Fresh Look at Media Ownership Rules

Stung by a series of court decisions picking apart its media-ownership regulations, the FCC said in June that it would review its melange of rules designed to promote diversity and prevent concentration, rather than reviewing them on a one-by-one basis. The move is expected to strengthen the agency’s position when it inevitably goes to court again but effectively puts on hold deals that were supposed to have been green-lighted by the court actions. Recent decisions by the U.S. Court of Appeals for the District of Columbia have undercut decades-old rules that prevent a single company from owning TV stations reaching more than 35% of viewers nationally. A second ruling struck down rules barring the same company from owning TV stations and cable systems in the same market while a third kayoed rules regarding radio concentration in a market. And doubt has been cast on the rule that prevents a media company from owning a TV station and a newspaper in the same market. “This is a very strategic decision that will make it easier for the commission to defend whatever it comes up with and will make it harder for the courts to attack the results,” says Scott Cleland, president of the independent research firm Precursor Group. The FCC has said it hopes to complete the review by the middle of 2003, which means that would-be media asset acquirers will have to wait at least a year to be sure of how much of the old regulatory structure will be discarded. While some media companies, notably Chicago-based Tribune Co., have said that the decision to consolidate rules reviews would limit their ability to acquire properties, one observer downplays the effect of the plan in slowing down media consolidation. “The role of regulators is only a minor constraint on media companies doing deals right now,” says Blair Levin, a telecommunications and media analyst at Legg Mason Inc. Levin, known as the “Fifth Commissioner” during his tenure as a staff member at the FCC, says that a larger hurdle to media consolidation is Wall Street’s reluctance to do deals. “At a time when the economy is in a down trend, it makes it hard to close transactions,” he states. Erosion of belief in the strategy of realizing media synergies, which drove combinations like America Online Inc./Time Warner Inc. and Vivendi SA/Seagram Co., is another negative for closing deals involving media properties. The combination of court decisions and statements by FCC Chairman Michael Powell in favor of a generally light hand on the throttle of regulation have led media industry executives to expect that the new regulations will lower or drop the regulatory burden on companies. Levin did say that there have been some precedents in which media companies went ahead and did deals in advance of changing rules. In terms of the direction that the revision of the rules might go in, Levin says he expects that the 35% ownership cap will be increased to allow greater audience penetration for one TV company. He also thinks that the ban on cross-ownership of TV and newspaper properties in the same market will be scrapped in large-circulation regions in the short term. Eventually, this restriction also will be waived for smaller communities, he believes. Other rules that the commission will be reviewing include those that limit the number of TV stations a company can own in a single market, and the ban on ownership of more than one of the four major TV networks.