Advertisement

THE TELECOM REFORM BILL : A Double-Edged Sword : IMPACT ON ENTERTAINMENT : Cable, Phone Firms Gird for Newly Defined Roles

Share
TIMES STAFF WRITER

Telecommunications reform could mean another watershed year ahead for mergers and acquisitions in the entertainment industry. Under the bill, phone competitors would be allowed to deliver video services to America’s households, cable operators would be freed to offer phone services, and television and radio broadcasters would be permitted to own more stations.

“If the bill passes, all the broadcasters will buy more TV stations--Capital Cities, Tribune, Chris-Craft, Fox,” said Jessica Reif, a media analyst at Merrill Lynch & Co. “Anyone who can buy stations, any big station group, will buy. I’m convinced of that.”

Whereas consolidation may rock the broadcast industry once more, new competition in the telephone and cable businesses should drive economic growth.

Advertisement

“This will be great for the economy and for jobs,” said Christopher Dixon, an analyst at PaineWebber Inc. “Capital is waiting on the sidelines for these rules to be defined. Without it, the economy could be plunged into a recession.”

Although the biggest winners may be the technology suppliers that will build the hardware to bring increased competition to the market, software suppliers such as Hollywood studios and cable programmers could see their position strengthened in the long run. As telephone companies enter the video delivery business, they will spur demand for pay-per-view movies and programming services like the Discovery Channel and Court TV.

“The whole notion that there are new customers and more ways into the home for us is encouraging,” said Lee Masters, president and chief executive of E! Entertainment Television, a cable network based in Los Angeles. “When you have only one customer, they dictate your terms. You’re more likely to get the deal you want when there is a telephone customer, a cable operator and four direct broadcast satellite services in a market.”

Although one goal of the legislation is to end the virtual monopoly enjoyed by cable operators, some question how serious the local phone companies are about overhauling their systems to mount a competitive threat. It would cost them less to enter the long-distance business, which is more than twice the size of the $23-billion-a-year cable business.

Many local phone carriers have scaled back plans to upgrade their wires for video delivery, but some are still forging ahead with alternative technologies such as microwave as an incremental step into the business.

The bill also seems to reflect Congressional uncertainty about how quickly cable will face real competition. Lawmakers originally intended to fully deregulate cable prices immediately, but in the recent round of debates they opted for a slower phaseout of regulation over years to prevent consumer rates from jumping dramatically before serious competition emerges.

Advertisement

Cable operators are willing to live with extended price regulations because of their big victory: entry into the $129-billion-a-year local phone business. The leading cable operators, including Tele-Communications Inc., Time Warner and Comcast Corp., have already led a march into the business as state laws have allowed, hoping to cast themselves as one-stop shops for video, voice and data services.

*

The promotional opportunities are endless: Time Warner, for instance, could give away one month of free Home Box Office to cable customers willing to try its phone service--all on one bill. And equipping their cable lines for the two-way transmissions needed for phone service will serve their interests in offering high-speed links for Internet users.

While spurring competition in video, the bill also encourages consolidation among broadcasters, allowing single companies to own TV stations that reach 35% of all TV viewers, up from the current 25%.

“This will set off a flurry of buying activity, with station prices remaining strong through 1996,” said Jim Rosenfield, a managing director of Veronis, Suhler & Associates, a media investment banking firm.

That is what investors like Ronald Perelman, who bought a group of stations for New World Communications, have counted on. And some wonder whether media mogul Barry Diller will flip the four Fox affiliated TV stations he bought with the purchase of Savoy Pictures Entertainment once restrictions are lifted.

Westinghouse Electric Corp. bought CBS Inc. this summer in anticipation of the easing of the rules, and it already reaches more than 30% of the country’s viewers.

Advertisement

The consolidation could make it more difficult for independent syndicators like King World as the networks increasingly use their station groups as launching pads for their own first-run syndication shows, reducing the slots available to outsiders.

The bill also would raise the number of radio stations that one company can own. Analysts said radio consolidation would quicken as station groups capitalize on the benefits of combining local operations to gain efficiencies.

“Infinity [Broadcasting Corp.] is clearly poised to make a major acquisition,” Reif said. Harold Vogel, a New York-based entertainment analyst with Cowen & Co., also expects to see a buying frenzy among radio broadcasters such as New York-based Infinity and Westwood One Inc. of Culver City.

“Radio is fairly simple to acquire and manage over many units,” he said. “Television requires more of an effort in terms of programming, whereas programming in radio is already pre-manufactured, so to speak.”

Rupert Murdoch would be among the bill’s losers.

In an effort to help big TV station owners--and especially Murdoch--House sponsors of the telecom bill had pushed to include additional breaks on station ownership rules beyond what had been approved by the two chambers of Congress.

Current regulations prevent a company from owning more than 12 TV stations, but Murdoch and others have used a loophole in the way the government accounts for small ownership stakes as a way to expand their reach. Fox Television Stations directly owns 11 stations but has acquired small, nonvoting stakes in 17 others around the country.

Advertisement

The FCC is in the process of closing the loophole, and the deal struck Wednesday would allow that process to continue. It would also prohibit the Federal Communications Commission from waiving on a case-by-case basis the 35% cap, which Republicans had pushed for.

*

Times staff writer Amy Harmon and correspondent Karen Kaplan contributed to this report.

Advertisement