Corp., since the end to be achieved— protection of ' preferred television service for those not served by cable television— would also justify regulation of the broadcast media. The Commission has not, however, acquiesced in WEFM. Instead, it recently launched and concluded a proceeding on “Changes in the Entertainment Formats of Broadcast Stations.” See Notice of Inquiry, 57 FCC2d 580 (1976); Memorandum Opinion and Order, 60 FCC2d 858 (1976). Its conclusions there bear repeating in some detail. First, the Commission has reiterated its conclusion that it has no statutory authority to dictate entertainment formats. Format regulation, it is argued, is analogous to imposing common carrier responsibilities on broadcasters. Since Section 3(h) of the Communications Act, 47 U.S.C. § 153(h) (1970), specifically excludes broadcasters from the category of “common carriers,” “Congress intentionally refrained from extending the full range of regulatory tools deemed appropriate for common carrier regulation to the field of broadcast regu-. lation.” Memorandum Opinion and Order, supra, 60 FCC2d at 859. In particular, “Congress did not enact [a] requirement that broadcasters receive Commission authority to commence or discontinue programming, including program format services, offered to the public.” Id. This conclusion is further supported, in the Commission’s view, by Columbia Broadcasting System, Inc. v. Democratic National Committee, 412 U.S. 94, 93 S.Ct. 2080, 36 L.Ed.2d 772 (1973), and FCC v. Sanders Brothers Radio Station, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869 (1940). See 60 FCC2d at 860-861. A second point relevant here is the Commission’s professed inability to determine the boundaries of a “particular entertainment format.” Id. at 862. “The Commission does not know, as a matter of indwelling administrative expertise, whether a particular format is ‘unique’ or, indeed, assuming that it is, whether it has been deviated from by a licensee.” Id. In any case, concludes the Commission, “[i]t is impossible to determine whether consumers would be better off [with any particular format] without reference to the actual preferences of real people.” Id. at 864. If the Commission’s own recently announced standards are applied to the rules challenged here, it seems clear that the rules cannot stand. The very essence of the feature film and sports rules is to require the permission of the Commission “to commence * * * programming, including program format services, offered to the public.” However, it has been the consistent position of the Commission itself that cablecasters, like broadcasters, are not to be regulated as common carriers, a view sustained by a number of courts. See, e. g., American Civil Liberties Union v. FCC, supra, 523 F.2d at 1344; Philadelphia Television Broadcasting Co. v. FCC, 123 U.S.App.D.C. 298, 359 F.2d 282 (1966). Moreover, given the similarities between cablecasting operations and broadcasting, we seriously doubt that the Communications Act could be construed to give the Commission “regulatory tools” over cablecasting that it did not have over broadcasting. See 185 U.S. App.D.C. at----, 567 F.2d at 27-28, supra. Thus, even if the siphoning rules might in some sense increase the public good, this consideration alone cannot justify the Commission’s regulations. See generally Hampton v. Mow Sun Wong, supra. In addition, the record before us is devoid of any “reference to the actual preferences of real people.” While we would be willing to concede that certain formats, such as the World Series, are sufficiently unique and popular that a factual inquiry into actual preferences might not be required, this would not seem to be the case with either feature films or “non-specific” sports events. Moreover, there is not even speculation in the record about what material would replace that which might be “siphoned” to cable television. Without such a comparative inquiry, we do not understand how the Commission could define the current level of programming as a baseline for adequate service. Finally, with regard to feature films we question how the Commission, which has stated that it has no criteria by which to distinguish among formats, could have determined that feature films are a sufficiently unique format to warrant protection. The record demonstrates that broadcasters are increasingly substituting made-for-television movies — ■ for which “siphoning” is not a problem since the broadcasters own the copyrights— for feature films. See, e. g., First Report and Order, supra, 52 FCC2d at 26, JA 50. The inference from this would seem to be that the Commission has drawn its categories too narrowly and that a feature film rule may not really be necessary to ensure broadcast presentation of popular movie material. Whether or not