August 6, 1999

F.C.C. Eases Limits on TV Station Ownership

By BILL CARTER

he Federal Communications Commission voted Thursday to relax rules that have limited television station ownership for most of the century, allowing for the first time a single company or network to own two separate stations in the nation's largest cities.

One immediate result of the decision may be a rush by big television companies like the broadcast networks to sweep up any available television stations in cities where they already own a station. As put in one memo to the top corporate officers at one of the four big broadcast networks, "The race is on."

Networks and other big station companies want to own more than one station in a market because it increases their presence in areas that are becoming increasingly crowded with other viewing options, like cable and satellite channels. It also allows them to save money on programming and personnel costs and gives them another outlet for shows they own.

For viewers in the biggest markets like New York, the change could lead to more local news and sports programming, which the networks said Thursday they would look to add to their new channels.

FCC Chairman William Kennard, who said the commission was acting to update regulations that were largely put into place in the 1930s and 1940s to ensure a diversity of media choices, called the changes "common-sense rules that recognize the dramatic changes that the media marketplace has undergone" over the last 30 years.

The new FCC standards will allow dual ownership in cities where there are a sufficient number of "media voices," which include all radio and TV stations, large daily newspapers and cable systems. Specifically, a city must have at least eight independently owned television stations for one company to own two. And a company cannot own more than one of the four top-rated stations in any market.

All of the country's top 50 cities have that many, but many have only eight, which may mean "an intense game of musical chairs," as one senior network executive put it. "The voice test means you know you may have to get in fast."

"It's going to be a land rush to some degree," the executive added.

While the decision will not result in a wholesale changeover in the control of stations, which had been feared by some station owners six months ago, many industry executives said that the opportunity for owning two stations in a single market was likely to spur a surge in station sales in the coming months. Companies like Fox and CBS were predicted to be especially aggressive is seeking to add second stations in cities where they already own a broadcast outlet.

Jessica Reif-Cohen, a media analyst for Merrill Lynch, said dual ownership in a single market would appeal to networks because of the opportunities for cross promotion, for finding secondary uses for programming a network already owns and for savings on staff and program costs.

Kennard said the FCC enacted the changes because TV-station ownership had become a morass of confusing waivers from regulations. Numerous stations, for example, are operated under local marketing agreements -- in which one company owns a TV station and controls programming on another station ostensibly owned by another company. Such exemptions, Kennard said, are a "kind of artifice" intended to circumvent existing limits.

"We are bringing some certainty and coherence to a situation plagued by confusion and rule by waiver," Kennard said in a telephone interview. "The marketplace was crying out for coherence."

The FCC voted 4-1 for the new system, which institutes a series of new rules that spell out more clearly what will constitute ownership of a station, how many stations a single company can own and under which circumstances it can own multiple stations in a single market.

The decision also affected radio station ownership, limiting one company to six stations in a city with at least 20 total stations (seven if the company does not opt to own two television stations.) The ruling did not affect cross-ownership of other media outlets, such as newspapers. Until now, the FCC had allowed one company to own up to eight radio stations in one market, along with one television station.

The ruling did not affect ownership of other media, including newspapers. Current rules prohibit newspapers and television stations to have the same owner in the same market, but some dual ownership situations were grandfathered in.

The decision was widely praised by both industry executives and public interest advocates. CBS senior vice president Martin Franks called the decision "a big win for Bill Kennard and truly a nice piece of work." He said Kennard "deserves a lot of credit for cleaning up the mess accrued from seven to eight years of regulating by waiver." Several station groups have been able to operate two stations in markets, usually smaller ones, by winning waivers from the FCC that allowed local marketing agreements. "Once you create this class of waiver people, it becomes unfair to people who are playing by the rules," Franks said.

Andrew Jay Schwartzman, the president of the Media Access Project, a Washington-based public interest firm, said that while he had hoped for more in the way of insuring diversity in station ownership, the commission deserved to be praised for succeeding in the most important area of closing loopholes in stations ownership restrictions that had rendered the existing rules unfair.

"Now if you run it, you own it," Schwartzman said. "It had become like the Wild West. People who played by the rules were being penalized. I think overall Bill Kennard did a good job under severe political pressure."

But perhaps most pleased of all were the owners of stations who may now become the subjects of bidding wars by suddenly unfettered buyers. Among the logical targets is KCAL, an independent station in Los Angeles, which had been put up for bid (along with other stations) by Young Broadcasting several months ago only to be withdrawn when no satisfactory bid was forthcoming, and the enormous station holdings of Lowell W. "Bud" Paxon.

Paxon, who owns stations in all the 20 biggest cities and 43 of the top 50 said he was about to uncork champagne Thursday night. "If we're going into the duopoly game, we're the prettiest girl at the du-op dance," Paxon said.

After struggling for the last two years to launch his own seventh network, based on family programming, Paxon said he he would now consider an offer to sell his holdings, "if I got the right price -- I would owe that to my shareholders."

He said he would also consider a joint venture with a partner who, under the new regulations could purchase up to 32 per cent of his company. Paxon said he had already had some preliminary discussions with potential bidders.

The big station owning groups, which include all of the four big network, have been actively seeking deregulation in order to expand their holdings. They have argued that with the ever-multiplying array of viewing choices, including hundreds of cable channels, satellite channels and coming digital channels, they need to be able to compete by adding more channels of their own.

Right now the FCC still limits station groups to owning stations that cover 35 per cent of the country. (Thursday's ruling did not address that regulation. Kennard said it is likely to be taken up in the fall and he has not taken a public position on that ownership cap. "I will have something to say about it then," he said.)

All the networks are close to that cap, with Fox and CBS right at the limit. Only through this decision on dual ownership can they expand in the short term.

"For the economic model it's great to own two stations in one market," said Paul Sweeney, a media analyst with Salomon Smith Barney. "I think we are going to start seeing a lot of big ticket deals."

Reif-Cohen noted that in the biggest cities there are more than enough station to go around for acquisitive networks -- 16 in New York, 19 in Los Angeles, 13 in Chicago. She said the networks could buy a second station for such purposes are adding news programs produced by the existing station's news department, or repeats of shows that network owns, and especially for finding a home for sports programs.

Fox has such wide interests in sports, especially in Los Angeles, where the company owns the Dodgers, that KCAL may be an especially inviting prize. "Fox has sports and kids' programming, it could fill that channel easily," Ms. Reif-Cohen said.

Fox also has a large library of other programming including films. One Fox executive noted that Fox started an all movie channel on cable that has had little impact so far. "Would that programming be better served on a second broadcast outlet in major cities?" the executive said.

Another executive noted that Paxon had 19 stations in cities where Fox already has a station. One of those is in New York, where Fox again has wide sports interests, including broadcast rights to Yankee games. Those are now placed on Channel 5, the Fox flagship station. Presumably they could be located on another broadcast outlet if Fox owned one in New York.

Not every network executive saw Friday's ruling as momentous. One senior executive called the changes "small potatoes" in terms of what the networks need to protect themselves financially in the future.

Schwartzman, the public interest advocate, called that position nonsense saying "The networks are thriving businesses that are not suffering and dying." He argued against further regulation that would open the industry to only to owners "with deep pockets."