Rules of the Game

FCC rolls back ownership limits to cheers, jeers
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A federal appeals court in Philadelphia has blocked media-ownership rules passed last summer. It rejected a campaign by FCC Chairman Michael Powell, the White House and Republicans in Congress to allow media companies to increase their holdings in individual markets.

Foes of media consolidation claimed victory in the 2-1 ruling, which they say draws a line in the sand for ever-expanding media empires. Andy Schwartzman, head of Media Access Project, which represented the winning side, called it "a big win for diversity in the media."

The court concluded that the FCC wasn't justified in its June 2003 decision relaxing ownership restrictions in the newspaper, television and radio industries. The rules, which were blocked from taking effect in September, have been sent back to the FCC for a rewrite.

"Though we affirm much of the Commission's Order," the court said, "we have identified several provisions in which the Commission falls short of its obligation to justify its decisions … with reasoned analysis."

The court acknowledged that the FCC has the power to deregulate ownership restrictions, but concluded that the commission didn't execute its power properly last summer. The court criticized the FCC's "diversity index," used to calculate whether a market has enough independent voices to permit local media properties to combine. The FCC's method treats all media outlets as equals without considering market dynamics.

The court said the FCC's diversity index "generates absurd results." In attempting to weigh the number of "voices" in a market, it treats every radio station the same, even those that don't carry any news. In New York City, the Dutchess Community College television station is deemed to be as prominent a voice as WABC. The same score is given to the combo of The New York Times
and its classical-music radio station.

Moreover, the FCC factors in the local impact of Internet sites, despite the fact dominant sites are offshoots of a market's newspapers and TV and radio stations. Those "do not present an 'independent' viewpoint and thus should not be considered as contributing diversity to local markets," the court found.

A frustrated FCC Chairman Michael Powell criticized the decision, claiming that it created a "clouded and confused state of media law" and makes it nearly impossible for his agency to design standards for ownership limits.

The decision doesn't unwind any existing deals. Takeover binges by Viacom and News Corp. pushed their holdings over the old station-ownership cap, which prevented a station group from reaching more than 35% of U.S. TV homes. But broadcasters have already successfully coaxed Congress to rewrite ownership statutes to raise the limit to 39%. (The proposed rules would have raised the limit to 45%.)

Still, the ruling could inhibit expansion of Viacom's CBS and News Corp.'s Fox station empires because both companies are at the current limit. That, in turn, limits the opportunities of smaller broadcasters who generally look to those media giants as ready buyers when they want to sell.

In the 218-page decision, there are bits of good news for some media giants. The court said that the FCC is within its rights to scrap a ban on newspaper and broadcast crossownership. That's a benefit to Tribune Co., whose takeover of Times Mirror triggered violation of old restrictions in the New York and Los Angeles markets. Tribune would also love to buy a station in Orlando, Fla., where it already owns the dominant newspaper, The Orlando Sentinel.

FCC Chairman Powell noted that the court is upholding the broad principle of eliminating newspaper crossownership rules, "while rejecting our efforts to place reasonable limits on those combinations" with its criticism of the FCC's research methods. "This is deeply troubling and hampers the flexibility of the agency to protect the American public."

Surprisingly, the court supports the FCC's relaxation of the ownership of two TV stations in the same market. The ruling still precludes a combination of any of a market's four strongest stations but would still allow a stronger station to acquire a lower-ranked one. The court agrees with the FCC's contention that the financial benefits of such duopolies strengthen local news programming. Harris Nesbitt broadcasting analyst Lee Westerfield says weak station groups like ACME, Granite and Sinclair could gain the most.

The National Association of Broadcasters declined to comment, saying it had to study the decision. The National Affiliated Stations Alliance, which has asked the FCC to curtail the power of big networks over their affiliates, was buoyed by the court's support of newspaper/broadcast crossownership but was disappointed that small-market broadcasters won't be able to buy multiple stations in their markets.

Democratic FCC Commissioner Jonathan Adelstein got news of the decision in an Albuquerque, N.M., airport, as he prepared to fly from one town meeting on broadcast localism to another. He described the ruling as a "huge victory" and "a vindication of everything we and the public have been saying."

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