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http://www.usatoday.com/money/covers/2001-07-09-bcovmon.htmhttp://www.usatoday.com/money/covers/2001-07-09-bcovmon.htm
07/08/2001 - Updated 10:40 PM ET
Media's big fish watch FCC review ownership cap
By David Lieberman, USA TODAY
NEW YORK — If you think too few people already control too much media, brace yourself for what's going to happen in the industry over the next several months.
Key media ownership limits are expected to be relaxed, or eliminated, as they come under attack in the courts and at the Federal Communications Commission.
The agency's new, deregulation-minded chairman, Michael Powell, "wants the Commission to review the rules in the modern context and conduct a rigorous analysis," says his legal adviser, Susan Eid. "His question is: 'Do these rules continue to serve their intended purpose?' "
Most observers believe that Powell, and the Republican-controlled FCC, will find that they don't and will change some rules in ways that will set off a stampede of mergers. Owners of TV and radio stations, cable systems and newspapers have been clamoring for the changes to let them bulk up and better compete with massive rivals such as AOL Time Warner and Viacom.
"This is survival time for these guys," says Sanford Bernstein analyst Tom Wolzien. "It's merge or die."
Once it starts, though, no one knows where the next round of mergers might stop. Some of the expected rule changes would make it theoretically possible for one CEO to run AOL Time Warner, NBC, Clear Channel radio and The New York Times.
That terrifies many media watchdogs. Merger mania, they say, could mean less spending for newsgathering, fewer opportunities for people to hear diverse views on public issues and rising prices for advertisers.
Powell "is promoting the most radical view of media consolidation that any democracy has ever supported," former FCC chairman Reed Hundt says. "It's an experiment with the underpinnings of democracy. There isn't any consumer demand for this consolidation. Not a single person in America would say it's a good idea. It's exclusively driven by ideology and business interests."
Powell was unavailable for comment.
So far, few have thought about it at all. Only a relatively small group of executives, investors and regulators have focused on what rules, if any, should be relaxed — and what might happen if they are. Media moguls may have a lot to say to each other this week when they gather for investment bank Allen & Co.'s annual private get-together for the media elite in Sun Valley, Idaho. It has long been a place where big deals germinate.
But the debate is about to go public — aired in coming weeks in Congress, at the FCC and in court.
The new chairman of the Senate Commerce Committee, South Carolina Democrat Ernest Hollings, is a longtime foe of media mergers. He will raise many of his concerns in a July 17 hearing featuring several media executives, including Viacom President Mel Karmazin.
The issues also are about to move to the front burner at the FCC, which this week will have its full complement of five commissioners for the first time since January. They may deal with some media-ownership rules this summer. By fall, the agency will launch its congressionally mandated biennial review of all broadcast-ownership rules. Sweeping recommendations could follow early in 2002.
On Sept. 7, the U.S. Court of Appeals in Washington will hear oral arguments in a challenge to several federal ownership restrictions raised by News Corp., General Electric's NBC, Viacom and AOL Time Warner.
Just four newspaper chains?
Even a few changes could have a ripple effect on the media business. Among the most important rules teed up for review:
TV-newspaper cross-ownership. This 1975 FCC rule, which prevents a company from owning a newspaper and a TV station in the same market, will probably get the most attention over the next few months. The FCC is under pressure to scrap it as a result of several recent deals.
Gannett, parent of USA TODAY, ended up with a newspaper and TV station in Phoenix last year when it bought Central Newspapers. Tribune Co.'s purchase of Times Mirror last year gave it both media in New York, Los Angeles and Hartford, Conn., and it already had both in Chicago. Rupert Murdoch's News Corp., which already owns the New York Post and New York City's Fox station under a special waiver from the rule, will pick up another local station when the deal to buy Chris Craft is finished.
If the rule goes, then it will certainly result in a flurry of deals. Some analysts see the number of publicly traded newspaper companies plummeting from 14 to four.
Media executives believe that, with a local newspaper and TV station under one roof, they'd have a lot of flexibility to sop up local ad dollars. It could, for example, offer package deals for ads in both media.
In addition, the outlets can cross-promote each other. And they can cut costs by combining newsrooms and back offices.
TV-cable cross-ownership. This rule, which bars a company from owning a TV station and cable system in the same market, is among those being challenged at the District of Columbia Appeals Court. It will also be part of the FCC's biennial review.
Executives who want to get rid of it salivate over the prospect of selling local ads on cable channels, as well as a TV station, and of creating programming services, such as a local all-news channel.
More significant, it would open opportunities for megadeals. For example, cable power AOL Time Warner could conceivably buy NBC, because it would be able to blend the network's flagship station in New York City with its cable system in Manhattan.
