FCC Votes to Revamp Rules on Ownership

The Federal Communications Commission on Thursday set in motion an overhaul of long-standing rules that limit the ownership of newspapers, television stations and cable TV systems.

The changes are likely to eliminate many existing rules and propel further consolidation of the media industry after a decade of mega-mergers that have concentrated power into the hands of a few giants, led by AOL Time Warner Inc., Walt Disney Co., Viacom Inc. and News Corp.

“In every corner of the market, with the possible exception of cable, the big will get bigger and broader, thereby changing the underlying economics,” said Blair Levin, an analyst at Legg Mason, in an August research report.

The FCC voted unanimously Thursday to review laws that limit the number of customers one cable television company can control and that prohibit companies from owning a newspaper and a television station in the same city.

Several companies already are in violation, including acquisition-minded News Corp. and Tribune Co., whose holdings include the Los Angeles Times. News Corp.’s recent purchase of station operator Chris-Craft Industries gives the company two stations and a newspaper, the New York Post, in New York City. The FCC gave News Corp., which has a waiver allowing it to own one newspaper and station in the same city, two years to sell the second New York station.

In addition to The Times, Tribune owns several big newspapers, including the Chicago Tribune and Newsday in New York, and television stations in those three cities, plus a newspaper and TV station in Hartford, Conn.

The FCC’s vote is part of a biennial review of telecommunications rules required by law. FCC Chairman Michael K. Powell has promised to eliminate decades-old rules that he views as antiquated by technologies such as satellite, cable and the Internet that have given Americans a multitude of choices for receiving entertainment and information.

Powell and other commissioners, wearing red, white and blue ribbons on their lapels, began Thursday’s monthly meeting with remarks about this week’s terrorist attacks.

“The flame of the American ideal may flicker, but it will never be extinguished,” Powell said. “We will do our small part and press on with our business, solemnly, but resolutely.”

The newspaper industry has been pushing for relaxed cross-ownership rules as a way to spur growth and to remain competitive against larger radio and television rivals. Congress already has relaxed television and radio ownership rules, spurring a massive consolidation. Clear Channel Communications and Viacom, CBS’ parent, now dominate the business, controlling 30% or more of many markets.

Likewise, an easing in broadcast ownership rules has shifted the balance of power to the major network owners, which now control most of the nation’s largest stations and can own two outlets, referred to as “duopolies,” in some cities.

“Newspapers are worried about being marginalized going forward,” said James Marsh, a media analyst at Robertson Stephens. “They are eager to become the dominant news providers in a city and see savings in news gathering by combining with TV stations as a big plus.”

Marsh said eliminating existing cross-ownership laws would result in a series of trades as newspaper companies that also own TV stations swap properties to gain duopolies in certain markets. “I’d expect companies like Gannett, New York Times and Scripps to use their television stations as chips to acquire outlets in markets where they have newspapers,” he said.

In anticipation of easier rules, Tribune last year bought Times Mirror Corp., the former owner of the Los Angeles Times, giving Tribune a newspaper and television station in Los Angeles, New York, Orlando and Chicago. “Tribune was skating where the puck is going to be, trying to get a head start on everybody else,” Marsh said.

In the cable arena, the FCC proposed alternate standards to replace the 30% cap, which the U.S. Court of Appeals for the D.C. Circuit struck down in March. The court said the FCC had to justify that the limit was not arbitrary.

The debate on cable rules comes amid a backdrop of heightened consolidation. AT&T;, the nation’s biggest cable operator, is soliciting bids for its broadband cable unit. In addition to an unsolicited bid from Comcast Corp., AOL Time Warner, the second-biggest cable operator, is considering making an offer.

Disney, a large cable programmer, is prepared to fight such combinations. The Burbank-based entertainment giant contends that any company with more than 15 million cable subscribers should not be able to own sports, entertainment and news channels. Disney also has said it would object to any further increase in concentration within the satellite and cable industries. AT&T; now serves about 14 million customers, compared with AOL Time Warner’s 12 million and Comcast’s 8 million. Both AOL and Comcast also own cable channels.

“It raises significant concerns because it would place too much control in the hands of a single entity,” said Preston Padden, chief lobbyist of Disney, which owns ESPN, ABC and the Disney Channel.

Disney was the chief opponent of AOL’s merger with Time Warner, combining the leading Internet provider with a top cable distributor and entertainment producer.

The FCC asked for comment on whether to impose a limit on the number of channels a cable company may fill with its own programming.

The public will have 60 days to file comments with the FCC and 30 days after to file replies.