this is the case, the inference is certainly too strong to be dismissed, as the Commission has done here, without discussion. In analyzing the feature film and sports rules under the standards announced by the Commission in its broadcast format change proceeding, we do not wish to imply that we have reconsidered the position of this court in WEFM. The sole purpose of undertaking this analysis is to demonstrate that the Commission has, in this proceeding, seemingly backed into an area of regulation in which it would not assert jurisdiction were it to face the issues directly. Indeed, in this very proceeding, and despite the Commission’s definition of current quantity and quality levels of films and sports events as the minimum level consistent with adequate television service, there is no indication that the Commission is prepared to require broadcasters to continue to present material presently on conventional television. See br. for respondent United States at 23; reply br. for petitioner Motion Picture Association of America at 3-4. In the absence of this court’s opinion in WEFM, these unexplained inconsistencies in agency policy would require us to set aside the Commission’s rules and remand the case to the agency to allow it to “supply a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored.” Greater Boston Television Corp. v. FCC, supra, 143 U.S.App.D.C. at 394, 444 F.2d at 852; accord, New Castle County Airport Comm’n v. CAB, 125 U.S.App.D.C. 268, 270, 371 F.2d 733, 735 (1966), cert, denied, 387 U.S. 930, 87 S.Ct. 2052, 18 L.Ed.2d 991 (1967). Because we understand the Commission’s Memorandum Opinion and Order in the format change proceeding to constitute a request to this court to reconsider its position in WEFM, see 60 FCC2d at 865-866, and because we are hesitant to approve rules which seem inconsistent with the Commission’s best thinking in a closely analogous area, we think we should not affirm the feature film and sports regulations on the basis of WEFM. Before reaching a conclusion on whether remand is necessary, however, we must consider the Commission’s second theory of jurisdiction. Our analysis is hampered by the failure of the Commission to make clear its argument that Section 1 of the Communications Act, as interpreted by this court in NATO v. FCC, supra, requires rules against “siphoning” of material away from free television. In the subscription broadcast proceeding the petitioning theater owners sought to block that part of the Commission’s subscription television rules which permitted subscription television by arguing that Section 1 of the Act prohibited the Commission from withdrawing one channel from the broadcast spectrum for use by only the few who might be willing to pay for the privilege of receiving broadcast signals. See First Report, 23 FCC 532, 536-540 (1957). The Commission, in dismissing such an interpretation of the Act, stated: [Section 1 has] been relied on in support of an argument to the effect that the Act did not contemplate or permit, and in fact bars authorization by the Commission of a program service, by broadcast stations, which would be available only to such members of the public as were able and willing to pay a charge. We believe, however, that such a construction cannot reasonably be made of these excerpts. Section 1 states the general purposes of the Act in broad terms. The reference to “all the people of the United States” does not, for example, preclude licensing the-use of radio frequencies for the safety and special radio services. Frequencies so allocated are not available to all the people of the United States. While the words “at reasonable charges” evidently refer to the Commission’s regulation of rates charged by common carriers for message communications, and does not, presumably, refer to charges for programs disseminated over broadcast stations, it may be noted that this express reference to charges is unaccompanied by any prohibitive language concerning charges for programs transmitted by broadcast stations. Id. at 538. In NATO this court, after reviewing the legislative history of the Communications Act, 136 U.S.App.D.C. at 358-360, 420 F.2d at 200-202, agreed, finding that the Act did not prohibit licensing of subscription television services, but was indeed “designed to foster diversity in the financial organization and modus operandi of broadcasting stations as well as in the content of programs * * 136 U.S.App.D.C. at 360, 420 F.2d at 202. Thus, as interpreted by both this court and the Commission, Section 1 does not itself compel the Commission to protect-conventional advertiser-supported television broadcasting. However, counsel for the Commission at oral argument appeared to be making a second argument about the meaning of Section 1. Stressing that Section 1 also