Ruling on FCC Turns Up Volume on Media Mergers

By BRIAN LOWRY and SALLIE HOFMEISTER

Feb. 21, 2002 12 AM PT

TIMES STAFF WRITERS

Speculation ricocheted across Wall Street on Wednesday about a new round of media mergers, sending broadcast stocks soaring but leaving consumer advocates angry about the possibility of greater corporate concentration of information.

The widely conflicting emotions were triggered by a federal court ruling that has opened the door for entertainment conglomerates to capture larger chunks of the national TV audience.

In its ruling Tuesday, the court ordered the Federal Communications Commission to reconsider its rule preventing broadcast corporations from reaching more than 35% of households with televisions. The court also set aside a rule that prevented companies from owning a cable system and a TV station in the same market.

Investors, knowing that FCC Chairman Michael K. Powell is a fan of deregulation, saw the court order as practically an invitation for major broadcasters to swallow smaller ones. Giant cable operators such as AOL Time Warner Inc. could create an even broader empire by buying companies that own TV stations.

The largest deals, however, might not materialize for some time because the strongest buyers are suffering from operating troubles, the recession and retrenchments of their own.

AOL Time Warner, for instance, has seen its stock sink this year as growth projections promised from its year-old marriage of new and old media failed to materialize. Walt Disney Co. shares are in a trench because of a travel slowdown that has hurt its theme parks. And Viacom Inc. has struggled because its major holdings in television are dependent on advertising.

“It’s too premature to predict whether this is terrible or good, or just how things will play out,” said Blair Levin, an analyst at brokerage firm Legg Mason. “This is like a chessboard with 64 potential spaces to move and everybody’s moves have ripple effects.”

Judging from the stock actions Wednesday, the market anticipates several potential takeover targets among TV station owners. Tribune Co., owner of the Los Angeles Times, saw its stock rise $2.34 to $43.52. Analysts see Tribune as a possible fit with AOL Time Warner because it has a 25% interest in the entertainment giant’s WB network and many of the affiliated television stations.

Disney Viewed as Possible Target

AOL also has been mentioned as a potential buyer of NBC, which would give the company a major broadcast network.

Disney’s stock, meanwhile, shot up $1.47 to a close of $24.33. This would suggest that Wall Street sees Disney as a seller, not a buyer. A prolonged slump has made the company a target of takeover speculation in recent months, and the new court ruling immediately sparked predictions of an acquisition by a cable operator such as Comcast Corp.

But some analysts said that it is the small and mid-size broadcasters that are most vulnerable. Not only are many struggling to survive, but they wouldn’t break a buyer’s bank.

Such companies as Granite Broadcasting Corp. and Young Broadcasting Inc. have been selling off stations to stay afloat.

In fact, Young Broadcasting recently agreed to sell its Los Angeles station, KCAL-TV Channel 9, to Viacom, which owns CBS. Others, such as Paxson Communications Corp., have been praying for a further easing of ownership limits to lift the value of their stations so they can sell at higher prices.

Potential network buyers--such as NBC, CBS, ABC and Fox--insist that further consolidation would only strengthen the broadcast industry.

Fox, for example, says the company has been able to bolster news operations and entertainment choices at the stations it has purchased.

That’s why network executives say a relaxation--if not elimination--of FCC rules is in the public interest.

Media Diversity at Heart of Debate

FCC’s Powell agrees and sees another reason for softening the rules. He has called the media “more diverse in 2001 than at any time in their history” because of the Internet and the proliferation of cable channels.

But critics have a different view.

“Even if you live in a 500-channel universe, what you get from your [cable or satellite] box is delivered to you by four companies,” said Marty Kaplan, associate dean of the USC Annenberg School for Communication and director of the Norman Lear Center. He called industry consolidation “a real threat to diversity.”

Groups entrenched in the entertainment industry also have grown uneasy watching the growth of conglomerates, prompting the Writers Guild of America recently to call for hearings on the ramifications of media concentration.

In an FCC filing signed by some of the industry’s most influential writers, the guild maintained that consolidation of television “has adversely affected the public interest, . . . resulted in the lack of diversity and has caused creativity to suffer, . . . [depriving] the American public of access to a great variety of opinions and sensibilities.”

Consumer advocates are most concerned about the ramifications on news operations, particularly in small cities, where mergers have chipped away at the number of voices in the market.

Some media critics contend that the diminishing resources spent on news gathering has left the public uninformed about important world events, including the international context of last fall’s terrorist attacks.

“Especially after Sept. 11, people recognize the media’s role in shaping the public debate,” said Jeff Chester, executive director of the nonprofit Center for Digital Democracy.

If wholesale TV station sales do take place, what has happened in radio could provide a template.

Clear Channel Communications Inc.--owner of nearly 1,200 stations--and CBS led the merger frenzy within the radio business, with one of the two companies controlling as much as 40% of the stations in many of the nation’s largest markets.

Public Holds Controls Through Ratings

CBS, through its Infinity Broadcasting arm, owns eight stations in the Los Angeles area, including both AM all-news radio stations, KFWB (980) and KNX (1070).

Deregulation also has led to layoffs, along with fewer locally produced programs, including those for children.

Because fortunes in television rise and fall based on ratings, the public ultimately will have final say. Still, USC’s Kaplan sees unfettered consolidation as making the industry less responsive.

“It’s like the phone company was when Lily Tomlin was making fun of it,” he said. “ ‘We don’t care. We’re the phone company.’ Well, in this case, ‘We’re the TV company.’ ”

Ruling on FCC Turns Up Volume on Media Mergers

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