Time Running Out for Tribune

Exec says company needs FCC waivers to avoid unwinding deal
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If the Tribune Co. can't get the FCC to give it waivers of the newspaper-television cross-ownership rule in the next couple weeks, the $8.2 billion sale of the company could fall apart.

Sean Sheehan, VP, Washington, for the Tribune Co., says mid-November is the “drop-dead” date for securing those waivers. Without them, Sheehan says, “The financing would unravel, Tribune would be auctioned off in parts, and it would be the end of the company.”

Tribune is to be acquired by Chicago real estate tycoon Sam Zell and the company's workers, who will own a sizable chunk of the media giant through an employee stock ownership plan. (ESOP). The deal last April assumed that FCC Chairman Kevin Martin would be able to get the FCC to officially kill the newspaper/broadcast cross-ownership rule, which prohibits one corporation from owning both a broadcast station and a daily newspaper in the same city.

Martin would like to be able to vote on the media ownership rule rewrite by December, almost certainly including modifying or lifting the cross-ownership ban, but some on Capitol Hill immediately began trying to rewrite that timetable, and it's still not fast enough for Tribune.

As a fall-back option the only way out for Zell is to get waivers. Sheehan says Tribune needs the waivers by mid-November or it risks losing $4.2 billion in financing from investors. Zell wants to close on the deal by the end of the year, and the mid-November timetable gives parties involved enough time to get the mountain of paperwork done.

Tribune owns stations and newspapers in five markets where they are either grandfathered from the time there were no rules (as in Chicago, where it owns the Chicago Tribune as well as TV and radio stations), or the company has been operating them under waivers it secured when it bought the Times Mirror Co. (with papers in Los Angeles; New York; Hartford, Conn.; and Fort Lauderdale, Fla.). Those waivers and grandfathered status go away with a change of ownership unless the FCC steps in.

A vote on media ownership rules by mid-December was still a possibility last week, with Martin holding the last of the commission's planned localism hearings as promised.

Martin may compromise on cross-ownership with some variation on lifting the ban, say, getting rid of it for newspaper/TV combos in only the largest markets.

At the localism hearing last week, he asked the Rev. Jesse Jackson whether he would be opposed to a change that only allowed newspaper-broadcast cross-ownerships in the top markets (Jackson said yes, he would still oppose them). A modified proposal would still help Tribune, but the company can't afford to wait, says Sheehan.

Tribune needs at least 20 working days before the end of the year, Sheehan says, calling mid-November a drop-dead date for getting the waivers and avoiding the breakup of the company and the loss of jobs.

“The reason we feel we deserve waivers,” he says, “is that in 2003 the commission voted for relief, which covered all our cross-ownership situations.” A Philadelphia circuit court that year stayed several FCC proposed ownership rules. But the court also said, essentially, that it agreed with the rationale for trying to delete the newspaper/cross-ownership rule. Many thought the FCC could have easily accomplished quashing that part of the ownership rules package.

Andrew Schwartzman of the Media Access Project, which has long opposed the Tribune waivers, sees it differently. “Of course they shouldn't get their waivers,” he says.

Schwartzman opposes allowing Tribune to maintain any of the cross-ownerships post-deal, though he says there is a distinction between the grandfathered Chicago combo and the four waivers of the former Times Mirror properties. “With respect to the [Times Mirror] properties, Tribune was supposed to sell off those properties,” he says. “I have a serious problem with regulatory self-help.”

FCC Giveth, Taketh Away

Though the cable industry got its long-awaited video franchise relief last week, promised since its telco competitors got their fast track to multichannel video citizenship in March, it may be cold comfort to an industry that received a blow to its business model at the same meeting.

The commission unanimously voted to invalidate exclusive contracts between cable companies and the owners of apartment and condo buildings and managed communities, which, by the FCC's reckoning, house some 75 million to 100 million people who live in multiple dwelling units, or MDUs.

Comcast Chief Brian Roberts, on a call with analysts, estimated the ruling would affect about 10% of the company's subscribers, or about 2.5 million people.

Comcast says the decision could lead to higher prices, rather than spur lower rates, more choice and innovation. That was what the FCC claimed in voting unanimously—though not without some reservation—for the ruling, which is likely to be challenged in lawsuits.

Comcast would not comment on whether or not it would file suit against the rules, but did say it raised legal questions. This reading was seconded by FCC Commissioner Robert McDowell, one of those with reservations, who pointed out that the FCC in 2003 had actually encouraged exclusive deals as a way to boost service, and that to “flash cut” to the opposite regulatory approach seemed ripe for judicial review. He wished FCC lawyers luck in arguing the case.

Also expressing reservations was Republican Commissioner and former state regulator Deborah Taylor Tate. State legislators and governors are concerned about the FCC preempting their authority over contracts.

If Comcast does sue, it will be familiar territory for its lawyers. The company is already suing the FCC over the commission's denial of its waiver request from rules requiring cable companies to separate the channel-surfing and channel-security functions of their set-top boxes.

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