mentions that the Commission is to foster “Nation-wide” service, counsel argued that cable could not be a nationwide service in the reasonably foreseeable future and that “siphoning” would, therefore (the logic behind this “therefore” is by no means clear), destroy nationwide service in contravention of the policy of Section 1. See Transcript of Oral Argument at 57-58. We need not consider whether Section 1 can be so construed since counsel’s argument is nothing more than a naked allegation, unsupported in the record. Indeed, the Commission has nowhere spelled out even a theory of the dynamic which could result in loss of broadcast television service to regions not served by cable. Nor is such a dynamic readily apparent. For example, cablecasters are unlikely to withhold feature film and sports material from markets they do not serve since broadcast of this material in such markets could not reduce the potential cable audience and because exhibition rights to this material would undoubtedly have substantial value. In these circumstances, the postulated loss of regional service is too speculative to support jurisdiction. See City of Chicago v. FPC, 147 U.S.App.D.C. 312, 323, 458 F.2d 731, 742 (1971), cert denied, 405 U.S. 1074, 92 S.Ct. 1495, 31 L.Ed.2d 808 (1972). Finally, none of the suggested bases for Commission jurisdiction justifies imposition of the no-advertising and 90-percent rules on cable television. These rules evolved out of the subscription broadcast television proceeding, see Fourth Report and Order, supra, 15 FCC2d at 484, and were retained here apparently because they raised “little dissent.” See First Report and Order, supra, 52 FCC2d at 66, JA 90. The reasons for which these rules were adopted in the subscription television proceeding are not applicable here, however. In the subscription proceeding the Commission determined that the public interest would not be served if one of very few available broadcast channels was allocated to subscription television unless subscription television offered services distinct from conventional advertiser-supported broadcasting. See 15 FCC2d at 484. To ensure such a “supplemental” role for subscription television, advertising was prohibited and the broadcast time that could be allocated to sports and feature films — which were already available on conventional television — was limited to 90 percent of subscription broadcast time. When these rules were reviewed by this court, it was again in the context of a need to allocate scarce spectrum resources. See NATO v. FCC, supra, 136 U.S.App.D.C. at 365-366, 420 F.2d at 207-208. Such an allocation problem is clearly not involved in this case. Moreover, given the abundance of channels that cable systems can carry, plus the Commission’s rules requiring governmental, educational, and public access channels on every cable system carrying broadcast signals, we do not understand the need to restrict feature film and sports programming time to create the technical conditions for diversity. Without further explanation of the functions these rules are meant to serve, we cannot affirm the Commission’s authority to promulgate them. Although we hold today that the Commission has not established its jurisdiction on the record evidence before it, we think it important to note the limits of our holding. We do not hold that the Commission must find express statutory authority for its cable television regulations. Such a holding would be inconsistent with the nature of the FCC’s organic Act and the flexibility needed to regulate a rapidly changing industry. However, we do require that at a minimum the Commission, in developing its cable television regulations, demonstrate that the objectives to be achieved by regulating cable television are also objectives for which the Commission could legitimately regulate the broadcast media. Where the First Amendment is involved, more will be required. See Part III infra. Further, we require that the Commission state clearly the harm which its regulations seek to remedy and its reasons for supposing that this harm exists. Because our holding is so limited, it is possible that the Commission will, after remand, be able to satisfy the jurisdictional prerequisites for regulating pay cable television. In order to avoid multiple remands, therefore, we will now consider other objections raised against these rules. B. The Evidence 1. Standard of Review With the exception of the Commission’s ruling in In re Home Box Office, Inc., 51 FCC2d 317 (1975), JA 141, each of the orders challenged here is the product of rulemaking under Section 303 of the Communications Act, 47 U.S.C. § 303 (1970). Because the statute does not otherwise indicate, this rulemaking is also informal rule-making governed by Section 4 of the Administrative Procedure