In Media Decision, the Little Guys Lost

Determined to stop Big Media in its tracks, consumer advocates, members of Congress and some federal regulators declared victory after an appeals court in Philadelphia reversed the Federal Communications Commission’s bid to ease media-ownership rules.

Yet in many ways, Thursday’s decision by the U.S. 3rd Circuit Court of Appeals is a boon to the big guys.

The largest companies in the industry, including Walt Disney Co., News Corp. and Viacom Inc., were largely unscathed by the court’s ruling. Meanwhile, the real losers were the relatively small newspaper and broadcast concerns that were hoping to bulk up to better compete against the giants.

“It’s a world upside-down,” said Alan J. Bell, chief executive of Freedom Communications Inc., the owner of eight TV stations and 28 daily newspapers, including the Orange County Register. “The financial pinch is greatest in the small markets” where the industry’s mid-size players would like to buy up multiple media outlets.

Now that the court has put the kibosh on those deals, it will be harder for companies like Freedom to boost their efficiency.

“It puts on hold plans that many owners of TV stations and newspapers had to swap or buy properties,” said Bell, who refused to elaborate on any specific transactions in the works.

Although hailing the court’s decision, consumer advocates acknowledged that the media-merger frenzy of the 1990s had placed most of the industry’s reach into the hands of a few behemoths.

“The worst damage has already been done,” said Andrew Schwartzman, executive director of the Media Access Project, one of the winning plaintiffs in the Philadelphia case, who has contended that media consolidation stifles the diversity of voices in communities and undermines the health of democracy. “But we cannot undo the massive consolidation that has already occurred.”

Regulations adopted in the mid-1990s allowed companies that produce TV programs to buy broadcast networks that distribute them. As a result, Disney now owns ABC, Viacom owns CBS and News Corp. owns Fox.

These big conglomerates, which in turn control the nation’s largest and most profitable television stations, then aggressively took advantage of rules letting them buy even more outlets -- including multiple TV stations in the biggest cities.

News Corp., for instance, boasts two stations -- a situation known as a “duopoly” -- in nine of the top 16 U.S. markets. Smaller rivals, such as Freedom, don’t have the financial muscle to pry their way into those areas.

To help level the playing field, the FCC last summer allowed the ownership of more than one station in smaller markets.

At the same time, the agency lifted a 1975 ban on the ownership of both a newspaper and a television or radio station in the same market. The idea was to give more companies a chance to take on the News Corp.’s of the world.

Schwartzman noted that several companies, including Tribune Co., Gannett Co. and Media General Inc., had made acquisitions in recent years anticipating the FCC’s rule changes.

In 2000, for instance, Tribune bought Times Mirror Co., the owner of the Los Angeles Times, even though it owned a local television station, KTLA Channel 5, that put it in violation of the cross-ownership rules. The same year, Gannett acquired the Arizona Republic despite its ownership of KPNX-TV, a station serving Phoenix.

On Thursday, the court said the FCC was within its rights to repeal the newspaper-broadcast cross-ownership ban -- a positive note for Tribune and Gannett.

Nonetheless, the court said the FCC had to provide a better justification for lifting the ban, a ruling that clouds the prospects for further deal-making, as well as for eventual license renewals at KTLA and KPNX.

By contrast, Thursday’s court decision created barely a ripple at News Corp., which some industry executives see as the prime example of media consolidation.

In the New York area alone, News Corp. controls several news outlets, including the New York Post, two television stations and the cable channel Fox News. In addition, it owns satellite-television service DirecTV, the latest addition to Chairman Rupert Murdoch’s media empire.

“News Corp. is an example of why this debate is so weird,” said one television executive. “This is about media concentration, but who has more control over news in New York than Rupert Murdoch? The unintended consequences of this decision is that the big guys will continue to be big, and the smaller players have been emasculated.”