Deregulation: Chaos Calling?

Senate Commerce Committee chairman Larry Pressler’s (R-S.D.) sweeping proposals to deregulate the TV business have divided the industry and will likely lead to many closed-door shouting matches over the next several months.

Pressler has proposed gutting the limits on ownership of TV stations, eliminating rules prohibiting broadcasters from owning more than one station per market and removing restrictions against foreigners owning more than 25% of a U.S. TV station – so long as the laws of the foreign country are relaxed reciprocally.

But while the three networks and Fox favor outright deregulation of the industry, TV station group owners and syndicators are concerned that an industry without some form of regulation will resemble New York City without traffic lights.

The divergent views of the networks and their affiliates has the industry’s lobbying arm – the National Assn. of Broadcasters (NAB) – caught in the middle. So far, NAB has indicated that it favors relaxing the TV ownership rules to allow a broadcaster to reach 30% of the country, a 5% boost. NAB also proposes allowing broadcasters to own an unlimited number of TV stations as long as the 30% cap is in place. Currently, a broadcaster can own 12 stations.

“We’d like to make substantial progress and are disappointed that our partners feel we don’t deserve anything,” says Martin Franks, senior vice president, CBS. “It’s ironic. For years we’ve listened to these guys bemoan the heavy yoke of regulation and now they’re offered the keys to the jail cell and they are saying in essence ‘no thanks, the food is pretty good in here.’ “

The networks are putting pressure on the NAB to expand its thinking and are sending signals that if it doesn’t, the webs will walk and pursue their own strategy on Capitol Hill.

“If the NAB can’t rise above this issue and pull the industry together, then the viability of the NAB will be at stake,” warns Neil Braun, president of the NBC TV Network. The NAB is expected to announce its platform on TV deregulation this week.

“A trade association should only do business by consensus and there will be no consensus here,” adds Franks.

All three networks and Fox are bumping up against the 12 station-25% cap and are looking to buy more TV stations. No market is considered too small for a network-owned station these days, with Fox buying a property in Memphis and CBS snapping up a station in Green Bay, Wis., and looking in Buffalo. CapCities/ABC now owns stations in Flint, Mich., and Toledo, Ohio – the nation’s 60th-and 64th-largest markets, respectively.

“Clearly the networks have the greatest incentive to expand,” says Renaissance Communications topper Mike Finkelstein. “Look at the compensation they just paid; this is one way to recapture that.”

Station execs are not shy about expressing their concerns about Pressler’s proposals and a fear that every station in the top-50 markets will be bid on by the Big Four.

“Companies like mine will find themselves bumping against the big guys,” says Alan Bell, president of the broadcast division of Freedom Newspapers. “There is nothing wrong with the big guys in big places, but there ought to be room for everybody. If you carry reform to a lack of limits, there will be room for only a few, and that would be a terrible shame.”

Many concerns

“There are a lot of major concerns,” adds Nick Trigony, president of Cox Broadcasting, which owns six major-market network affiliates. “You can’t just focus on the isolated issue of raising the TV ownership caps. You have to consider everything going on around us.”

Of concern to Trigony is the idea that the ownership caps could be lifted at the same time that the financial interest and syndication rules – which limit the amount of programming a network can produce and syndicate – and the primetime access rule – which keeps network affiliates from buying reruns for the hour before primetime and limits the networks to programming three hours of primetime – may be lifted completely.

Broadcasters are aware of the potential conflicts with the networks. “We don’t want to hurt the networks; we need strong, viable networks,” says one group owner. “But this is about balance, and when the networks have the power they screw us.”

But the networks argue that the industry needs to unite and compromise so it’s better prepared to fight competition from cable, the telephone companies and direct broadcast satellite.

“It’s like a husband and wife arguing in the middle of the superhighway, waiting to be run over by competition,” says Rick Cotton, executive VP and general counsel at NBC. “Real competition is coming, and we need to sit down and negotiate tradeoffs or we all lose.”

Fox network distribution prez Preston Padden agrees.

“At the risk of sounding sanctimonious, our company is genuinely committed to deregulation, both where it helps and hurts us. PTAR helps us a lot and we are prepared to see it go away,” Padden says.

Broadcasters say they provide local service and that localism should be considered before relaxing the ownership rules.

Localism ‘foundation’

“The whole foundation of our broadcast system is localism,” says Renaissance’s Finkelstein. “I’m not concerned that if you take off the limits you’re creating a few big monsters. But what are we longterm? Are we no different than cable with no localism? Should we be paying spectrum fees?” The networks take offense at the implication that their owned-stations are not as involved in local markets as other broadcasters.

“Put localism in contrast to cable and DBS, which are national services that don’t have roots in the community – that should be our agenda,” says NBC’s Cotton.

Adds CBS’ Franks: “If you can’t make peace with your network while holding a 10-year affiliation contract and ignore Bell Atlantic’s Ray Smith and TCI’s John Malone, you do so at your own peril. Obviously that argument is not carrying the day.”

As for the idea that the networks will come in and buy every TV property in sight, Fox’s Padden points out that no one “can force them to sell a station. It is in their best interest to have well-heeled potential buyers. Look at what Fox has done for the wealth of affiliates of the three old networks.”

For Padden, the industry needs to focus on what he calls the real issues. “There is an excessive amount of attention focused on ownership. The real issues are about the digital age. What opportunities are there and how do we get the spectrum we need without getting clobbered financially?”

But not everyone is looking at the forest through the trees. The Hollywood studios also have a lot riding on Pressler’s proposals. Already fearing the total removal of fin-syn and the relaxation of PTAR and the increased competition, they now face the possibility of station operators increasing their holdings and hence their leverage in program negotiations.

“Trust me, no regulation is foolish,” says Rich Frank, chairman, Walt Disney Television and Telecommunications. “Some regulation is almost always necessary to allow the marketplace to operate.”

Frank, who wants PTAR relaxed, says he is encouraged by all the talk. “They really want to do something,” Frank says.

But others would be happy if D.C. just let things be. “We have concerns about station ownership but our main thrust is related to PTAR,” says Stephen Palley, exec VP at King World, which wants PTAR retained. “Our views on PTAR are similar to our views overall – avoid an unreasonable concentration of power. More concentration means more damage.”

Radical plan ditched

Of course, most of the industry knows that Pressler threw out the most radical plan as a starting point for the negotiations between Democrats and Republicans as well as the industry.

But even the slightest change will seem radical to much of the industry, and there is a sense that there will be a whole new playing field next year.

It is unlikely that affiliates, networks and studios will be able to compromise for the so-called greater good. After all, one company’s greater good may be another one’s demise.

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