Letter from media chiefs may help Republicans to compromise

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Above: President Barack Obama sits with Speaker of the House John Boehner (R-OH), left, during a meeting with bipartisan leaders last month (Photo by Getty).

The media biz is starting to sweat it.

Comcast chairman Brian Roberts and Viacom CEO Philippe Dauman were among chieftains across industries who begged politicians to avert the fiscal cliff, the prospects for which look increasingly grim every day that goes by without a deal.

“This paralysis must come to an end,” wrote the diverse group of influential business leaders from oil giants to drug companies to investment banks in a letter to House and Senate leaders. It was also signed by DirecTV chairman Michael White; Gannett chairman Gracia Martore; Hasbro CEO Brian Goldner; Harold McGraw III, CEO of McGraw-Hill Cos.; Glenn Britt, chairman of Time Warner Cable; and Verizon CEO Lowell McAdam.

Letter comes less than a month after Roberts joined corporate chieftans from Goldman Sachs, Yahoo and AT&T at the White House to discuss the country’s deficit problems with President Obama.

Fiscal cliff refers to a series of across-the-board tax increases and spending cuts that would go into effect Jan. 1 if Congress can’t reach a deal.

“As CEOs of companies representing more than $7.3 trillion in annual revenues and more than 16 million employees, we write to express our belief that the United States will suffer significant negative economic, employment and social consequences for going over the fiscal cliff. In many cases the damage will be long-lasting, if not permanent,” the letter said. “But it does not have to happen. We urge you to step forward and demonstrate that principled compromise is once again possible and that the American political system that underpinned the economic success of our nation and others can function as designed.”

At a major media conference last week, bizzers including Dauman mostly sidestepped or shrugged off questions about the fiscal cliff. They all agreed that the lack of deal would be disruptive, but most, including the Viacom chief, said they expect politicians to come to an agreement in the end. With the clock ticking and little apparent progress a week later, their outlook may not be as sanguine.

“They’re worried. They may say they’re not worried, but they are. I talk to all the big advertising agencies, and their clients are all worried and wondering how much to spend in the U.S. in January,” said one media fund manager.

Contemplated changes in tax policy including tinkering with the capital gains tax have resulted in a torrent of dividends, special payouts in most sectors, like a notable 50% increase by Disney, and an increase in mergers and acquisitions activity. Deals, including several in the exhibition space, have been speeded up to close before year end. And possible changes to rules on charitable deductions have swelled giving by wealthy individuals across media and entertainment. “We all know the tax rates for 2012 but have no idea what they’ll be next year,” said one expert on charitable giving.

If the president cannot reach a deal with Congress to avoid the fiscal cliff before Jan. 1, taxes will jump by more than 24% on the country’s highest earners. Companies with enough cash on hand have issued higher dividends to protect shareholders from those increases.

To keep shareholders happy, other congloms may do the same; they have little other incentive to issue special dividends.

“It’s not of direct benefit to the media company,” said Schuyler Moore, partner at Stroock and Stroock who specializes in corporate entertainment. “From the media company’s perspective, they like to hold on to cash.”

Disrupting a media company’s usual practices regarding when to issue dividends and by how much can significantly alter its stock price.

But despite Wednesday’s letter from industry leaders, Hollywood generally seems optimistic that Congress will reach a deal.

“If it really looks like nothing will get resolved, then you may see a spate of last-minute dividends,” Moore said, adding that industryites may get more skittish if no deal is reached by the time Congress goes on to its holiday recess.

In addition to a tax hike, an expiration of the Bush-era tax cuts translates to a capital gains increase from 15% to 23.8%. And that means that a number of dealmakers are pushing to get their transactions through .

“A lot of people are trying to sell companies,” Moore said . And a number of people are also scrambling to figure out how to maintain current tax rates for deals that can’t meet the Jan. 1 deadline.

“The short answer is that there are ways to do that,” Moore said.

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