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Broadcasters Face 'Sweet Buy and Buy' With New Dereg Rules

5/18/2003 08:00:00 PM Eastern

Another wave of industry consolidation is cresting, ready to break as the federal government nears the most significant media-ownership deregulation since the 1996 Telecommunications Act.

The prospect of more buying opportunities will have media brokers and investment bankers "burning up the phones" to line up deals until June 3, one industry observer predicted. The window for consolidation may be short-lived in small markets, where there will be room for no more than one TV duopoly or newspaper/TV combo.

Last week, FCC Chairman Michael Powell handed the other commissioners his plan to relax limits on national and local ownership of broadcast stations. Although officially confidential, details of the plan began to leak out even before the proposal was circulated. The resulting rumors and press reports set off intense lobbying by industry, activists and Congress seeking last-minute changes.

The sweeping plan relaxes nearly all of the major national and local limits, except for radio, in which alterations to the way local markets are measured would adversely impact Clear Channel and a few other groups that have bought large shares of many small and rural markets.

Divided on dereg

The deregulatory proposal has divided the panel along partisan lines and has sowed dissension among the three Republicans and two Democrats. Republicans and deregulation fans say new rules are a necessity if broadcasters are to achieve the economies of scale necessary to compete against pay-TV and fund the transition to digital. Democrats and opponents of deregulation counter that conglomerates already control news and entertainment programming to such a degree that there's a dangerously low number of voices.

Last week, the split widened as Powell rejected a request by Democrats Michael Copps and Jonathan Adelstein for a one-month postponement of the June 2 vote on broadcast-ownership changes. Although agency chairmen generally grant such requests as a courtesy, Powell cited opposition of the GOP commissioners (including himself) and pressure from courts to rewrite the rules as reasons for staying the course.

Copps charged Powell with running "roughshod over the requests of the American people and the precedents of this commission. This rush to judgment means that we will not fully understand the impact of the specific proposals on our media landscape before we are forced to vote."

While it's true that there will be almost no chance for public debate on Powell's specific proposal, it's hard to take seriously a charge that the FCC is rushing the decision. Powell formed a media-ownership working group in October 2001 to review the rules and has been working on changing broadcast rules since February 2002, when the court struck down the 35% cap.

The new ownership provisions outwardly take the same "prophylactic" approach to checking monopolization that Powell derided when he became chairman in 2001. Rather than establish strict voice tests and audience limits that apply across multiple markets, he originally envisioned a market-by-market approach, favored by antitrust regulators, that measures the impact of each deal individually.

Forced to ditch that approach by fellow Republican Kevin Martin, who felt it overcomplex, Powell argues that the new limits are at least based on rigorous economic analysis rather than the "out-of-thin-air" approach derided by judges.

The new limits are based in part on the widely discussed but still mysterious "diversity index," an economic model that gives weighted values to various media in a market to determine how much additional concentration can be tolerated without reducing the number of voices.

The index was once envisioned at the centerpiece of case-by-case merger reviews; its relegation to a much smaller role in justifying relaxed limits has disappointed the Democrats on the panel.

Under the plan, broadcasters would soon have unprecedented opportunity to own three TV stations in the country's largest markets. Regarding small markets, a furious battle by the National Association of Broadcasters is under way to relax restrictions on TV-station pairs even further than Powell suggested.

Triopolies allowed

Three-station TV "triopolies" would be permitted in markets with 18 stations. The provision translates roughly to the country's five largest media markets: New York, Los Angeles, Chicago, Philadelphia and San Francisco-San Jose. The provision is a big win for NBC, which is under orders to sell KWHY-TV Los Angeles, one of three outlets it owns in the city after acquiring Telemundo last year.

Only one station among a three-station cluster could be rated among a market's top four.

As for other rule changes, TV duopolies would be permitted in markets with six stations. Pairs among a market's top four stations would be banned. Effectively, that means that TV duopolies and TV/newspaper combos would be permitted in nearly all of country's largest 100 markets.

Crossownership of local newspapers and TV stations would be permitted in markets with four separately controlled stations, translating to roughly the country's largest 150 markets. That standard is more relaxed than the six-station test reported early last week.

As expected, the 35% cap on one company's national TV-household reach would be raised to 45%, absolving Fox and Viacom's CBS of FCC–mandated station sales. Here, too, however, the affiliates and the NAB are fighting—this time to retain the current limit and limit the broadcast networks' leverage over affiliation contracts. Republican allies for keeping the cap were multiplying more like rabbits than elephants last week.

'Keep the cap'

Four GOP members of the Senate Commerce Committee, who with the panel's Democrats comprise a 14-8 majority, urged the FCC to retain the 35% cap, and scores of lawmakers have signed on to a House bill that would bar the commission from changing the limit.

In radio, large-market radio/TV combos would be increased from six radios and two TVs to eight radios and two TVs. Local-market measurement would be tightened by relying on BIA market designations rather than today's complex signal-contour model, which many say exaggerates the number of stations in a market.

The new standard would hurt industry giant Clear Channel because several company acquisitions in small and midsize markets have been delayed pending the rule change and likely will now be forbidden. Other approved acquisitions that violate the new rule could be retained, however. Those noncompliant combos may be sold as an intact cluster once but not resold as such.

While the FCC appears to have gone out of its way to accommodate owners that would face divestitures without rule changes, there is a clear effort to penalize the country's largest radio group, if even in a small way. Clear Channel, which grew exponentially to more than 1,200 radio stations after national radio caps were lifted in 1996, has been criticized for bullying artists and monopolizing the concert-promotion business. "In certain markets, they've acquired more power than we would have wanted," Commissioner Kathleen Abernathy told reporters last week.

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