Buy, sell or trade?

The subject of analysis for this month’s digital data dump (a.k.a. Download) is broadcast portals. I wonder if that is anything like radio clusters, the new reality in major market radio station ownership, brought about by deregulation of the radio industry as mandated in the 1996 Telecommunications Act. That’s the same legislation that mandates the FCC to review its rules biennially, to make certain that they are necessary and pro-competitive.

Just in case you’ve been away on a world cruise, or you are a broadcaster caught in the Golden Age of TV time warp, the Federal Communications Commission just completed one of those biennial reviews on June 2, announcing the “most comprehensive review of media ownership regulation in the agency’s history, spanning 20 months and encompassing a public record of more than 520,000 comments.”

Two years ago the FCC gave these rules significantly less attention. As a result, a series of court challenges overturned or remanded virtually all of the ownership rules that were left in place by the previous administration. For the past 20 months, the NAB, the broadcast networks, large station groups, a variety of public interest groups and hundreds of thousands of citizens, inundated the FCC with comments to three notices of proposed rulemaking related to media ownership. In the weeks leading up to the announcement of the new rules, the big media actually started covering the story.

That story boils down to the possibility that the new rules could lead to a new media reality, in which the masses will be getting the majority of their news, information and entertainment through a profusion of portals controlled by a handful of powerful media companies. The lines between newspapers, radio and TV stations, and Internet news portals are certain to blur as a result of the new ownership rules. Who will control these broadcast portals in a brave new digital world, is far from certain.

The decision that will be made over the next few years by the still independent owners of newspapers, radio and TV stations will strongly influence the outcome. Is it time to take the money and run, selling out to the big media conglomerates? Or is it time to move proactively – buying, trading and partnering – in an effort to compete with the conglomerates who seek to control both content and distribution and, most important, the billions and billions in advertising revenue generated in more than 200 U.S. markets?


According to FCC Chairman Michael Powell, “today’s media marketplace is marked by abundance.” Powell has been making this argument consistently over the past year. At NAB in April he coined the term the Golden Oligopoly to describe an era when there were but three TV voices in most communities. Two days after adoption of the new media ownership rules, Powell and his fellow commissioners were called to testify in front of the Senate Committee on Commerce, Science and Transportation. Powell noted that the number of outlets and the number of independent owners have risen dramatically over the course of the last 40 years – from the three original broadcast networks to three 24-hour all-news networks, seven broadcast networks, and more than 300 cable networks. Powell did not mention that five media conglomerates now own or have a controlling interest in the vast majority of these outlets, controlling nearly 90 percent of the viewing audience…again.

Clearly there is an abundance of sources of information today. The content flowing through those portals, however, is largely controlled by only five media conglomerates. But the real concern is not whether an issue is covered. Few things escape the attention of those aligned on one side or another of any issue, and Powell is correct in asserting that there are many new ways to bypass the mass media gatekeepers. The real power often lies in determining whether an issue is covered by the mass media. The two-year run-up to the new media ownership regulations is a prime example.

Just weeks before the FCC made its decision, a media industry leader sent a letter to the FCC asking it to extend the comment period on the ownership rules. “I heard about this public comment opportunity through word of mouth,” he wrote. “The major networks have done very little to inform the public of this extremely important issue.” The letter was from Michael Eisner, CEO of Disney, which owns ABC, one of the networks that ignored the story, even as it lobbied heavily for the rule changes.

One thing is certain: The potential for an abundance of change in media ownership will exist if the new rules stand up to another round of court challenges, or if there’s a successful effort by those in Congress to legislate new ownership caps. The new rules raise the national television ownership cap to 45 percent. The 50 percent UHF discount is retained, which means that a station group consisting only of UHF stations can reach 90 percent of U.S. homes.

Television triopolies are permitted in DMAs with at least 18 commercial and noncommercial television stations. Television duopolies are permitted in DMAs with 5 to 17 commercial and noncommercial television stations. Top four ranked stations may not merge in any market absent a waiver.

