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Fat Cats Get Fatter

And four more changes in the next four years under George W. Bush 11/07/2004 07:00:00 PM Eastern

The more things stay the same, the more they change.

While the reelection of President Bush implies that policy won’t shift in the second term, media companies can still expect a torrent of changes. As the technology, programming and regulation of TV continue to mutate, both government and industry can rely on one thing: a fast pace.

Only four years ago, for example, the transition of the nation’s broadcast stations to digital was at a standstill as TV stations, set makers and cable operators bickered. Now expect a nastier fight, as the FCC and Congress zero in on a final deadline—there’s even strong disagreement over an exact date among the newly confident Republicans in Congress. To keep the transition on track will require compromise from all sides. In return for new digital broadcast rights, certain FCC commissioners will want new programming quotas for news, educational and public affairs.

By the time President Bush takes the oath of office, vigorous debate is expected in Congress, sparking what amounts to a constitutional convention for the media industry: revamping the Telecommunications Act of 1996. The most urgent issue for lawmakers: putting cable and Web-based telephone service under the same obligations to subsidize universal service and lease lines to competitors as traditional local phone companies.

If the act is dismantled, lawmakers will jump to make alterations beyond phone service. Ownership limits, cable indecency regulation and public-interest obligations would be up for grabs. Such a bill, which is expected to be the focus of the key House and Senate Commerce Committees for the next two congressional sessions, would be enormously complicated and take years to become law.

Even with the same president, uncertainties abound. No incident proved how fast an issue can catch fire than Janet Jackson’s Super Bowl breast flash; before that, the notion of policing prime time scripts wasn’t even a blip on the White House radar screen. With overwhelming election support from social conservatives, the FCC under Bush will continue the clampdown on prime time swearing, over-the-top sex scenes and raunchy shock jocks.

As lawmakers struggle to strike the right balance, here are five issues to look out for:

1. FAT CATS GET FATTER. Media giants Comcast, News Corp., Viacom and other conglomerates will seek to strike new deals to grow their empires in a more relaxed regulatory environment. Media companies see consolidation as a means to economies of scale, whereby they can theoretically deliver superior services at a lower cost. A second Bush administration will resurrect deregulation to make it so.

Even before the election, liberal Democrat Sumner Redstone, Viacom’s feisty 81-year-old CEO, made the startling declaration that he believed the election of Bush “is better for our company.” Viacom, which has reached station-ownership limits, would love to buy more. Cable giants like Comcast Corp., which today reaches about a third of the country, want to fill out their national footprints and revive long-forgotten FCC plans to raise subscriber limits.

At a time when many broadcasters want to tighten their grip on local markets, the agency will also likely lift a ban on owning a TV station and a newspaper in the same area. Several media companies, particularly News Corp., Media General Inc. and Tribune, have been pushing to abolish the ban.

All this could be good news for deal-hungry Wall Street. If ownership limits start to fall, a new round of mega-deals could follow, boosting media stock prices stuck in the doldrums. A strong economy helps most. If gross domestic product grows, say 5% instead of 3%, the ripple effects roll throughout the media.

Given the court ruling this year that ordered the FCC to rewrite its deregulation of broadcast-ownership rules, any tweaks are sure to be challenged. “Any changes that are going to happen are a function of the courts, not the agencies,” says Sinclair CEO David Smith.

The courts, however, gave the FCC room to deregulate as long it as does a good job of explaining any changes. “We think the FCC will get a second chance to deregulate,” says Bear, Stearns media analyst Victor Miller.

Lifting restrictions will lead to “fewer owners controlling even more assets,” said Leonard Hill, head of the Caucus for Television Producers, Writers and Directors, which represents the independent TV production community. “They’ll be able to curry favor with entrenched Washington power in turn for relaxation of regulations designed to protect the public interest.”

2. MORALITY POLICE WILL SEE RED OVER BLUE TV. Howard Stern will be glad he left commercial radio—for now. Conservative groups, many reveling in the Republican victory, will turn up the pressure on the FCC and Congress to scrub filth out of broadcast prime time—a reward for keeping President Bush in the White House.

The margin of Bush’s victory provided by social conservatives was a “tremendous validation of our agenda to protect children,” says Tim Winters, executive director of the Parent Television Council. He insists that cleaning up the airwaves resonates with liberals, too/ “It’s not a Democratic or Republican issue.”

With as many as four Supreme Court spots likely to open in the new Bush presidency, a new posse of ultra-conservative judges could take their seats. Upcoming retirements also give social conservatives their most fervent wish: a high court dedicated to reversing America’s “moral decay.” Cable and satellite companies, missed in the most recent indecency crackdown, might be hit, too.

If Chief Justice William Rehnquist’s illness forces him to exit, likely successor Antonin Scalia will rewrite past court rulings to put cable and satellite radio under indecency restrictions. Best-case scenario under Scalia: Cable is forced to offer individual channels à la carte. Worst case: Cable loses huge profits when cable porn is outlawed.

