Ownership Barriers Falling

Major restrictions on media ownership are likely to relax in upcoming months, with networks and broadcast groups likely to snap up more stations, hoping for savings and revenues that will boost them through tough times and the digital build-out.
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WASHINGTON

(click thumbnail)TV newsrooms have disappeared and fewer owners control today’s more abundant media, according to an FCC filing by the Media Access Project and other groups.
Major restrictions on media ownership are likely to relax in upcoming months, with networks and broadcast groups likely to snap up more stations, hoping for savings and revenues that will boost them through tough times and the digital build-out.

A much-anticipated federal court ruling could eliminate or ease the restriction that networks may not own stations reaching more than 35 percent of the U.S. population. Another court is expected this summer to rule on the FCC’s duopoly policy, in which a single company may own two stations in one market only if the market meets the FCC’s standards for size and diversity of ownership – generally, that the market has at least eight stations.

With the satellite industry’s dominant providers seeking approval for their merger, and cable giants Comcast and AT&T Broadband seeking approval for theirs, broadcasters too may be in for another wave of consolidation as networks seek more major markets and big groups of stations gobble smaller ones. The FCC has already tinkered with its rules attributing ownership and has otherwise shown caution in interfering with businesses that try to combine. On Jan. 15, for example, the FCC approved duopolies in new Haven, Conn., and Asheville, N.C., saying the deals qualified for exemptions to the eight-voice test.

The FCC has called for input on the major ownership laws. And Congress may take a look – at horizontal and vertical cable ownership, television-newspaper cross-ownership, and more.

"There will be a thorough review of all the ownership laws, with the goal of eliminating the ones that don’t make sense in the 21st Century," said Ken Johnson, spokesman for House Commerce Committee Chairman Rep. Billy Tauzin (R-La.)

THE 35 PERCENT RULE

For more than 60 years, the networks have had limits on how many local stations they may own. In 1940, the FCC capped the networks’ ownership at three stations each. In 1953, the limit grew to seven. In 1984 the FCC raised the limit to 12 stations, and then replaced that with a national cap of 25 percent of the national audience. In 1996, the cap rose to 35 percent.

But the FCC also approved mergers that pushed networks at or near the caps. News Corp.’s Fox and Viacom’s CBS, for example, grew to 41 percent coverage, and then fought the FCC’s order to divest. They’re keeping the stations while the court decides on the rule.

Meanwhile, in March 2001, a court struck down the 30 percent limit on cable operators’ reach, and the decision was not lost on the networks.

"As was true with the [cable] 30 percent cap, the FCC has failed to explain…the basis for keeping the 35 percent national broadcast ownership cap in place," Viacom told the FCC.

The networks have also argued that restrictions violate their free-speech rights. And, they say, the TV marketplace is highly competitive in any case, with the current abundance of broadcast, cable, satellite and Internet services easily providing the diversity of voices that the government says it wants.

But supporters of the cap, including the NAB, many small broadcasters and consumer groups, say that allowing Fox, Disney’s ABC, CBS or General Electric’s NBC to expand their reach will challenge the government’s policies, since the early days of broadcasting, to consider the public interest.

"To what vision? To what end?" asked Dean of Hofstra University School of Communications George Back, a longtime production and distribution executive. "Do we want one owner of everything, do we want three, do we want two, do we want seven? Does it make a difference? By what theory, and who’s running the ship?

"This tendency to fewer voices is troublesome from every aspect of media history," he said. "I don’t care what you choose, fewer is not better."

Hollywood writers, fearing a market with fewer entities buying their work, also say the consolidations are bad for TV. "The world of free television has witnessed a greatly reduced and constantly eroding freedom of expression and creativity," the Writers’ Guild of America wrote the FCC. "It is, in our view, no coincidence that the erosion of quality and creativity has closely paralleled the increasing domination of the airwaves by a few behemoths."

The U.S. Conference of Catholic Bishops told the FCC that consolidated ownership has been bad for local, independent and religious programming. Even Jerry’s Kids are fighting the networks: The Muscular Dystrophy Association told Congress and the FCC that raising the ownership cap from 35 percent to 50 percent would be "catastrophic" to the MDA Telethon, the group’s main fundraising vehicle. "As it is, there are virtually no network owned-and-operated local stations that carry the telethon," the MDA wrote.

DUELING FOR DUOPOLY

Small and mid-sized groups of broadcasters have expansion ideas of their own.

A ruling should come by this summer in a suit brought by Baltimore-based Sinclair Broadcast Group challenging the eight-voice duopoly test. And the smaller groups, whether they’re buying or selling, say that the savings of owning two stations in a mid-sized market could be the push they need to stay afloat until DTV finds a revenue model and the ad market recovers.

"There are a lot of guys out there that are in financial distress," said Sinclair spokesman Mark Hyman.

"It’s an interesting confluence of events that suggests one strategy to survive this is to own your local markets in a way that can minimize your costs," said Robert Rini, a Washington, D.C. lawyer representing mid-sized broadcast groups. A big cost for stations (other than power) is in the newsrooms, Rini said. "To the extent that you can consolidate your news staff, I think there are significant efficiencies to be realized."

Rini maintains that just three to five voices, rather than eight, could comprise a competitive market.

"The signal being sent [by the courts] is that these ownership restrictions may be impermissible restraints on First Amendment rights, and may not be necessary in a current marketplace," he said. "I think there’s a great receptivity to loosening up the local TV ownership cap to enable smaller-market broadcasters to consolidate and create TV duopolies."

Not everyone sees it that way. A coalition including the Consumers Union, the Media Access Project and the Center for Digital Democracy oppose the relaxed rules, telling the FCC that one-third of television owners and two-thirds of newspaper owners have disappeared or been bought out since 1975 – and that diversity of ownership is a crucial linchpin of democracy. And news over the Internet, they say, so far has only miniscule reach compared with newspapers and television.

But it just might be consolidation itself that saves diversity, many group owners argue. The FCC noted in both the duopolies it approved in January, the smaller station might not exist at all were it not for the larger one. And it may take the deeper pockets of a station group to weather the lack of a solid DTV business model.

"We need the ability to consolidate in the small markets to get economically stronger," said Stuart Beck, president of Granite Communications Co. "It’s truly absurd and arguably unconstitutional to limit people to an eight-voice test. Narrowing the focus to how many TV stations there are in a market is to me not rational."