Act (APA), 5 U.S.C. § 553 (1970), see id. § 553(a); Ethyl Corp. v. EPA, 176 U.S.App.D.C. 373, 405, 406, 541 F.2d 1, 33-34 (1976) (en banc), and the appropriate standard of review is that set out in Section 10 of the APA, 5 U.S.C. § 706(2)(A)-(D) (1970), see Ethyl Corp. v. EPA, supra, 176 U.S.App.D.C. at 405-406, 541 F.2d at 33-34; National Ass’n of Food Chains, Inc. v. ICC, 175 U.S.App.D.C. 346, 351-352, 535 F.2d 1308, 1313-1314 (1976). See generally Pedersen, Formal Records and Informal Rulemaking, 85 Yale L.J. 38 (1975); Wright, The Courts and the Rule-making Process: The Limits of Judicial Review, 59 Cornell L.Rev. 375 (1974). We have recently had occasion to review at length our obligation to set aside agency action which is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law * * 5 U.S.C. § 706(2)(A), see Ethyl Corp. v. EPA, supra, 176 U.S.App.D.C. at 405-409, 541 F.2d at 33-37, and for this reason we need not labor our analysis here. It is axiomatic that we may not substitute our judgment for that of the agency. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). Yet our review must be “searching and careful,” id., and we must ensure both that the Commission has adequately considered all relevant factors, see id., and that it has demonstrated a “rational connection between the facts found and the choice made,” Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962). Equally important, an a-gency must comply with the procedures set out in Section 4 of the APA. Citizens to Preserve Overton Park, Inc. v. Volpe, supra, 401 U.S. at 417, 91 S.Ct. 814. The APA sets out three procedural requirements: notice of the proposed rulemaking, an opportunity for interested persons to comment, and “a concise general statement of [the] basis and purpose” of the rules ultimately adopted. 5 U.S.C. § 553(b)-(c). As interpreted by recent decisions of this court, these procedural requirements are intended to assist judicial review as well as to provide fair treatment for persons affected by a rule. See Portland Cement Ass’n v. Ruckelshaus, 158 U.S.App.D.C. 308, 326-327, 486 F.2d 375, 393-394 (1973), cert, denied, 417 U.S. 921 (1974); International Harvester Co. v. Ruckelshaus, 155 U.S.App.D.C. 411, 445, 478 F.2d 615, 649 (1973); Automotive Parts & Accessories Ass’n v. Boyd, 132 U.S.App.D.C. 200, 208, 407 F.2d 330, 338 (1968). See also Wright, supra, 59 Cornell L.Rev. at 380-381. To this end there must be an exchange of views, information, and criticism between interested persons and the agency. See Portland Cement Ass’n v. Ruckelshaus, supra, 158 U.S.App.D.C. at 326-327, 486 F.2d at 393-394; cf. National Nutritional Foods Ass’n v. Weinberger, 512 F.2d 688, 701 (2d Cir.), cert, denied, 423 U.S. 827, 96 S.Ct. 44, 46 L.Ed.2d 44 (1975). Consequently, the notice required by the APA, or information subsequently supplied to the public, must disclose in detail the thinking that has animated the form of a proposed rule and the data upon which that rule is based. Portland Cement Ass’n v. Ruckelshaus, supra, 158 U.S.App.D.C. at 325-327, 486 F.2d at 392-394; International Harvester Co. v. Ruckelshaus, supra, 155 U.S.App.D.C. at 445, 478 F.2d at 649. Moreover, a dialogue is a two-way street: the opportunity to comment is meaningless unless the agency responds to significant points raised by the public. Portland Cement Ass’n v. Ruckelshaus, supra, 158 U.S.App.D.C. at 326-327, 486 F.2d at 393-394. A response is also mandated by Overton Park, which requires a reviewing court to assure itself that all relevant factors have been considered by the agency. See 401 U.S. at 416, 91 S.Ct. 814; accord, Duquesne Light Co. v. EPA, 522 F.2d 1186, 1196 (3d Cir. 1975), vacated on other grounds, 427 U.S. 902, 96 S.Ct. 3185, 49 L.Ed.2d 1196 (1976). From this survey of the case law emerge two dominant principles. First, an agency proposing informal rulemaking has an obligation to make its views known to the public in a concrete and focused form so as to make criticism or formulation of alternatives possible. Second, the “concise and general” statement that must accompany the rules finally promulgated must be accommodated to the realities of judicial scrutiny, which do not contemplate that the court itself will, by a laborious examination of the record, formulate in the first instance the significant issues faced by the agency and articulate the rationale of their resolution. * * * [The record must] enable us to see what major issues of policy were ventilated by the, informal proceedings and why the agency reacted to them as it did. Automotive Parts & Accessories Ass’n v. Boyd, supra, 132 U.S.App.D.C. at 208, 407 F.2d at 338; accord, National Nutritional Foods Ass’n v. Weinberger, supra, 512 F.2d at 701; Pillai v. CAB, 158 U.S.App.D.C. 239, 244-252, 485 F.2d 1018, 1023-1031 (1973); National Air Carriers Ass’n v. CAB, 141 U.S.App.D.C. 31, 44-45, 436 F.2d 185, 198-199 (1970); cf. Camp v. Pitts, 411 U.S. 138, 142-143, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973); Citizens to Preserve Overton Park, Inc. v. Volpe, supra, 401 U.S. at 420, 91 S.Ct. 814. 