HEADLINE: Media's big fish salivate
as FCC reviews ownership cap Rule change could bring even more
BYLINE: David Lieberman
DATELINE: NEW YORK
BODY: 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.
"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."
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?
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
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
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.
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.
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
A bipartisan group of
14 members of Congress made that point in a June 29 letter to Powell
supporting the current limit.
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
Sinclair calls the eight-voices
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
A company could reach that 50% mark
by combining the four largest cable operators -- AT&T, AOL Time
Warner, Comcast and Charter.
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
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.
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."
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
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
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,
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.
Also owns: MTV, Nickelodeon, VH1, TNN, MTV2, Nick at Nite,
TV Land, CMT, MTViGroup, MTV.com, VH1.com and SonicNet.com.
Black Entertainment Television (BET)
Also owns: The Jazz Channel, BET Books, BET
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 PublishingRadio Simon & SchusterInfinity InternetTheme parks CBS.comParamount Parks CBSNews.com 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.