Ruling opens up cross-ownership of media

 

From staff and wire reports
2/21/2002

 

WASHINGTON - A federal appeals court has ordered the government to pull back ownership limits on broadcast and cable firms, opening the door to a potential surge of media takeovers.

The decision is seen as a victory for big media companies and a source of concern for consumer advocates.

Analysts said the ruling heightens the likelihood of takeovers of second-tier cable companies including Adelphia Communications, as programmers and broadcasters eye cross-industry acquisitions.

But an Adelphia spokesman was unsure how the sweeping change in media regulation will play out.

"I'm not sure how its going to affect us," Adelphia spokesman William Pekarski said.

The judges of the U.S. Circuit Court of Appeals for the District of Columbia told the Federal Communications Commission on Tuesday that it went too far in seeking to enforce a rule aimed at capping the national reach of a broadcast ownership group at no more than 35 percent of U.S. households.

Separately, the judges vacated a commission rule that had prohibited cable systems and broadcast stations in the same market from being controlled by the same entity.

Together, the decisions clear the way for big media companies to combine. Consumer advocates say that could remove the watchdog role newspapers play in covering the broadcasting industry.

"The cable guys can own TV stations now; the TV stations are looking to buy newspapers - and the TV and newspapers are the major voices in civic discourse," said Mark Cooper, director of research for the Consumer Federation of America. The decisions, he said, "eliminate the antagonism between media that we need for our democracy."

Media companies that had been limited in their ability to expand cheered the decision.

"We have long believed that the national broadcast ownership cap is outdated and no longer serves the public interest. We are pleased the court agreed with our view, and now look forward to a speedy resolution of this issue from the FCC," said Andrew Butcher, vice president for corporate affairs and communications for News Corp., Fox's parent company.

In Western New York the big question is how the ruling will affect Adelphia. If the decision stands, Adelphia and other cable operators would be free to buy broadcast stations, increasing their grip on the media market in areas where they already supply cable.

However, industry analyst Declan Hanlon at Scotia Capital cited Adelphia and Cablevision Systems as likely takeover targets in the newly opened market, according to published reports.

Louis Verruto, general manager of WIVB and WNLO in Buffalo, said the major networks and newspaper chains are now likely to buy up more stations in smaller markets to increase ad revenues.

He said he thought the ruling would stand, "but there'll be a lot of discussion," he said. The ownership rules struck down by the court "are very, very antiquated - they were made when there were only two or three stations in each town." The court said the FCC overreached by retaining the television ownership rule and sent it back to the agency "for further consideration."

"We conclude that the commission's decision to retain the rules was arbitrary and capricious and contrary to law," wrote Chief Judge Douglas H. Ginsburg.

At the same time, the judges set aside the cable rule "because we think it unlikely the commission will be able on remand to justify retaining it."

During its biennial policy review, the FCC had said that it retained the ownership rule to study the effect of the 35 percent cap on station ownership and to preserve the power of affiliates in bargaining with their networks, according to the brief.

The plaintiffs - Fox Television Stations; National Broadcasting Co.; Viacom Inc., and CBS Broadcasting - challenged the FCC's decision to retain a rule that prohibits any entity from controlling television stations that, together, can reach more than 35 percent of U.S. households.

Time Warner Entertainment Co. had challenged the cable broadcast rule.

Blair Levin, an analyst with Legg Mason, said the decision "is likely to lead to a dramatic change in the underlying economics and structure of the traditional mass media, with the large broadcast television networks and cable operators the primary beneficiaries."

"We believe the remand of the national broadcast-TV ownership rule will result in significant FCC relaxation of the current 35 percent cap," he said, "giving the major broadcast networks greater economic power over affiliates."