Conversely, Viacom (which owns CBS) or Disney (which owns ABC) could consider buying a huge cable operator such as AT&T Broadband.
Count on foes of the rule to argue that it's anachronistic and discriminatory, especially if Rupert Murdoch's News Corp. (which owns Fox) wins control of cable's top rival, satellite broadcaster DirecTV.
TV ownership caps. The appeals court and the FCC will look at the mandate Congress included in the Telecommunications Act of 1996 for the agency to block any TV broadcaster from owning stations with a combined reach of more than 35% of all U.S. homes.
Large TV station owners — especially Disney, Viacom, NBC and News Corp. — want the standard raised so they can buy more outlets. They like the high profits stations generate and the security of knowing their network programming won't be pre-empted.
There's pressure on the FCC to act. Viacom's purchase of CBS and News Corp.'s agreement to buy Chris Craft put them over the limit, with each reaching 41% of the USA.
But Powell has said he'll wait to see what the court decides.
It's hard to predict how this will shake out if it becomes a political issue. Powerful interests lined up to oppose any change include the National Association of Broadcasters, which mostly represents local TV affiliate owners afraid of network domination. They say the 35% rule encourages localism and diversity in TV station programming.
A bipartisan group of 14 members of Congress made that point in a June 29 letter to Powell supporting the current limit.
"We are committed to making sure that as the media industry evolves and consolidates, the voice of local broadcasters is not stifled or silenced," says the letter, whose signatories include Sens. Trent Lott, R-Miss.; Ted Stevens, R-Alaska; Jesse Helms, R-N.C.; John Edwards, D-N.C.; Barbara Boxer, D-Calif.; and Max Cleland, D-Ga.; and Reps. John Dingell, D-Mich., and Edward Markey, D-Mass.
TV duopoly. More communities will have a single company owning two TV stations if Sinclair Broadcasting wins its U.S. Court of Appeals challenge to an FCC rule.
The agency said in 1999 that a company could have a duopoly if it still leaves the market with eight or more separately owned media outlets. The FCC found that Sinclair violated the eight-voices standard by controlling two stations in Columbus and Dayton, Ohio; Charleston, S.C.; and Charleston, W.Va. The appeals court recently stayed until January an FCC order for the company to decide by Aug. 6 which of the two stations in each market it will give up.
Sinclair calls the eight-voices rule arbitrary.
Powell also seems to be concerned about the rule. Duopolies may be most useful "in small markets where we have stations that can't survive," he recently told trade magazine Broadcasting & Cable.
Cable ownership caps. Cable operators can look forward to spreading out. Early this year, a federal court overturned the rule that prevents a cable operator from serving more than 30% of all U.S. subscribers. It's up to the FCC to set a new standard, which some analysts say could exceed 50%.
A company could reach that 50% mark by combining the four largest cable operators — AT&T, AOL Time Warner, Comcast and Charter.
People who want to relax these and many other ownership restrictions for the most part say that the limits violate the companies' free speech rights and that they're unfair. They handcuff some companies, but not others, at a time when all media are scrapping for revenue from advertisers and consumers.
NBC chief Bob Wright, for example, says that the 35% cap on TV station ownership doesn't make sense at a time when "money is moving away from broadcasting to all kinds of other things. Trying to protect isolated participants in the broadcasting business for the same reasons they were protected 50 or 60 years ago just doesn't make sense."
Others add that consolidation could help communities. For example, reporters at a city's newspaper might add journalistic heft to a sister TV station.
But those who favor the existing restrictions charge that it's a lot more likely that a new round of merger mania would eviscerate local media.
A threat to serious local news?
"It continues the trend of fewer editors controlling more and more channels of communication with de-emphasis of coverage of local news and serious, hard-hitting news," Media Access Project President Andrew Schwartzman says. "The efficiencies (from mergers) have been used for new investments and playing games on Wall Street."
There's scant solid research to demonstrate who's right. Some believe they see clues in the massive consolidation in the radio business that took place after Congress liberalized ownership rules in 1996.
The results appear mixed. Radio companies didn't want one of their stations in a market to directly compete with another. As a result, they changed formats in ways that provided the community with more variety of music and talk.
But the new formats weren't dramatically different or innovative, says Joel Waldfogel, professor of public policy and management at the University of Pennsylvania's Wharton School. A former Top 40 station, for example, might simply target a niche such as oldies.
He also found that while there was growth in the number of stations that target minority audiences, "it would have increased more" without the consolidation.
The more interesting questions, though, probably don't lend themselves to objective and measurable answers. At its center, the debate over regulations and mergers is a contest between different views of media companies and the roles they play in social and political America.
"People as consumers are probably indifferent" to the changing media landscape, Hundt says. "For people as citizens, well, that's different."
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