Media ownership rules eased. Looser FCC limits expected to spur purchases

June 7, 2003

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The Federal Communications Commission eased restrictions Monday on media ownership, paving the way for deals that could put newspapers, television and radio stations in fewer hands.

Communications Graphic/APMedia Metamorphosis Graphic/APGovernment Weighs in on Media MergersRelated Coverage Analysis: FCC is allowing media giants to keep growing

Described by supporters as necessary under the FCC's mandate and reflective of a transformed media landscape, the rules changes were decried by opponents as a blow to American democracy. The critics now plan to take the battle to Congress and, almost certainly, to the courts.

The new rules will allow a single company to own a daily newspaper and television and radio stations in the same town - something that had been banned since 1975.

Monday's action also expands the number of television stations a single company may own in a given market, and increases the percentage of households that a firm's stations may reach nationwide.

In Milwaukee, the changes in the regulations could open the way for Journal Communications Inc. to buy more radio stations or another TV station. The firm already owns the Milwaukee Journal Sentinel, WTMJ-TV (Channel 4) and radio stations WTMJ-AM (620) and WKTI-FM (94.5) - holdings that have been allowed under a grandfather provision in the 1975 rule.

Owning multiple broadcast outlets in the same market usually makes business sense because it lowers operating costs and enhances opportunities to sell advertising across varying demographic groups.

Acquiring multiple stations elsewhere has been part of Journal Communications' strategy. Recently, in filing plans with securities regulators for a public stock offering, the employee-owned company said it would seek to continue acquiring stations in some of its existing markets, as well as in new places.

The new rules, combined with Journal Communications' plans to go public, could have another effect: They could make the company an acquisition target.

Most of the Milwaukee firm's stock now is held by a trust that contains strong anti-takeover language. But the plans for a public offering call for the trust to be dissolved, and the new FCC rules would allow a buyer to acquire the company and keep its Milwaukee newspaper and broadcast properties.

"Now, for example, you can be purchased, whereas before people would have had difficulty purchasing you," said media consultant Robert Unmacht, co-owner of IN3 Partners Inc. in Nashville, Tenn.

A Journal Communications spokesman declined to comment on the new FCC rules. Citing federal securities regulations, the company has generally kept mum since announcing plans to go public on May 14.

Significant but modest changes

FCC Chairman Michael Powell, leader of the 3-2 Republican majority that approved Monday's changes, said in a statement that Congress and previous court rulings require the panel to modify or eliminate regulations it cannot prove are "necessary in the public interest."

The new regulations, he said, are significant but modest changes that "take proper account of the explosion of new media outlets for news, information and entertainment, rather than perpetuate the graying rules of a bygone black-and-white era."

But commissioner Jonathan S. Adelstein, one of the dissenters, called the new rules "poor public policy, indefensible under the law and inimical to the public interest and the health of our democracy."

Powell's description of the changes as modest drew fire from Consumer Federation of America research director Mark Cooper, who labeled it "pure and utter deception."

Newspaper-television mergers now will be allowed in more than 190 markets serving more than 90% of the American public, Cooper said.

Common ownership of up to three TV stations will be allowed in the top 10 markets, serving 25% of the country's population, and ownership of two will be permitted in another 100 markets, he said.

"Today we have a free-fire zone for mergers that applies to over 90% of the people in this country," Cooper said.

A giant game of Monopoly

Wall Street, indeed, is interested.

"It's now a giant game of Monopoly, and everybody is going to be looking to where they can best improve their situations and their economics," said Richard E. Lane, president of Milwaukee's Broadview Advisors, an investment management firm that follows media.

Rather than outright takeovers, Lane foresees more swapping of broadcast properties, with companies seeking to improve their position in specific markets.

Lane believes there is pent-up demand for broadcast stations. Some current owners looking to sell have held off, awaiting the FCC action, he said, figuring that an easing of the rules would boost the value of their stations and provide new potential buyers.

Further, companies such as Young Broadcasting, Granite Broadcasting and Paxson Communications - owner of Milwaukee's WPXE-TV (Channel 55) - need to reduce debt and may want to sell some stations, Lane said.

The virtual certainty that the new rules will be challenged in court, however, could slow the acquisition pace, said both Lane and media consultant John Morton.

"On the other hand," Morton added, "there might be some companies that want to be aggressive about it, figuring that once you scramble the egg, it's pretty hard to do anything about it."

Likely buyers under the new rules include newspaper giant Gannett Co., which owns 10 papers in Wisconsin, and Chicago-based Tribune Co. Both already own broadcast outlets.

Monday's action is a double blessing for Tribune Co. It not only provides opportunities for new transactions but ratifies the firm's $8.3 billion acquisition of Times Mirror Co. in 2000.

From the June 3, 2003 editions of the Milwaukee Journal Sentinel

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