Federal regulators Wednesday approved News Corp.'s $4.4-billion acquisition of rival broadcaster Chris-Craft Industries Inc., making Rupert Murdoch's Fox television group the most powerful in the nation.
The acquisition, which will be completed within a week, is the biggest yet to exploit rules passed by Congress in 1999 allowing broadcasters to own two stations in the nation's largest cities. The deal is indicative of the consolidation expected to continue under the Bush administration, which has shown a willingness to eliminate many of the remaining restrictions on media ownership.
Buying Chris-Craft gives Murdoch 33 stations reaching 41% of the nation's 100 million households. The company will own two outlets in each of the nation's largest markets of Los Angeles and New York, as well as in Phoenix. In Los Angeles, Fox will own KCOP-TV and its existing KTTV-TV.
The deal catapults News Corp. over station leader Viacom Inc., which reaches just under 40% of households. Two stations in the largest markets will give News Corp. more options, with greater leverage over advertisers, programming suppliers and viewers.
Analysts and industry executives expect the deal to set in motion a series of other station swaps and buyouts as competitors look for added clout to take on News Corp.
News Corp. also will be negotiating with other broadcasters looking to swap some of its Chris-Craft stations to achieve additional so-called duopolies, two stations in one market. That double ownership gives station owners added operating efficiencies, programming leverage and, they hope, premium advertising rates.
In addition, duopolies give broadcasters a bigger voice in local markets that they are banking on to grab viewers' attention.
Though Michael K. Powell, the chairman of the Federal Communications Commission, has for months been promising to eliminate ownership caps, consumer advocates, and even two FCC commissioners, oppose the consolidation trend. They fear it will reduce the range of voices in a market.
"Preserving and promoting a diverse media is essential to our democracy," said FCC Commissioner Gloria Tristani, one of the two Democrats in the agency who voted against approval. "Today's decision further diminishes the marketplace of ideas. This decision also shows the lengths the commission will go to avoid standing in the way of media mergers."
She represented the view held by consumer groups, which worry about News Corp.'s power over news and entertainment. "This . . . sends a signal that this administration is not serious about preventing consolidation among the major media," said Gene Kimmelman, co-director of the Washington office of Consumers Union.
In a contentious 3-2 vote, the FCC approved the Chris-Craft transaction with few restrictions. The agency gave News Corp. what is widely viewed as a generous period in which to come into compliance with federal rules designed to ensure a diversity of voices in the media.
"We're very happy with the decision," said Fox spokesman Andrew Butcher. "We think it's fair and consistent with previous decisions by the FCC, and we intend to comply with all the FCC's rules."
Under FCC review for nearly a year, the deal drew intense regulatory scrutiny and touched off a bitter political squabble among FCC commissioners because the merged company would be in violation of at least three rules governing media concentration.
Under duopoly rules, broadcasters are not allowed to own two of the top four stations in a market. To win antitrust approval earlier this year, News Corp. agreed to sell one of its two stations in Salt Lake City, where News Corp.'s Fox station and Chris-Craft's ABC rank in the top four. The FCC gave News Corp. six months to come into compliance.
In addition, federal rules, which are being challenged in court by Viacom and News Corp., limit any one company from owning stations that reach more than 35% of the nation's households. Combining Fox's 23 stations with Chris-Craft's 10 outlets, predominantly affiliates of Viacom's UPN network, gives News Corp. a 41% reach. News Corp., which has already announced plans to sell several small stations, has one year to come into compliance after the court rules on the caps.
Sources at the company said a series of station swaps with Viacom, the owner of CBS, and Clear Channel will bring the company close to the 35% limit. Ownership of a second station in a market does not count toward the cap, meaning that News Corp. can swap single stations for duopolies to reduce its reach.
Last, the FCC gave News Corp. two years to comply with rules that prevent a single company from owning a newspaper and television stations in the same city. News Corp. already has a federal waiver in New York because of its ownership of the New York Post and WNYW-TV, but is restricted to one station and one newspaper. Chris-Craft owns WWOR-TV, the UPN station in New York.
In a defense of the FCC's decision on the Chris-Craft deal, Powell said the FCC did not bend its rules to accommodate News Corp., but simply gave the company additional time to sell off stations to comply with its ownership regulations.
"The overall benefit of allowing time for an orderly transition will outweigh any temporary impact on diversity and competition," he said. "I find it fantastic that the minority would characterize these divestiture periods as deviations from our rules."
Most analysts, however, expect many of the rules to change before News Corp.'s deadlines. FCC Chairman Powell has been a proponent of eliminating many of the remaining restrictions on media ownership, with newspaper-broadcast cross-ownership rules and the 35% cap at the top of his priority list.
The agency is scheduled to begin within the next two months a review of all its regulations. The review had been delayed because the commission had only four of the five commissioners needed to move ahead.
At the moment, several of the media ownership rules are being challenged in court. Restrictions limiting cable companies to 30% of all television subscribers were struck down in March. Viacom, which also is over the cap, was recently granted a stay in its case challenging broadcast ownership limits. Stays are typically granted only when there is a high probability a plaintiff will win.
Some media executives are expecting the FCC to move to eliminate newspaper-broadcast cross-ownership rules by the end of the year.
"All the rules are in play and will result in a lot of court cases," said Dennis Fitzsimmons, president of the Tribune Co., the nation's fourth-largest station group, with newspapers and broadcast outlets in Los Angeles; New York; Chicago; Stamford, Conn.; and Orlando, Fla. "We think the [newspaper-broadcast restrictions] should go and ultimately think they will be challenged in court."
Tribune and others have been looking to expand their clout in local markets to combat fragmentation and compete against rival media. Tribune bought Times Mirror Co., then the parent of the Los Angeles Times, a year ago to be able to provide advertisers with a bundle of local commercial availability on newspapers, Web sites and television stations.
Viacom's CBS has been on a buying binge to become the largest radio owner in many of the nation's top 10 markets, allowing the company to package radio, television and billboards for advertisers and cross-promote its programs to viewers on those outlets.
News Corp. will gain similar clout by having two stations in a market. The company, which owns movie and television studios, cable channels, satellite services and newspapers worldwide, will wield more power than any other station owner over local advertisers, programming suppliers and consumers.
Fox, which paid top dollar for Chris-Craft in a bidding war against Viacom, will probably find cost savings by combining certain back-office operations. Wall Street analysts said Fox will manage the stations more efficiently, improving on Chris-Craft's 35% margins, which are "at the bottom end of the industry," according to Merrill Lynch analyst Jessica Reif.
Mitch Stern, the head of Fox's station group, is considered among the industry's star operators, having taken Fox from worst to best in performance.
Fox sources said Stern will do for Chris-Craft stations, which are mostly UPN affiliates, what he did for Fox stations: He will add news and develop new shows using News Corp.'s considerable production power.
"This could encourage more risk-taking in the area of programming," said Jack MacKenzie, senior vice president of Frank N. Magid Associates, a Los Angeles media consulting firm. "Having a second station allows the owner to take risks it wouldn't with just one--to test new concepts, expand news coverage, be an incubator for new ideas."
Indeed, the Fox station group has developed shows that became long-running hits, including "A Current Affair" and "America's Most Wanted." In Los Angeles, "Good Day L.A." has better demographics than the "Today" show and is being used by News Corp. as a model for a national show being developed for the Fox network.