Limits on Media Ownership Voided

Court Throws Out FCC Ban, Paving Way for Cable-Broadcast TV Mergers. A federal appeals court yesterday nullified two long-standing government rules limiting the size of the world’s largest media companies, opening the door to a new wave of mergers among cable television conglomerates and broadcast companies.

A federal appeals court yesterday nullified two long-standing government rules limiting the size of the world’s largest media companies, opening the door to a new wave of mergers among cable television conglomerates and broadcast companies.

The U.S. Court of Appeals for the District of Columbia invalidated a Federal Communications Commission regulation that had prevented one company from owning TV stations and cable franchises in the same market. The court also ruled that the FCC had acted arbitrarily in limiting the number of television stations that a single company can own.

The rulings marked a huge victory for media giants such as News Corp., Viacom Inc. and AOL Time Warner Inc., which argued that the regulations unnecessarily stunted their ability to expand. The decisions are part of a broad trend of media deregulation that has taken root in the courts and federal agencies since Congress passed the Telecommunications Act of 1996.

An FCC spokesman said the agency had yet to decide whether to appeal the decision to the Supreme Court. If the rulings stand, the media landscape could change dramatically, several analysts said.

“It allows for the creation of a powerful new entity we have never seen before — something that combines both cable and broadcasting assets,” said Blair Levin, an analyst with Legg Mason and a former FCC chief of staff.

Levin said the decision likely will renew speculation that Walt Disney Co. will seek a larger partner or that General Electric Co. will sell its NBC unit.

Disney runs a movie studio and the ABC television network, but it is increasingly vulnerable in negotiations with large cable and satellite companies that control its access to millions of homes. NBC, meanwhile, is the only major broadcast network that is not part of a larger media conglomerate. Other networks are affiliated with a major Hollywood studio and have cable operations that allow them to spread the cost of programming over a much larger base. The decision could stir interest in a possible merger between AOL Time Warner and NBC, analysts said.

Some media companies — such as The Washington Post Co., which owns smaller groups of TV stations — had supported the FCC rules limiting the reach of television broadcasters out of fear that further consolidation will make ABC, CBS, NBC and Fox even stronger.

Consumer advocates, meanwhile, worried that yesterday’s rulings will allow a few huge media companies to tighten their grip on the flow of information on radio, television and the Internet.

“This is earth-shattering,” said Gene Kimmelman, co-director of the Washington office of the Consumers Union. “The end result could be the most massive consolidation in media this nation has ever seen.”

The ban on owning cable system and TV stations in the same market was originally put in place in 1970 to prevent cable companies from favoring their own stations over rivals in the same market. But the court found that broadcasters are protected from discrimination by regulations such as the so-called “must carry” rule, which gives stations the right to be carried on the local cable system.

The court also rejected arguments that consolidation among cable and broadcast properties would limit a community’s sources of local news and public affairs programming. The court noted that the number of television stations had dramatically increased in the more than 30 years since the rule was put in place, rendering such concerns largely obsolete.

Still, the court remanded the rules governing TV station ownership back to the FCC, offering the agency another chance to justify why one company should not be allowed to own stations that reach more than 35 percent of the nation’s television audience. But it said it was throwing out rules preventing companies owning TV stations and cable franchises in the same market.

“We think it unlikely the commission will be able on remand to justify retaining it,” wrote Chief Judge Douglas Ginsburg.

AOL Time Warner took the lead in the cable industry’s effort to knock down the FCC’s ownership limits. Under the rules, the company would have been barred from owning a television station in New York City — the nation’s largest market — because it already owns cable systems there.

The rule “had long ago become an anachronism that did not serve the public interest,” Paul T. Cappuccio, AOL Time Warner executive vice president and general counsel, said in a statement.

The decision to send the broadcast ownership limit back to the FCC for further review will mean that both News Corp., which is the parent company of Fox Television, and Viacom, which owns the CBS network, will be able to continue owning more stations than current rules allow.

Fox-owned stations now reach 39 percent of the country following News Corp.’s purchase of Chris Craft Industries Inc. After Viacom acquired CBS in 2000, it also pushed past the ownership cap and its stations now reach more than 40 percent of the country.

Even if the court had not ordered the FCC to review its broadcast ownership cap, many analysts had expected the agency to revisit the issue under Chairman Michael Powell, a Republican who has been critical of many of the agency’s rules.

Prior to taking over as chairman of the agency, Powell served for three years as a commissioner, often disagreeing with decisions reached by the Democratic majority.

In 2000, Powell wrote of the broadcast ownership limit: “I believe there is more than enough on the record in this proceeding to call into question whether the public is being served by the 35 percent audience reach cap, and I would have supported a Notice to examine more thoroughly the possibility of its modification or repeal.”

Author: Christopher Stern

News Service: Washington Post

URL: http://www.washingtonpost.com/wp-dyn/articles/A35724-2002Feb19.html