Stay of FCC Rules Is Blow to Media

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In issuing a stay order on the FCC's new ownership rules, the federal appeals court in Philadelphia put on hold significant business plans, financing discussions and operating strategies for the three most important media in the nation. With this decision, uncertainty again reigns throughout the industry.

This new uncertainty greatly affects television stations, many in medium and small markets whose financial position is deteriorating and whose future may appear bleak. In most cases, the station has lost, or will lose, much (if not all) of the compensation they receive from their network, dramatically reducing the cash available to pay expenses and service debt. Plus, all stations are required to invest heavily in capital expenditures to broadcast digitally. Stations fighting for survival have little alternative but to cut expenses, including programming and news costs. The public is not better served if weaker TV operators reduce their local news coverage.

The last time a medium was in this shape was in the early 1990s when radio was on the ropes. New ownership rules then allowed for survival of many struggling stations and resulted in the creation of strong in-market clusters and large national groups. In many markets three to four groups now control the radio stations that account for the majority of listening and revenues. While fewer opportunities exist for entrepreneurs, the ability of the industry to survive and invest in itself is stronger.

If government representatives think the largest broadcasters are doing something wrong, impose rules to curb that behavior. Don't strike the rules that can help weaker stations survive and improve the quality and amount of local news or a rule that would potentially create more competition in many radio markets.

Given the financial situation at many TV stations, it is critical to allow flexibility in order to guarantee survival and encourage investment. Many of these rules would encourage combinations that would foster investment and could maintain and increase local news and better service to the public. The proposed TV duopoly rule, increased national TV ownership cap, and cross-media ownership rules would all encourage stronger financial companies to acquire weaker ones. In small- and medium-market TV this is critical. Although this may eliminate potential acquisitions by small groups, television was never really an entrepreneurial play. It is hard to argue that the public interest will be negatively impacted if the acquiring company runs the local newspaper (typically with a news staff larger than all the TV stations combined), a network (which is by design committed to news coverage) or another TV operator in the market that can now operate under improved economies.

The longer the rules dispute takes, the longer stations' future remains in limbo. Weaker owners may need to revisit their survival strategies, financing sources will be hesitant to consider additional investment.

Thomas Buono is CEO and Mark Fratrik is vice president, financial consulting, for the BIA Financial Network

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