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Ownership

Ownership

The trend toward consolidation of TV station ownership effectively stalled in 2004 due to regulatory confusion and the effect of campaign politics.

The Federal Communications Commission, which regulates the publicly owned airwaves, did little to proceed with its attempt to rewrite ownership rules. In addition to its being a campaign year, the FCC was stopped by court battles, Congressional politics and the possibility that a change in administration would lead to a new approach to media policy.

With the uncertainty, most TV companies proved unwilling to purchase new stations. In all, less money was spent on buying TV stations in 2003 and 2004 than in any other year since 1992.

Total Value of TV Station Acquisitions
1996 to 2004

Design Your Own Chart
Source: Broadcasting & Cable Yearbook

The pattern of television station ownership in recent years originated in the Telecommunications Act of 1996, a Clinton-era law that removed a number of limits on station ownership, allowing companies to buy more stations in more parts of the country than ever before. For example, it raised the cap on the reach of a company from stations covering 25% of U.S. households to stations covering 35% of the country. It also relaxed rules on common ownership of radio and television stations.1 Between 1995 and 2003, ten of the largest TV-station owners went from owning 104 stations with $5.9 billion in revenue to owning 299 stations with $11.8 billion in revenue.

The Telecommunications Act required the FCC to review the ownership limits every two years and determine whether any rules needed to be modified.2 In June 2003, FCC Chairman Michael Powell released a new set of rules that would have dramatically loosened limits on station ownership and allowed even more consolidation.

The proposed rules focused on three areas. The first was the ownership cap, which Powell proposed raising from 35% of the country’s households to 45%. (Two companies– Viacom and Fox– already had waivers allowing them to exceed the cap.) The second area was ownership of multiple TV stations in a single market, known as “duopoly” ownership. While this was permitted in the largest markets, the Powell proposals would have allowed duopolies in all but the smallest markets. The third area of regulation, cross-ownership, would have relaxed rules forbidding companies from owning a TV station and a newspaper in the same market.

Many members of Congress balked at the FCC’s proposals, and a vocal minority suggested they would exercise their authority to prevent the FCC from putting the regulations into effect. The Bush administration, however, won passage of a law in early 2004 fixing the TV ownership cap at 39% as a matter of law rather than a regulation, taking that issue out of the FCC’s hands. The new cap put Viacom and Fox back under the limit.

Meanwhile, the Prometheus Radio Project, an organization of low-power radio activists, had challenged the proposed rule changes involving duopolies and cross ownership. In November 2003 a federal appeals court blocked the rules while it considered the case, and in June 2004 the court tossed out the new rules on cross-ownership and duopolies entirely, declaring that the FCC had not justified the reasoning behind them.3

During those proceedings there were relatively few station sales. In 2003, the total value of TV stations that changed hands amounted to $500 million, according to data from the trade magazine Broadcasting & Cable. The figure for 2004 was roughly $700 million.

By comparison, in the six years immediately after the Telecommunications Act of 1996, the total value of TV stations sold each year was never less than $2 billion.4

Through 2004, the FCC gave few hints about how it would deal with its rebuke from the federal court, and the climate of uncertainty continued. That may have been partly because it was a campaign year, when control of the FCC hung in the balance. (By law, the FCC’s five commissioners include three from the president’s party and two from the opposite party.)

The issue of media ownership might have been ignored during the presidential campaign except for a late controversy involving Sinclair Broadcast Group. In October, it became known that Sinclair’s corporate management intended to air “Stolen Honor,” a documentary about former Vietnam prisoners of war that was sharply critical of the Democratic candidate, John Kerry. The program was to be on all Sinclair stations, including outlets in critical swing-state media markets such as St. Louis, Pittsburgh, Milwaukee, and Columbus, Ohio.5 The film was produced by Carlton Sherwood, a former print journalist turned documentarian who once worked for Bush cabinet member Tom Ridge.

