Vertical vertigo

Congloms advance case vs. ownership regs

WASHINGTON — The deck of cards known as the TV biz will be tossed into the air Friday when a federal appeals court considers whether to scrap crucial ownership rules and give new potency to vertical media congloms eager to buy up more broadcast stations and cable properties.

CBS, Fox, NBC and AOL Time Warner will enter the Washington, D.C. courtroom buoyed by widespread speculation that they will prevail against the Federal Communications Commission, affiliates and the National Assn. of Broadcasters.

By Wednesday, even former FCC general counsel Christopher Wright was predicting that the two ownership rules were in grave danger — this even when Wright himself spent the past several years promoting them. He left the regulatory agency in January.

“The court seems quite likely to not want to affirm this particular rule,” Wright said.

Wright’s comments came during a conference call with investors arranged by Legg Mason financial advisor Blair Levin.

“This case is as important as they come. It really has the ability to change the structure of the industry,” Levin said.

Cap is key

At the center of the battle is an FCC ownership cap that blocks a broadcaster from reaching more than 35% of the national audience. Nets say the regulation is arbitrary and violates their First Amendment rights.

CBS parent company Viacom is technically over the mark due to its recent merger with Chris-Craft, but doesn’t have to sell off any stations until the issue is resolved, the appeals court said.

Affiliates and the NAB argue that the cap is the last thing stopping the nets — and their vast parent companies — from having complete leverage over affils. Smaller station groups say they will be raided and bought up by the big guns.

Yet even affiliates agree that their chance of winning over the appeals court isn’t so good.

Cable cap cracks

Several months ago, the very same appeals struck down the FCC’s cable ownership cap, which stopped a cabler from reaching more than 30% of the national audience. The court agreed that the rule violated the spirit of the First Amendment by being arbitrary.

During oral arguments this Friday, AOL Time Warner will address another FCC reg, this one prohibiting a broadcast licensee from owning a cable system in the same market.

The ramifications of this rule being overturned are enormous, Levin said. For instance, the Walt Disney Co. could merge with cable giant Comcast without fear of having to sell off owned-and-operated stations in lucrative markets.

“Instead of having cable vs. broadcasting, you will have vertical company vs. vertical company, with less diversity in distribution. It will change programming,” Levin said.

Levin said all the deals being discussed in the marketplace today — such as Disney/Comcast or AOL Time Warner/Telemundo — depend on the two FCC rules being overturned.

Diversity ding

“I fear this is the beginning of dismantling the remaining rules which have promoted greater diversity of ownership and content,” Center for Digital Democracy exec director Jeffrey Chester said.

While the implications are far-reaching, Friday’s hearing isn’t expected to last more than a couple of hours.

When making its pitch, the FCC will state that there is a solid record showing why retention of the ownership rules is important in ensuring diversity.

But Chester and other consumer advocates worry that FCC topper Michael Powell won’t go the extra mile in the event that the court strikes down the 35% cap but gives the FCC the option of setting the cap at a new level, such as 50%.

Powell has been an outspoken advocate of deregulation.

Yet Sen. Ernest Hollings (D-S.C.), chair of the powerful Senate Commerce Committee, could pose problems for the Republican FCC topper. The politico has let it be known that he wants the remaining ownership rules left on the books, period.

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