Little FCC Relief for Small Markets
Newspapers, networks win big as critics decry loopholes
The FCC finally passed its long-awaited and hard-fought media ownership rules June 2 as Chairman Michael Powell, in the most bruising battle of his career, cited the need to save free over-the-air TV from economic ruin. But the companies that need the help the most may have gotten the least.
The new rules allow station groups and networks to pursue more duopoly arrangements and even triopolies in the largest, most lucrative markets. But the biggest winners may be newspaper publishers, particular those that also broadcast-companies like Hearst-Argyle, Tribune, Belo, Gannett and Post-Newsweek, who gained broad new rights to acquire TV stations.
Small-market broadcasters, however, did not gain major new rights to buy their local competitors; the new rules prohibit merging of top-four stations in a market, and many small markets have only three, four or five stations.
"In Duluth, the newspaper can buy a TV station, and we can't," said Stuart Beck, president of Granite Broadcasting Co., which owns eight stations, including one in the northern Minnesota city. "The monopoly cable company can buy a TV station, and we can't."
In addition to newspaper companies, the big winners are big-market stations and their buyers, thanks to the rule now allowing triopolies where there are 18 or more stations.
"Small markets really get no relief at all," Beck said. "I think they got this backward."
"For large and mid-sized companies, this is good news," said Gary Chapman, chairman and CEO of LIN TV, at a conference just before the rules were announced. "But if you are dealing primarily in the small markets, I wouldn't expect this to be great news, especially if you're in a four- or five-station market."
LIN and many other broadcasters say they're well positioned to take advantage of the new rules. Sinclair Broadcasting, for example, is ready to add to its arsenal of 62 stations and said it would immediately move to acquire four stations it now programs and seek waivers to allow three other duopolies.
"In addition, we note that the decision by the Commission opens up a number of Sinclair's single-station television markets to duopoly opportunities, and we will consider the impact of the rule change on potential acquisitions and disposition that would not have previously been permitted," president and CEO David Smith said in a statement.
Equipment makers, especially those whose products serve multistation groups, also saw the changes as good news, potentially freeing up capital in many groups that have been waiting for regulatory certainty.
"This could drive a gradual move to more centralized content management or station groups using the tools that are available to better leverage their content across groups of stations," said Mike Oldham, CEO of automation and asset management company Omnibus Systems. "Engineers have been waiting to make some moves."
Stock prices of many broadcasters have increased in recent months as the details of the plan leaked, and broadcasters in the larger markets mostly hailed the ruling.
"I think the FCC's actions have raised the value of our properties by expanding the universe of buyers able to create duopolies or triolopolies in every market we are in," said Lowell "Bud" Paxson, chairman and CEO of Paxson Communications Corp., in a statement. "I think the company is in a unique position to increase shareholder values."
Sinclair meanwhile promised legal action to loosen the rules further, saying the triopoly rules don't go far enough.
90 PERCENT COVERAGE?
Opponents of the FCC decision, painting a future of super-powerful media moguls dominating discourse, have warned of a feeding frenzy of rapid consolidation. Powell pointed to safeguards against 21st century Citizen Kanes, namely the remaining nationwide ownership cap (boosted to 45 percent) and duopoly-stopping "rule of four."
But those restrictions may not prevent the kind of consolidation the FCC says won't happen. For example, a top-four station may purchase a local competitor outside the top-four wherever one is available. Were the new owner to improve the station and raise its ratings, it could in fact end up owning two of the top four stations in a market.
Would the FCC try to force that duopoly to divest after its success? Definitely not, said Commissioner Kathleen Abernathy recently, a sentiment repeated by Media Bureau Chief Ken Ferree June 2.
"We're supposed to not like that? To me, that sounds like success," he said. "That's fine. That's not a government concern."
On the nationwide level, critics of the FCC said the nationwide cap in practice allows up to double what the FCC says it does, because UHF channels are still counted as reaching only half the audience of their VHF colleagues. That 50 percent discount-once justified by UHF's technical inferiority but now seen by many as outdated due to cable carriage-will sunset in each market as it completes the digital transition.
So what happens then, when owners' national reach suddenly exceeds the 45 percent cap, potentially nearing 90 percent if all its properties were UHF? The order doesn't address that, Ferree said, telling reporters to ask a future FCC when that issue eventually arises.
The UHF discount doesn't apply, however, when counting the number of voices in the market for the purpose of determining duopoly and newspaper-broadcast cross-ownership. This inconsistency, which also increases the value of UHF stations relative to VHF by allowing more possible buyers, is just one that potential litigants have noticed.
Supporters and critics of the FCC action differ on the impact of the changes. Opponents predict a feeding frenzy of mergers, while Powell and others have talked down fears of rampant growth by big media companies.
Before all the court challenges shake out, it could be time for the commission's next biennial review, due in about 18 months. Then, the FCC could be operating with more certainty, though not necessarily toward firther deregulation; Senate Commerce Committee Chairman John McCain said he would introduce language to clarify that the FCC "may, and should" re-impose ownership restrictions if the commission finds it in the public interest.
"This continuing review can play an important role as a check on unforeseen consequences of relaxing the ownership rules," he said.
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