2. Applying the Standard (a) The Need for Regulation At the outset, we must consider whether the Commission has made out a case for undertaking rulemaking at all since a “regulation perfectly reasonable and appropriate in the face of a given problem may be highly capricious if that problem does not exist.” City of Chicago v. FPC, supra, 147 U.S.App.D.C. at 323, 458 F.2d at 742. Here the Commission has framed the problem it is addressing as how cablecasting can best be regulated to provide a beneficial supplement to over-the-air broadcasting without at the same time undermining the continued operation of that “free” television service. Notice of Proposed Rule Making and Memorandum Opinion and Order, supra, 35 FCC 2d at 898, JA 6. To state the problem this way, however, is to gloss over the fact that the Commission has in no way justified its position that cable television must be a supplement to, rather than an equal of, broadcast television. Such an artificial narrowing of the scope of the regulatory problem is itself arbitrary and capricious and is ground for reversal. See Pillai v. CAB, supra, 158 U.S.App.D.C. at 248, 485 F.2d at 1027. Moreover, by narrowing its discussion in this way the Commission has failed to crystallize what is in fact harmful about “siphoning.” Sometimes the harm is characterized as selective bidding away of programming from conventional television, see First Report and Order, supra, 52 FCC 2d at 49, JA 73, sometimes delay, see id. at 50, JA 74, and sometimes (perhaps) the financial collapse of conventional broadcasting, compare id. at 45, JA 69, with Second Report and Order, supra,-FCC 2d at-, 35 P & F Radio Reg.2d at 772, JA 136. As a result, informed criticism has been precluded and formulation of alternatives stymied. Setting aside the question whether siphoning is harmful to the public interest, we must next ask whether the record shows that siphoning will occur. The Commission assures us that siphoning is “real, not imagined.” First Report and Order, supra, 52 FCC 2d at 50, JA 74. We find little comfort in this assurance, however, because the Commission has not directed our attention to any comments in a voluminous record which would support its statement. Moreover, whatever evidence the Commission thought it had was self-admittedly insufficient to give it a “clear picture as to the effects of subscription television upon conventional broadcasting.” Id. at 49, JA 73. Our own review of the First Report and the joint appendix filed in these cases suggests that, if there is any evidentiary support at all, it is indeed scanty. As to the potential financial power of cable television we are left to draw the inference from two facts— that championship boxing matches often-appear only on closed-circuit television in theaters and that Evel Knievel chose to televise his jet-cycled dive into the Snake River in the same fashion — and a series of mathematical demonstrations. See id. at 9, JA 33. See also Memorandum Opinion and Order, supra, 23 FCC 2d at 828 n. 6 (Docket 18397) (reliance on mathematical demonstration). While the former may be directly relevant to siphoning of what the Commission has characterized as “specific” sports events, it is not at all clear what light they shed on the question of who is going to pay how much to see feature films and nonspecific sports events on pay cable. The meaning of the various mathematical demonstrations is even less certain. Petitioner American Broadcasting Companies, Inc., for example, has proposed the following technique for estimating the relative income available to cable and conventional television: 30. The most comprehensive attempt to develop a methodology for making this comparison is contained in the reply comments of the American Broadcasting Company. It there developed a formula for estimating the pay cable dollars available for the purchase of any particular program. The formula, in somewhat simplified terms, is as follows: (Total households) X (percent of households with tv sets) X (percent of households with tv sets that are cable tv subscribers) X (percent of cable tv subscribers that have pay cable option available) X (percent of subscribers with pay option that are pay subscribers) X (percent of pay subscribers that view program in question) X (charge to subscriber for program) X (percent of subscription charge passed through to program supplier) = (total national pay cable dollars available for the purchase of program in question). ABC’s own assumptions as to the state of the pay cable