FCC Will Ease Rules on Owning More Than One TV Station in a Market

Clearing the way for another round of television consolidation, the Federal Communications Commission approved new rules Thursday that for the first time will allow station groups to own two outlets in certain markets.

Under the new rules, station owners will be able to acquire a second outlet in a market if eight independent stations would remain after the purchase, ensuring a diversity of voices. The second station could not be ranked in the top four in the ratings.

If fewer than eight stations would remain, the purchase would be allowed only if the second station were financially depressed.

The FCC’s order defining the various rules is expected to be released today.

Analysts say the rules could affect most of the country’s top 50 television markets, each of which has more than eight stations.

In Los Angeles, for instance, industry executives say ABC, CBS, NBC or Fox could buy any smaller station in the market under the new rules, since far more than eight would remain. Further deregulation of television ownership rules could help the industry compete in a fragmented media environment in which the Internet, radio, hundreds of cable channels and satellite TV providers have eroded broadcast TV’s audience and siphoned off advertising dollars.

“This is an important step in opening the door to deregulation,” said Bishop Cheen, an analyst at First Union Capital Markets. “It’s increasingly more difficult to be a single channel in a multichannel world today, especially when cable and radio owners can own multiple outlets in a market.”

The new rules are not as liberal as the nation’s network-owned station groups had been pushing for, however. The major networks have lobbied Congress heavily in the last six months to allow single groups to own stations that reach 50% of the nation’s TV households, up from the current limit of 35%.

They argue that the quality of the nation’s free television system is threatened by the rising costs of programming and a decline in viewership that has saddled the networks with losses. They say one way to alleviate the financial strain is to allow them to own more stations, thus improving profitability and helping them to justify investments in programming.

While CBS and Fox are already bumping up against the 35% ownership cap, they could still participate in the consolidation that analysts expect to result from the new FCC rules. That is because the rules will allow these owners to buy second, weaker stations without affecting their ownership attributions.

While top stations generally enjoy profit margins of 40% or more, the fragmentation has made it difficult for emerging networks such as the WB, UPN and two others being built by USA Networks and Paxson Communications to gain footholds.

“The only free universal television service should be able to consolidate to survive,” said one Washington lobbyist for the industry.

Operating more than one station in a market would enable owners to reduce costs by consolidating news, sales, marketing and programming operations and to increase revenue by offering advertisers multiple options and demographic coverage.

The rules also clear up some of the regulatory uncertainties that have helped slow the pace of consolidation in the TV industry over the last year.

“It gives broadcasters some clarity after a practice of regulation by waiver for the last 10 years,” said the lobbyist.

The FCC has decided on a case-by-case basis when to allow station owners to operate two outlets in a market under a practice known as a “local management agreement.” The new rules will do away with that practice but allow those LMAs in place as of November 1996 to continue.

That was welcome news to companies such as Sinclair Broadcast Group, which operates several LMAs--and whose stock has jumped in the last few weeks in anticipation of the new rules.

Broadcast stocks were mixed on Thursday. But Paxson, which operates 73 TV stations, many in the top markets, saw its shares jump 8.5% to $12.75.

“If there’s a duopoly dance, we’re the prettiest girl there, because we have more stations than anyone else,” said Chairman Lowell W. “Bud” Paxson. “This opens up a wonderful panorama of strategic relationships in programming, sales and marketing.”

Paxson, which is trying to build a network based on wholesome family programming, has been suffering from the cash flow strains of a start-up and is highly leveraged. Analysts say the company is looking to raise $125 million from a strategic partner to expand its programming.

Sources speculated that Fox may be in discussions with Paxson about an alliance that would be allowed under the rules. Paxson said a big station owner could buy up to 32% of his company without having it count toward its ownership cap.

Sources say Paxson has hired investment banker Salomon Smith Barney to pursue such a deal.

USA Networks Inc., controlled by Barry Diller, is also expected to benefit from the new rules and could sell his station group in part because of a failed attempt to launch a network, sources said.

Rules regulating cross-ownership of cable, broadcast and newspaper outlets in a single market are not affected by the FCC decision.