Newspaper/broadcast and radio/television cross-ownership rules are replaced with an array of options based on market size. In markets with nine or more (commercial and noncommercial) television stations no cross-ownership limits remain. In markets with four to eight (commercial and noncommercial) television stations, one party may combine either (1) one daily newspaper, one television station and up to 50 percent of the number of radio stations permitted under the local radio cap for that market, or (2) one daily newspaper and as many radio stations as are permitted under the local radio cap for that market, but no television station; or (3) two television stations if otherwise permitted under the local television cap and as many radio stations as are permitted under the local radio cap, but no daily newspaper. In markets with fewer than four (commercial and noncommercial) television stations, no cross-ownership combinations are permitted.

The rules also redefine the way the number of radio stations in a market are counted. This may lead to a reduction in the number of stations that can be included in the clusters now owned by large radio station groups.

Balance of powers

In the run-up to the new media ownership rules, the massive consolidation that took place in the radio industry after deregulation in 1996 was frequently cited. In particular, Clear Channel, which now owns more than 1200 stations, was a target, especially by Democrats who are critical of the conservative leanings of talk radio. Talk radio has certainly given voice to considerable political debate, and Clear Channel has taken a leadership position in its growth, but this is not the big story. Clear Channel has become a dominant force in the music industry through its control of play lists and concert venues in major markets. The Federal Trade Commission is investigating to determine if it is exerting monopoly powers in this area. And it has used technologies like voice tracking to control costs and gain the efficiencies that Chairman Powell and his fellow Republican FCC commissioners cited as a potential benefit of the media cross-ownership and consolidation.

On one side of the coin, Clear Channel has reduced opportunities for the DJs and announcers who might otherwise be employed across the country. On the other side of the coin they have brought a degree of “market balance” to an industry dominated by the music industry oligopoly.

The need to improve operational efficiencies is a fact of life for broadcasters today. The abundance of consumer choices and resulting market fragmentation make it more difficult for second-tier stations to succeed financially. The newspaper industry consolidated in the face of competition from electronic media. Broadcasters face a similar competitive environment. Stations that are not in the top three have been cutting back or dropping local news operations that are losing money. Station groups have been turning to centralcasting in order to control operating costs.

The Sinclair Broadcast Group has developed a hybrid called News Central, using centralcasting techniques to provide stations within its group with common national, regional, sports and weather elements from its suburban Baltimore operations center. These elements are woven seamlessly with local elements at each station. Sinclair claims that this is the only economic way for it to provide local news in markets where their stations have never offered news, or have to deal with well-entrenched competitors.

Sinclair has also been a leader in the move to duopolies, using a variety of local marketing agreements and waivers to program two stations in a market. In the aftermath of the FCC announcement, Sinclair indicated it would move rapidly to buy many of the stations that it is operating. They also are expected to challenge the limitation on triopolies to the nation’s top five markets and to challenge the new rule that forbids ownership of two of the four top stations in a market.

There is significant speculation about when the next wave of media consolidation will begin. The area most likely to see action quickly is media cross-ownership and the creation of duopolies and triopolies. The new rules in these areas are the direct result of previous court challenges and are likely to be upheld, if not expanded.

Many station groups are looking at trades as a quick and efficient way to create duopolies. The trades also receive favorable tax treatment. And it is expected that there will be a flurry of activity in newspaper/TV/radio cross-ownership to take advantage of operating efficiencies.

While many people are expressing concerns about the potential negative impact of media consolidation, there may be a silver lining in the clouds growing on the horizon. Most of the network conglomerates left the NAB because it opposed increasing the network ownership caps. Large station groups, who are in a position to grow and provide a counter-balance to the big networks, now dominate the NAB. Perhaps more important, larger groups may be able to invest in content, as we have seen with Scripps Howard, which created a group of successful cable networks including the Food Channel and HGTV. This is not a time for independent broadcasters to fold their hands –the game is just getting interesting.

Craig Birkmaier is a technology consultant at Pcube Labs, and hosts and moderates the OpenDTV Forum.

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