Broadcast rules could come tumbling down

Feb 25, 2002  •  Post A Comment

Last week’s appeals court ruling axing the broadcast-cable cross-ownership rule-and casting doubt on the future of the 35 percent TV station ownership cap-was so intensely critical of the Federal Communications Commission and its ownership regulations that some observers are pronouncing both regulations all but dead.
In fact, the FCC’s sole Democrat, Commissioner Michael Copps, was the only voice seconding the vow of watchdog group representatives to appeal the decision to the Supreme Court.
The U.S. Court of Appeals in Washington, in quashing the rule that has long barred cable operators from buying broadcast TV stations in their markets, effectively fired the starting gun in what could turn into a new race for media mega-mergers.
But while the court ordered the FCC to kill the broadcast-cable cross-ownership rule immediately, it sent the 35 percent cap regulation back to the agency for further consideration.
“It will be difficult and challenging to develop the persuasive justification the court appears to be requiring for ownership rules,” said GOP FCC Chairman Michael Powell, who was making clear his skepticism about the regulations well before the court decision came down.
Sources said last week’s decision also suggested doom for another FCC regulation that bars daily newspaper companies from acquiring TV stations in their markets.
The rule is currently teed up for possible elimination at the FCC.
Also on the endangered list, according to sources, is the FCC’s duopoly rule, which bars broadcasters from owning more than one TV station in many markets.
Sinclair Broadcast Group is challenging the duopoly regulation in a lawsuit.
“This decision increases our confidence that the same court will strike down the duopoly ban,” said Mark Hyman, Sinclair vice president, corporate relations.
The decision reverberated throughout the industry last week, setting off waves of speculation about possible mergers combining such industry behemoths as AOL Time Warner and NBC or Comcast and The Walt Disney Co. or Fox.
Still another major line of speculation had AOL acquiring Tribune Co. or Sinclair, which have more WB affiliates than any other companies.
“Everyone is now in deal mode,” said Blair Levin, telecom and media analyst for Legg Mason.
Still, some observers say serious deal making may have to wait for the advertising market to rebound and for the stock market to settle down in the wake of the Enron accounting scandal.
“It just opens up options,” said Victor Miller, senior managing director with Bear Stearns & Co., of the court’s decision.
Of the two FCC regulations at issue in the decision, the broadcast-cable cross-ownership rule seemed to upset the court the most.
The FCC has long held that the rule was needed to ensure diversity of media voices for the public.
But the court, responding to a lawsuit by Time Warner Entertainment, held that the FCC had failed to adequately justify the prohibition.
“The [cable-broadcast cross-ownership rule] is a hopeless cause,” said a three-member panel of the court in a decision written by Chief Judge Douglas Ginsburg.
Said Dick Wiley, a former FCC chairman who now heads his own law firm, “The broadcast-cable rule is a dead duck. That’s my opinion.”
The court also held that the FCC had failed to adequately justify its retention of the 35 percent cap.
Fox Television Stations, NBC and Viacom had been urging the court to jettison the cap-over the opposition of the National Association of Broadcasters and station affiliates.
But the court said it is possible that the agency could justify the rule. In remanding the decision to the FCC, the court set no time limit on how long the FCC could deliberate over the issue, giving some affiliates cause for hope.
“We believe there’s a lot of life left in this 35 percent cap,” said Alan Frank, chairman of the Network Affiliated Stations Alliance and CEO of Post-Newsweek Stations.
Added Eddie Fritts, NAB president and CEO, “NAB will continue to build a solid record to convince the FCC, Congress and the courts to preserve the 35 percent cap.”
But other sources said that when it comes to the cap, the only practical choices for the FCC would be to ax it or raise it. The problem is that simply raising the cap might be extremely hard to rationalize in the court.
“Everybody seems to think it will go to 50 percent,” said Greg Schmidt, LIN Television general counsel and vice president of new development. “But you have to have a damn good reason to stop at any point, and I’m not sure what the reason is.”
The FCC could always attempt to appeal the ruling, either to the full appeals court or to the Supreme Court. But many observers see an appeal as a long shot at best, even though watchdog groups would welcome the company.
“The decision sucks,” said Andrew Schwartzman, president of the activist Media Access Project. “The best thing about this decision is it’s so bad, the Supreme Court will have to pay attention.”