FCC ending duopoly ban

Votes big changes to ownership rules

WASHINGTON — The Federal Communications Commission put some sizzle in the TV station marketplace Thursday, voting to end its 30-year-old ban on owning two stations in the same market. The decision clears the way for companies such as USA Broadcasting and Paxson Communications to sell to, or enter, local joint ventures with major networks.

Under the rules approved Thursday, one station may buy another station in the same market if at least eight independently owned stations remain after the deal is closed. FCC staffers estimate that the new rules will allow combos in 50 of the top 100 markets.

FCC chairman Bill Kennard said Thursday’s decision cleans up the mess created by a decade’s worth of regulatory uncertainty at the commission. “Instead of a set of rules, we just had a blur of policies,” said Kennard.

Among the changes approved Thursday, the FCC will allow:

  • Joint ownership of stations, but not among the top four stations in a market.

  • Ownership of stations in adjacent markets. For instance, one company can now own two stations in Baltimore and two stations in Washington, D.C.

  • Ownership of two TV stations and up to six radio stations in markets where there are at least 20 media outlets or “voices.” The FCC counts TV stations, radio stations, newspapers and cable systems as voices.

  • Ownership of two stations in smaller markets if a broadcasters can prove the station to be acquired is failing or failed. Stations that are dormant, in bankruptcy or can demonstrate negative cash flow for three years will qualify as failing or failed.

  • A company to hold a 20% passive investment in a property without that counting toward ownership caps.

Although the decision had been expected for several weeks, the scale of the deregulation surprised many FCC observers.

“I don’t think anyone would have guessed that this commission would have gone this far,” said one industry source.

Lowell “Bud” Paxson, Paxson Communications topper, predicted that the ruling would dramatically improve his popularity in the marketplace.

Pax party

“In the great duopoly dance, I think I’m the prettiest girl at the party,” Paxson told Daily Variety.

Wall Street apparently agreed. Paxson Communications stock soared 8.51% to $12.75 Thursday.

With advertising revenue sluggish, broadcast stocks have been lethargic, but improvement is expected in 2000. Broadcaster stocks were mixed in a choppy market Thursday, leading some on Wall Street to surmise that the FCC rulings have already been factored into share prices.

Another potential winner is Young Broadcasting, which owns KCAL Los Angeles. The Walt Disney Co. was forced to divest the station when it bought ABC and the net’s O&O, KABC.

Young had tried to sell the station but took it off the market when it failed to get the price it wanted. After today’s decision, there may be many more bidders interested in the station.

Ownership cap ruling

In another key decision that helps companies like Paxson’s, the FCC ruled that ownership of a station in the same market will not count against the national ownership cap. That means the only place Fox and CBS, which are currently bumping up against the 35% national audience cap, can buy stations is in markets where they already operate.

USA Broadcasting president and CEO Jon Miller said Thursday that it was “premature” to gauge the impact of the decision on the fledgling network. But USA Broadcasting did lobby the FCC hard for the change.

Unlike Paxson Communications, USA Networks’ stock fell 44¢ to $45.06.

“The FCC did the right thing to show it supports local broadcasting,” said Miller.

Although he refused to speculate on the issue, several industry sources predicted that the ruling would revive talks between USA and NBC over a possible joint venture. NBC, which now has 28% national audience coverage through its owned stations, even has room to acquire additional stations in other markets.

Joint venture options

One possibility is that USA and NBC will enter into joint ventures in several markets where they would share ownership of a station. Miller ventured that such joint ventures create opportunities for two companies to team up on bidding for sports rights and other programming.

CBS is also considered a big winner because of the relaxation of the one-to-a-market rule that limits local cross-ownership of radio and TV stations.

Last fall the FCC had been weighing a rule that would have limited the owner of a TV station to four radio stations, which would have forced CBS to sell stations in New York and Los Angeles.

“The commission forged a regulation for the way the world is and the way it is going to be, not the way it was 25 years ago,” said CBS senior VP Martin Franks.

Franks refused to discuss CBS’ plans on expansion, but given CBS CEO Mel Karmazin’s interest in extending CBS’ reach, the decision could put the Eye web on the prowl for stations in markets where it already owns TV and radio outlets.

Changed marketplace

Many of the rule changes that the FCC adopted Thursday acknowledged changes in the broadcasting marketplace, which have already taken place despite the agency’s rules.

For instance, the FCC is allowing broadcasters to own two stations in a market, but right now more than 70 outlets are operated jointly through local marketing agreements.

Under an LMA, one station buys all the programming and sells all the advertising for another station in the same market.

In some cases, the only asset controlled by the owner of the leased station is the paper the TV station license is printed on. Under Thursday’s decision, broadcasters who entered into LMAs prior to Nov. 4, 1996, will have six years to convert the stations to actual ownership or else unwind the contractual relationship. For LMAs entered into after Nov. 5, 1996, broadcasters will have only two years to convert to ownership.

Small-market issues

Because many of the LMAs are in smaller markets that do not have enough stations to meet the FCC’s duopoly rules, many broadcasters will find themselves forced to abandon a relationship with another station in the same market.

Analysts predict that Sinclair may be particularly hard hit because it entered into many of its LMAs after November 1996, when the FCC first put the industry on notice that it was going to examine the LMAs.

While broadcasters were generally enthusiastic about the changes, at least one person in Washington was not.

Rep. Ed Markey (D-Mass.), one of Congress’ leading media watchdogs, issued a press release warning that the increased concentration allowed by the vote will not benefit the FCC’s mandated goal of promoting diversity.

“This is the worst FCC decision in recent memory. Every American should be startled and dismayed by this outcome,” said Markey.

(Jill Goldsmith in New York contributed to this report.)

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