One of the largest groups in the country by number of stations owned, and reaching more than a quarter of U.S. homes, the Sinclair group had also been one of the most aggressive companies when it came to exploiting the post-1996 media ownership regulations. Indeed, Sinclair, headquartered outside Baltimore, even used the courts to try to dismantle the remaining rules. In April 2002 it won a ruling from a federal appeals court ordering the FCC to either rationalize its ban on duopolies in certain markets or eliminate its regulations.6 In the face of the controversy surrounding the FCC’s proposed ownership rules, Powell would argue that he had no choice but to deregulate in the face of the Sinclair ruling and similar court decisions.7

Many suspected partisanship in Sinclair’s plans to run “Stolen Honor.” The company had previously blocked the showing on its ABC affiliates of a “Nightline” tribute to soldiers killed in Iraq, and political donations by company executives significantly favored Republicans over Democrats. The company also required its stations to air commentaries by Mark Hyman, a Sinclair executive who was a blunt, talk-radio-style critic of the Democratic party and an advocate of conservative positions and the GOP. Finally, Sinclair was also highly likely to benefit from the ownership rules revision approved by the FCC’s three Bush-appointed commissioners.

Kerry supporters responded with fury to the plan to show “Stolen Honor,” and perhaps for the first time, a TV station group faced a boycott aimed at its local stations. Reports came from Madison, Wisconsin; Portland, Maine, and other cities that citizens were calling local merchants, restaurants, and auto dealers and threatening to withhold their patronage unless the businesses stopped advertising on Sinclair stations.8 Most ominously, perhaps, Burger King – one of the 50 largest advertisers in the country – announced that it would be pulling its ads from all Sinclair stations on the night scheduled for the “Stolen Honor” broadcast. Sinclair’s stock slid downward (having already lost more than half its value over the course of the previous year) and institutional investors expressed displeasure. As the financial group Legg Mason put it, “Is this good for investors in terms of increasing the odds for favorable deregulation? We think not.”9

Sinclair retreated, modifying its plans for airing “Stolen Honor” and broadcasting a program about the documentary’s allegations instead.

Activists have vowed to challenge Sinclair’s station licenses as they come up for renewal before the FCC. That seems more likely to generate publicity than regulatory sanction. Still, the controversy may indicate that any FCC move to further relax ownership rules would encounter passions that could have political fallout. And the reaction of investment companies to Sinclair’s plans shows that the financial community also sees risks in a company whose strategy appears overtly partisan.

The company may have overplayed its hand. Chairman Powell’s attempt to change the media ownership rules ran into trouble partly because the FCC held only a single public hearing, in Richmond, Virginia, and the plans foundered in 2003 as they became more public. Polls showed that as citizens learned more, they were less supportive.10 The Janet Jackson Super Bowl incident generated roughly half a million complaints to the FCC; the agency’s attempts to change media ownership rules generated even more public comments-700,000 all told, almost all of them opposing the FCC’s proposals.11 Against this background, Sinclair’s attempt to air a partisan documentary may have backfired by calling attention to the company and its anti-regulatory activities.

The issue may also fade from view. And a sympathetic, perhaps even grateful Bush administration, with a stronger party majority in Congress, may find ways to deregulate in a second term that it could not before.

In 2004, though, there was also concern about ownership and deregulation in the advertising community. An October survey by the industry publication MediaPost of media planners – the professionals who are in charge of actually purchasing commercials on local TV stations – showed that some members were keeping an eye on the presidential election for its potential impact on FCC regulation and their business interests. One respondent’s support for John Kerry was based in part on the prospect that a Democratic administration might stop further consolidation, and on the belief that “TV broadcasting moguls… end up raising advertising prices and generally stifling the advertising industry.” Another wrote: “As media companies are allowed continually to get large, negotiation is becoming more and more difficult.”12

In the end, abandoning Powell’s regulatory fight the week after he announced his resignation, the Bush administration decided in January 2005 not to go to the Supreme Court to fight for the FCC’s proposed rule changes.13

In anticipation of further deregulation, companies including Tribune, Gannett, and Media General had acquired newspapers in markets where they also owned TV stations. Now the long-term fate of those acquisitions is in limbo. The FCC has the power to block the transfer of a TV station license, but has no authority over newspaper ownership. This has led to ambiguity about what it can do when a newspaper purchase leads to a violation of cross-ownership rules.

The FCC does have the power to order these companies to divest themselves or lose their broadcasting licenses when they come up for renewal.14 This could cause the stations to lose a good deal of money – Tribune has made approximately $1.2 billion from its cross-owned stations; Gannett $250 million; and Media General $108 million.

In South Carolina, the license of Media General’s cross-owned station, WBTW, expired in December 2004, but the station is allowed to continue operating pending FCC action on an appeal challenging the renewal of the license. FCC watchers predict the FCC may not resolve the situation until fall 2005 at the earliest, and similar delays are likely as other cross-owned stations come up for license renewal in 2005 and later.