Many in Hollywood are concerned that freedom of speech will be curbed even further, and the chilling effect will force writers to hold punches. Steven Bochco, a veteran TV writer, winner of eight Emmys, and the creator of NYPD Blue, says his hit cop series would never make it to the air if it were to premiere today (see Q&A, page 21). When it debuted in 1993, the show pushed the limits of explicit language and sexual situations shown on the broadcast networks. The current regulatory climate has been building, says Bochco.

One big change that worries cable operators: if Congress forces cable systems to sell channels individually, or à la carte, the same way they sell HBO. That way, viewers offended by racy MTV or FX wouldn’t have to pay for them. “I worry a little bit that the fundamentalist-right agenda is all about indecency, which then translates into à la carte,” says the CEO of a top-10 cable operator.

One big broadcaster believes the ballyhoo over indecency fades. Says Emmis Communications CEO Jeff Smulyan, “I think everyone backs off once you’re out of an election cycle.”

Adds HBO’s Oz creator Tom Fontana, “I’m more afraid of media consolidation than them taking away my right of saying on cable the word 'fuck.’”

3. FCC CHIEF POLISHES HIS IMAGE, THEN QUITS. Still smarting after big-media activists painted him as the poster boy for deregulation run amok, the FCC chairman gets time for a makeover.

Powell, the 40-year-old burly, balding son of Secretary of State Colin Powell, first joined the FCC in 1997. Few stay around for a tenure so long, and he is itching to leave. Thanks to Bush’s reelection, he will probably stay at his post until the president can win a confirmation for his replacement—probably next summer.

The front-runners to replace him are Michael Gallagher, head of the National Telecommunications and Information Administration; Rebecca Klein, former Texas utilities regulator; and Janice Obuchowski, telecommunications consultant and former NTIA chief. There’s also an outside chance Bush could replace Republican Commissioner Kathleen Abernathy, whose term expired this year, although he can let her stay through the end of 2005, without submitting her name to Congress for reconfirmation.

The new chairman is likely to keep a lower profile than the brash Powell, who rarely ceases to speak his mind about the merits of media deregulation.

In the meantime, Powell will focus on the projects he wants to claim as his legacy: accelerating the transition to digital television, rolling out Internet TV and backing other gee-whiz technologies. To help him make those proposals into rules, Powell will have a temporary 3-1 Republican majority, thanks to Democrat Jonathan Adelstein’s pending departure from the five-member commission. His term is up, and he must leave no later than December.

First, Senate Democrats must choose a new minority leader before the party’s FCC pick is named. The longer they take to decide—spring is the earliest a pick would be made—the more time Powell and company have to push through their plans.

4. GOP STANDS DIVIDED ON DIGITAL DEADLINE. Chairman Michael Powell, House Commerce Committee Chairman Joe Barton (R-Texas) and the White House disagree over the best way to convert Americans to digital TV. Powell wants to accelerate the day when TV stations go all-digital and return their old analog channels—to 2009. Without some pushing from the FCC, broadcasters won’t have to return their old channels for a decade or more. That’s because no station has to go digital until 85% of viewers in its market are equipped to receive a digital picture.

Powell has been drafting a plan, controversial among broadcasters, that would require stations to give up their analog channels long before that threshold is met. Under this plan, some cable homes would be counted as digital even if they don’t own if a digital set.

Barton, however, wants Powell to move even faster and end the DTV switch in 2006. If a plan must be enforced, no doubt TV stations will get behind Powell, since his plan will allow them more time.

Congressional budget writers are pressuring him to raise money by auctioning those channels as soon as possible. A chunk of those channels are also earmarked for local public-safety departments around the country, and he wants that hand-off as soon as possible.

But meeting either man’s deadline requires Uncle Sam to cover the cost of digital equipment for low-income viewers who don’t subscribe to pay TV. Otherwise, their sets would go dark. The White House is balking at coughing up the necessary $1 billion for the equipment and instead wants to light a fire under broadcasters by making them pay a fee every year they retain analog channels past 2006.

Democratic FCC Commissioner Michael Copps is amused by the Republicans’ quandary. Powell’s effort to get consensus led to the plan’s becoming a “moving target.” In fact, Powell hasn’t yet submitted anything formal to other commissioners. Copps predicts the logjam will loosen and negotiations will commence once Powell puts something in writing. Says Copps, “We need to know a little more about his plan and get a sense of the new Congress.”

5. CONGRESS REOPENS THE TELECOM ACT, REAPS A WINDFALL. Congress plans to launch a massive rewrite of the laws governing media, phone and wireless industries sometime next year. Traditional phone companies are now screaming for relief from the load of regulatory burdens that prevent them from competing with cable and Internet phone service.

A big side benefit to House and Senate members is that telecom companies, fearful of losing favor, will feel obligated to donate millions over the next session. If past legislative battles are any indication, Congress will milk the opportunity for campaign cash rather than pass legislation quickly. Drawn-out fights over major legislation goes hand-in-hand with fundraising.

“That’s the reality in Washington,” says Mark Cooper of Consumer Federal of America. “My first fight over what became the Telecommunications Act of 1996 occurred in 1984.”

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