television industry in 1980 are as follows: Total household_______________ 75,400,000 TV set penetration___percent___ 97 CATV penetration______do_____■ 35 CATV penetration with pay TV potential_________do_____ 80 Pay subscriber penetration of systems with pay potential____________do_____ 15 Percent of pay subscribers viewing program_____do_____ 50 Charge to subscriber for program-----------dollars___ 2.25 Percent of pay fee collected passed on to program producers----percent___ 35 In the circumstance posited by ABC, slightly more than 1.5 million homes would pay $2.25 each for a particular program making available slightly more tha[n] $1.2 million dollars to the pay cable industry for the purchase of the program in question. This, ABC suggests, compares with the $1.5 million dollars a network might pay for two showings of a “blockbuster” feature film like Love Story during a five-year period, and with the $1 million dollars that might be paid for a movie of somewhat less appeal. First Report and Order, supra, 52 FCC 2d at 9-10, JA 33-34. From this demonstration American Broadcasting Companies and other petitioners who presented similar mathematical models would draw the conclusion that [p]ay cable operations will have more money than television stations or television networks to purchase programming and, being creatures of a competitive economic system, will inevitably purchase much of the best programming now broadcast on free television and leave free television only with what is left over. Id. at 10, JA 34. Even conceding the accuracy of the figures used (a concession which finds no support in the record, however), we think the proponents of the mathematical models have not proved their case. The problem is the incommensurability of the ultimate figures compared: nationwide income of pay cablecasters in 1980 on the one hand, and recent, but historical, network expenditures on the other. It seems patently obvious that no comparison is valid unless financial figures are extrapolated to the same year. More important is the potential for distortion introduced into the comparison by using income on one hand versus expenditure on the other. The Justice Department and other petitioners have repeatedly pointed out that the conventional television industry is highly concentrated and is, therefore, likely to enjoy substantial monopoly and monopsony power. See, e. g., Comments of the United States Department of Justice in Docket No. 19554, at 20, JA 168 (April 7, 1969); Comments of the United States Department of Justice in Docket No. 19554, at 15-16, JA 194-195 (Sept. 5, 1969). Evidence consistent with such an inference is readily available. For example, Noll, Peek and McGowan report that television broadcast stations enjoyed a 20 percent return on sales in 1969 versus eight percent for all manufacturing industry and suggest that this is evidence that “competition is less rigorous in television than elsewhere in the economy.” To be sure, television and manufacturing are very different industries, and had the Commission evaluated and rejected the arguments of the Justice Department and others a different question would be presented on this review. But the Commission did not consider whether conventional television broadcasters could pay more for feature film and sports material than at present without pushing their profits below a competitive return on investment and, consequently, it could not properly conclude that siphoning would occur because it could not know whether or how much-broadcasters, faced with competition, would increase their expenditures by reducing alleged monopoly profits. Since the Commission did not assess either potential distorting effect of the comparison offered by the broadcasters, any conclusion it may have drawn from this evidence would be arbitrary. We have similar difficulties with the second cardinal assumption of the Commission, i. e., that “siphoning” would lead to loss of film and sports programming for audiences not served by cable systems or too poor to subscribe to pay cable. See Transcript of Oral Argument at 61-62; br. for respondent FCC at 53-54. To reach such a conclusion the Commission must assume that cable firms, once having purchased exhibition rights to a program, will not respond to market demand to sell the rights for viewing in those areas that cable firms do not reach. We find no discussion in the record supporting such an assumption. Indeed, a contrary assumption would be more consistent with economic theory since it would prima facie be to the advantage of cable operators to sell broadcast rights to conventional television stations in regions of the country where no cable service existed. Moreover, the greater the area not covered by cable, the greater the demand would tend to be for broadcast rig