A light rain, no downpour

Looser rules will lead to more but limited station consolidation, experts say

While cautioning against a land rush that some dealmakers hope for, mid-size TV-station groups signal clear interest in doing deals, given relaxing media ownership regulations.

Station-group executives, some gathered at Bear, Stearns & Co.'s annual media conference in Boca Raton, Fla., last week, generally said they're not interested in selling and would use their new flexibility gradually.

"Consolidation will continue but probably not as fast as some headlines would have you believe," says Tribune Co. CEO Dennis Fizsimmons.

The exception is Paxson Communications, whose executives are all but jumping up and down screaming, "Buy me, buy me." Having sold 32% to NBC in 1999, Paxson is suing the network for essentially deciding to not buy the rest, opting instead for Spanish-language network Telemundo.

Three weeks ago, a federal appellate court ordered the FCC to overhaul and justify the national cap blocking a single owner from owning stations reaching more than 35% of TV households. The same decision simply knocked down a rule barring a company from owning both a TV station and a cable system in the same market.

The FCC is also looking to revise, probably drop, a similar crossownership rule on TV stations and newspapers in the same market. And Sinclair Broadcasting is making progress on a lawsuit looking to widen rules essentially restricting TV-station duopolies to the largest markets.

Merrill Lynch & Co. media investment banker John Chachas believes relaxation of crossownership rules and the ownership cap isn't enough to spark a dramatic wave of deals. That would take alteration of the duopoly rules, which create more-dramatic and -immediate efficiencies than owning a cable system and TV station in one market.

The companies expected to sell quickest are those struggling under debt amassed in late-'90s takeover sprees. Topping that list are Sinclair Broadcasting and Granite Broadcasting.

Young Broadcasting could be on that roster. Burdened with an $850 million takeover of KRON-TV San Francisco last year, Chairman Vince Young is seen as an eager seller. Some dealmakers, though, wonder whether, after unloading KRON-TV, he won't start buying anew.

Cox Communications is most widely expected to take advantage of easing restrictions. The company and parent Cox Enterprises own major-market TV stations, newspapers and cable systems. "Look for Cox to eventually buy a station in Phoenix or San Diego," opines one Wall Street executive.

Lehman Bros. media analyst William M. Meyers argues that, by diversifying, station groups may have sullied their allure to the biggest buyers: the networks. Sure, Hearst-Argyle's eight ABC affiliates look tasty to ABC parent Disney, but will Disney want 10 NBC affiliates and two CBS affiliates?

"Absent a two- or three-way transaction," he says, "we expect the groups to either sell assets piecemeal to the networks or sell their larger station portfolios to a newspaper company or financial buyer."

Tribune Co. is interested in expanding its portfolio, not selling, Fitzsimmons said at the Bear Stearns conference. It sold its three Denver radio stations in part to raise money to buy more TV stations.

He acknowledged that Tribune's station group is a target for AOL Time Warner, with 22% of The WB and WB affiliates in New York, Los Angeles and Chicago. AOL owns only WTBS(TV) Atlanta.

In New York and Los Angeles, AOL couldn't own TV stations without selling local cable systems. "I think they'd like to own their own distribution," Fitzsimmons said, "as every other network would."

But he says no. "We like our position and aren't interested in selling to them. We see ourselves as a consolidator."

E.W. Scripps & Co. has studied how it might buy stations in markets where it owns newspapers or newspapers where it owns a TV station. "Clearly, there's a lot of value there," says Executive Vice President Rich Boehne, "but it's not easily defined. We have a pretty sober approach. If a frenzy gets going, we will be cautious."

CEO Ken Lowe said Scripps is not particularly interested in selling its TV stations, which reach about 10% of all TV households and have been handy in cross-promoting Scripps cable networks, including HGTV and Food Network.

He's even contemplating localized versions of the networks, which an operator would be able to pull from a video server. The first test is occurring in Knoxville, where the cable network group is based and Scripps owns the local newspaper.