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Copyright 2001 Gannett Company, Inc.  

July 9, 2001, Monday, FINAL EDITION


LENGTH: 2123 words

HEADLINE: Media's big fish salivate as FCC reviews ownership cap Rule change could bring even more consolidation

BYLINE: David Lieberman


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

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

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

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

* 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

"People as consumers are probably indifferent" to the changing
media landscape, Hundt says. "For people as citizens, well, that's

Viacom holdings

To see how changes in ownership rules shape companies, look at
Viacom. It was founded in 1970 when the FCC forced CBS to spin
off its programming unit. But since National Amusements theaters
bought Viacom in 1987, relaxed rules allowed it to reunite with
CBS and amass enormous media clout.

Cable TV

MTV Networks

Also owns: MTV, Nickelodeon, VH1, TNN, MTV2, Nick at Nite, TV
Land, CMT, MTViGroup,, and

Black Entertainment Television (BET)

Also owns: The Jazz Channel, BET Books, BET Pictures,


Also owns: The Movie Channel, Flix

Comedy Central (owned by Viacom, AOL Time Warner)
Outdoor advertisingBroadcast TV[+1]
Infinity OutdoorCBS
TDI Worldwide OutdoorUPN
Film, TV productionMovie theaters
CBS EnterprisesFamous Players
Paramount TVUnited Pictures International
Paramount PicturesUnited Cinemas International
Simon & SchusterInfinity
InternetTheme parks
CBS.comParamount Parks
Viacom InteractiveMusic rights
Nickelodeon onlineFamous Music Publishing

1 -- includes affiliated stations

Source: USA TODAY research

GRAPHIC: GRAPHIC, Color, illustration by Web Bryant, USA TODAY; PHOTO, B/W, AP; Michael Powell: FCC chairman leans toward deregulation.

LOAD-DATE: July 09, 2001

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