If the FCC actually threatened to rescind a station’s waiver, it appears the owner would be allowed to decide whether to sell the newspaper or the station. In 2000, the FCC initially offered that choice to Tribune when it acquired the Hartford Courant (while already owning the Hartford station WTIC). But the agency has not followed through on its order that Tribune divest itself.15

As for the final framework of ownership rules, Powell himself predicted in late 2004 that it would take a long time before rules acceptable to all parties could be developed.16 His replacement as FCC chair could be one of the other current Republican commissioners, Kevin Martin or Kathryn Abernathy.17 Both supported his attempts to amend the rules in 2003. Since the FCC must now redo its ownership rules process in order to comply with the Philadelphia court ruling, the next round of proposed changes may be more limited than Powell’s first proposals. But under another Republican chair, the general trend toward deregulation is likely to continue.

The largest transaction of 2004, announced a month after the election, seemed to reflect some such expectation, since it involved Viacom’s purchasing the Sacramento station KOVR from Sinclair for $285 million, thereby creating yet another duopoly.18

Footnotes

1. “U.S. Policy: Telecommunications Act of 1996,” Encyclopedia of Television. On line: http://www.museum.tv/archives/etv/U/htmlU/uspolicyt/uspolicyt.htm

2. See Alicia Mundy, “Put the blame on Peggy, boys,” Cable World, June 30, 2003. Online: http://www.broadband-pbimedia.com/cgi/cw/show_mag.cgi?pub=cw&mon=063003&file=put_blame_peggy.inc.

3. For example, the court noted that by the FCC’s logic a community college station in the New York suburbs would have been considered equal in media impact to the local ABC affiliate, and more significant than The New York Times. See Stephen Labaton, “Court orders F.C.C. to rethink new rules on growth of media,” The New York Times, June 25, 2004.

4. Data gathered from Broadcasting & Cable Yearbook and back issues of Broadcasting & Cable.

5. Elizabeth Jensen, “Conservative TV group to air anti-Kerry film,” Los Angeles Times, October 9, 2004.

6. Pamela McClintock, “Court: FCC duopoly reg is too strict,” Variety, April 2, 2002.

7. Brett Pulley, “Commander of the airwaves,” Forbes, April 29, 2002.

8. See “Local Fox advertisers under fire over anti-Kerry program,” Wisconsin State Journal, October 20, 2004, and Bill Carter, “Anti-Kerry film reaps storm for broadcaster,” The New York Times, October 19, 2004.

9. Bruce V. Bigelow, “Backlash hits Sinclair on disputed ‘news event.'” San Diego Union-Tribune, October 20, 2004.

10. Pew Research Center for the People and the Press, “Strong opposition to media cross-ownership emerges,” July 13, 2003. Online: http://people-press.org/reports/display.php3?ReportID=188

11. Number of Super Bowl-related complaints: see “CBS protests Janet Jackson fine,” Associated Press, November 8, 2004. Number of ownership regulation complaints: see Robert Morlino, “Sinclair flap proves exception,” Center for Public Integrity, October 28, 2004.

12. Joe Mandese, “Kerry beats Bush… among planners, buyers.” MediaPost, October 29, 2004. On line: http://www.mediapost.com/dtls_dsp_News.cfm?newsID=276049&Search=kerry%20beats%20bush&FuseAction=Article&Pn=1

13. Stephen Labaton, “U.S. backs off relaxing rules for big media,” The New York Times, January 28, 2005.

14. Bill McConnell, “Playing for keeps,” Broadcasting & Cable, August 9, 2004.

15. See Jeremy Mellman, “Tribune frets over Bush media move,” Chicago Business, January 27, 2005; and Harlan Levy, “Courant parent could face antitrust lawsuit,” The Journal-Inquirer (Manchester, Conn.), May 7, 2003.

16. Jeremy Pelofsky, “FCC’s Powell sees long road ahead for media rules,” Reuters, December 2, 2004.

17. Al Senia, “The Powell play,” America’s Network, September 1, 2004. On line: http://www.americasnetwork.com/americasnetwork/article/articleDetail.jsp?id=117973

18. J. Freedom du Lac, “Viacom move puts local TV folks on edge,” Sacramento Bee, December 7, 2004.