Rupert Murdoch’s News Corp. is getting nervous. The company has until April 28 before the FCC’s inquiry into its TV station ownership becomes a serious business liability. That’s the deadline for the Fox and Savoy Pictures-backed entity SF Broadcasting to exercise its option to buy its first TV station.

The FCC’s axe may never fall on Fox. But just the prospect of a longer investigation has News Corp. chairman Murdoch and other Fox execs worried. At a press conference last month, Murdoch said he was concerned that the FCC could order an administrative law judge to hold hearings into the case, because that would “seriously hold up our progress and our expansion.”

Hearings would handcuff Fox from expanding its station lineup for as long as the hearings run – which could be two or three years.

Station purchase deals already negotiated would dissolve as the sellers go elsewhere. Deals negotiated by both SF, in which Fox and Savoy have invested at least $100 million, and Fox are on the line.

“We have a number of station transactions pending with a combined value of $1 billion,” said News Corp.’s senior VP for government relations, Preston Padden.

The first deal is SF’s $38 million purchase of NBC affiliate WLUK in Green Bay, Wisconsin from Burnham Broadcasting. But unless the FCC clears the purchase by April 28, Burnham can sell it to another party – and already several interested parties are lining up as potential buyers. NBC is said to be dangling the carrot of a lucrative long-term affiliation agreement if the next buyer stays with the network.

“We are rapidly approaching” the April 28 deadline in the first transaction, said Padden, and “we need FCC action well in advance of that date if the parties are going to have time to take the steps necessary to close.”

SF also has a deal with Burnham to buy its ABC affiliate in New Orleans and its NBC affils in Honolulu and Mobile, Ala. for $230 million. Those offers expire in August, and although that’s still a long way off, other buyers are also ready to pounce on those deals.

In addition, Fox has four deals awaiting approval for stations in Philadelphia, Dallas, Boston and Memphis. The stations were described by one Fox exec as jets backed up on a runway; other station deals can’t even be started until the FCC rules on the ownership question.

Ready buyers

Last year, Fox had to call off a deal to ring up an affil in Philadelphia because of the NAACP’s petition against the company. As is the case with SF, there are other ready buyers for the stations Fox has negotiated deals on if Fox can’t get FCC clearance.

Fox’s rivals have no such handcuffs holding them back. In recent months CBS has bought WPRI in Providence, RI from Narragansett Broadcasting; Capital Cities/ABC has bought two stations and invested in group owner Young Broadcasting and NBC is taking a hard look at the five TV stations owned by Multimedia Entertainment. On top of that, the FCC is expected to relax its TV ownership limits from the 12 station/25% national reach cap, clearing the way for the Big Three to grow further.

Padden noted as well that since Fox was put “in the penalty box” represented by the inquiry, “NBC and the other networks have run around and signed up many of their affiliates for ten-year affiliate agreements.

Major battle looms

There is little surprise then that last month Murdoch suggested News would start its own legal battle if the FCC turned the inquiry “into a kangaroo court.”

“If the FCC allows station ownership rules to be modified and excludes Fox from buying, there’d be a major legal battle (for Fox to pursue)” said Merrill Lynch analyst Jessica Reif .

While confident that Fox will eventually be vindicated, Padden says he is “concerned about all aspects of this matter” and adds that Murdoch has had to spend a “significant amount of time” dealing with it.

Ironically, however, while Murdoch and his top lieutenants are preoccupied with the potential problems arising from the inquiry, it’s caused hardly a ripple on Wall Street. News’ stock has been surging in recent weeks after several months in the doldrums.

Since early February News’ stock price has risen 25% as several Wall Street analysts have upgraded the stock to a “buy,” citing improving prospects for Star TV in Asia, News’ British newspapers and the continuing momentum of the Fox network.

Apart from a couple of recent analyst reports which classified the FCC inquiry as a risk for the stock, few analysts or money managers say they take the FCC inquiry seriously.

“The reason I’m not worried about it too much and Wall Street isn’t worried is that most of us believe that there is no rational reason for doing anything negative to News Corp in the light of the facts,” says one major institutional shareholder.

But another Wall Streeter says the issue is being ignored by analysts because the impact on News Corp. is too hard to figure out. He said some money managers are worried about the inquiry but don’t understand the issues, while most analysts “are ignoring it.”

Merrill Lynch’s Reif, who helped start the rally in News stock with a positive report earlier this year, says: “It’s hard to get a handle on what the worst case really is.” She dismisses the possibility of the FCC taking away News’ licenses as being “unthinkable” and says the “worst-case realistic scenario is that they’re forced to restructure the U.S. company and would have to pay more U.S. corporate taxes.”

Get it over with

Reif says even that is unlikely. She adds that the issue has “been an overhang for the stock, so getting it over one way or another would be a real positive.”

Another analyst said it was difficult to assess the economic impact if Fox was prevented from buying stations. He admitted, however, that Wall Street looks only at the hard numbers rather than at more intangible issues like management time and investor psychology.

Says Padden: “(Murdoch) went to the FCC, disclosed everything and then proceeded to make massive investments and take enormous risks. To have all of it second-guessed ten years later is grossly unfair and extremely troubling.”

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