TV Networks Allowed to Own Cable : Broadcasting: The Federal Communications Commission lifts a 22-year-old restriction on ABC, CBS and NBC.

In a further deregulatory action aimed at helping the shrinking fortunes of the three major television networks, the Federal Communications Commission on Thursday unanimously overturned a 22-year prohibition against networks owning cable TV systems.

The 5-0 decision, which followed the FCC’s promise last year to conduct a thorough review of decades-old regulations governing TV networks and local stations, is designed to give the networks new areas in which to expand in the face of growing competition from cable.

In response to fears from local broadcasters that network ownership of cable TV systems could result in “discriminatory conduct,” the FCC imposed caps on how many cable TV subscribers a network can acquire. Such discriminatory conduct could include a network giving favorable cable channel positions to its own local stations at the expense of competitors.

Consumer advocates are also concerned that allowing cross-ownership could further limit the programming available on free TV.

The FCC adopted cross-ownership rules in 1970 to curtail the networks’ overwhelming dominance in the video marketplace and to protect the then-nascent development of cable television.

Networks have been allowed to own cable channels such as ESPN or CNBC but have not been allowed to own the more lucrative systems that distribute cable programs to homes--which are usually monopolies in their service areas.

But cable television now reaches more than 60% of all TV households in the country and some cable networks, such as Home Box Office, attract more viewers on some nights than ABC, CBS or NBC.

Furthermore, the part-time Fox network has cut into traditional network viewership and could threaten further erosion when it expands to seven nights next year.

“The broadcast television networks have lost a considerable portion of the total television audience, thus causing a decline in their advertising revenues,” the FCC said.

Under the new cross-ownership formula, a network would not be allowed to take a stake in more than 10% of all cable homes nationwide, and 50% of homes with cable TV in a local market.

There are about 56 million homes with cable TV in the United States.

In addition, the networks would still be prohibited from investing in cable TV systems in markets where they own TV stations.

The caps--which could be lifted in three years--are unlikely to encourage an immediate flurry of network-cable transactions, said David Westin, vice president and general counsel of Capital Cities/ABC Inc., the main proponent of lifting the ban.

Westin said the caps would result in the networks having to sell off many parts of the cable systems they acquire because most markets have only one cable TV operator.

A recent analysis by Capital Cities/ABC found that it would have to sell from 23% to 68% of the cable subscribers if it merged with any of 11 major cable TV operators.

“Just from a practical matter it makes it very difficult to do any deals,” Westin said. “Still, I’m hopeful we might be able to find a way.”

Over the long term, however, network ownership of local cable TV systems could have important consequences for broadcasters and viewers, especially if caps are lifted.

Jon S. Kelly, owner of NBC affiliate KCRA-TV in Sacramento, said he worries that the networks may eventually try to move their programming directly onto network-controlled cable channels, bypassing the local affiliate.

“A model for this already exists with other cable networks,” said Kelly. “This way the networks could get two sources of revenues--from both advertising and subscriber fees.”

All three broadcast networks now pay their affiliates compensation fees to carry their programming--a longstanding industry practice that the networks are trying to curb.

Eventually, viewers increasingly may have to pay for what they have viewed for free, said Jeffrey Chester, executive director of the Teledemocracy Project, a Ralph Nader-affiliated public interest group.

“We may not see the impact for another 10 to 15 years, but this is the beginning of the end of free TV,” Chester said. “ABC and NBC have made it very clear that they want to get into the cable system business and that they see the future of TV as a programming service that can get the benefit of two revenue streams.”

ABC and NBC (CBS has said it is not interested in cable) contend that their growing cable involvement does not mean that they are giving up on free TV. Instead, they argue, being permitted to expand into rapidly growing areas of TV will help protect their core business of traditional over-the-air broadcasting.