Major Cap Relief? Wouldn't Bet on It

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If Las Vegas bookies followed the FCC, broadcast networks would face increasingly long odds on a dramatic increase in their local-TV-ownership stakes.

That's good news to most of the attendees at this week's NAB convention. The National Association of Broadcasters has adamantly opposed any change in the 35% limit on one company's TV-household reach.

The most controversial regulatory issue facing the television industry has pitted the networks—especially Fox, CBS and NBC—against affiliate groups big and small as well as independents. Across the board, non-network owners worry that larger station stables for the nets will put affiliates at a bigger disadvantage when it comes to negotiating network contracts.

Because of the industry split, there has always been a sizable contingent betting against a higher limit, even after federal appeals judges two years ago ordered the FCC to better justify a cap or jettison it. But to satisfy judges and give the networks some relief, the FCC may provide a bump—to somewhere between 40% and 45%. That would give Fox and CBS enough leeway to keep stations already acquired in recent mergers and let smaller groups grow.

Count the cap votes

"The FCC is very dysfunctional," says Precursor Group analyst Rudy Baca. "Perhaps the FCC will allow smaller and mid-cap groups to grow but not the large networks."

FCC Chairman Michael Powell is believed to favor a significantly higher cap, and fellow Republican Kathleen Abernathy hasn't given deregulation advocates any reason to think she won't follow suit. But the unpredictable voting dynamics of the five FCC commissioners, a GOP split over dereg, and a punt by support staff—who say the issue is too close to call—make the odds longer on a major change.

Democratic Commissioners Michael Copps and Jonathan Adelstein engineered a string of forums on the FCC's broad media-ownership rulemaking, which includes the 35% cap and reexamination of other ownership limitations. Their hearings in Chicago, Durham, N.C., and Seattle have carried a decidedly anti-deregulation aura.

That leaves maverick Republican Kevin Martin, who recently thwarted Powell on telephone rules by brokering a side deal with Copps and Adelstein. As one Washington lobbyist put it, "everything hinges" on Martin's actions.

Will he stick with Republicans? Strong recent statements suggesting he has a higher hurdle for preserving rules than either Powell or Abernathy indicate that he may want to do away with the 35% cap. But he has also called on his colleagues to investigate possible links between media concentration and a perceived decline of standards on broadcast TV, a statement that triggers alarm bells with network lobbyists.

Further complicating the outlook for the national ownership cap is a split among Republicans. Key GOP leaders—including the chairmen of both Commerce Committees, Rep. Billy Tauzin and Sen. John McCain —want to raise the 35% cap. Just last week, a Tauzin-led group of nine Republicans (and one Democrat) wrote Powell to say that the FCC needs to amend "all" the ownership rules and get it done by June.

That followed a letter to Powell from Senator Sam Brownback (R-Kan.) also pushing for rule changes by June. Elsewhere, though Tauzin's Commerce Committee Vice Chairman, North Carolina Rep. Richard Burr, said it would be a "bad idea" to "nationalize" the broadcast industry by raising the cap. GOP Sens. Olympia Snowe and Susan Collins, both of Maine, and Sen. Wayne Allard of Colorado, in a letter to Powell expressed somewhat veiled reservations about deregulation by calling on the FCC to allow specific changes to be reviewed publicly before making them official.

Networks keep cool

Those wary Republican voices would give Martin cover for brokering another deal with the Democrats if need be.

If the networks are worried, they aren't showing it. Although, on March 27, Fox, CBS and NBC urged Powell to "stay on track," the nets otherwise have been playing it cool. "The procedural imperative of the biennial review trumps battling letters," said NBC lobbyist Robert Okun. He predicts the networks would immediately go to court and win hands down if the cap isn't raised significantly or eliminated.

Ironically, a successful fight against the cap threatens to stall the entire media-ownership review, which includes two possible changes that NAB members are eager to win: removal of the ban on crossownership of newspapers and broadcast stations in the same market and the right to operate TV duopolies in small and mid-size markets.

A protracted battle over the cap would force Powell to extend the debate beyond his June 2 target for approving new rules.

With that in mind, media companies with both TV and newspaper holdings have been lobbying Powell to deal with crossownership as a stand-alone issue if it becomes clear that the FCC won't reach a decision on the other issues by the June 2 special meeting. Media General floated that idea to the FCC two weeks ago.