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Essay
Ownership
The trend toward consolidation of TV station ownership effectively
stalled in 2004 due to regulatory confusion and the effect
of campaign politics.
The Federal Communications Commission, which regulates the
publicly owned airwaves, did little to proceed with its attempt
to rewrite ownership rules. In addition to its being a campaign
year, the FCC was stopped by court battles, Congressional
politics and the possibility that a change in administration
would lead to a new approach to media policy.
With the uncertainty, most TV companies proved unwilling
to purchase new stations. In all, less money was spent on
buying TV stations in 2003 and 2004 than in any other year
since 1992.
The pattern of television station ownership in recent years
originated in the Telecommunications Act of 1996, a Clinton-era
law that removed a number of limits on station ownership,
allowing companies to buy more stations in more parts of the
country than ever before. For example, it raised the cap on
the reach of a company from stations covering 25% of U.S.
households to stations covering 35% of the country. It also
relaxed rules on common ownership of radio and television
stations.
Between 1995 and 2003, ten of the largest TV-station owners
went from owning 104 stations with $5.9 billion in revenue
to owning 299 stations with $11.8 billion in revenue.
The Telecommunications Act required the FCC to review the
ownership limits every two years and determine whether any
rules needed to be modified.
In June 2003, FCC Chairman Michael Powell released a new set
of rules that would have dramatically loosened limits on station
ownership and allowed even more consolidation.
The proposed rules focused on three areas. The first was
the ownership cap, which Powell proposed raising from 35%
of the country's households to 45%. (Two companies-- Viacom
and Fox-- already had waivers allowing them to exceed the
cap.) The second area was ownership of multiple TV stations
in a single market, known as "duopoly" ownership.
While this was permitted in the largest markets, the Powell
proposals would have allowed duopolies in all but the smallest
markets. The third area of regulation, cross-ownership, would
have relaxed rules forbidding companies from owning a TV station
and a newspaper in the same market.
Many members of Congress balked at the FCC's proposals, and
a vocal minority suggested they would exercise their authority
to prevent the FCC from putting the regulations into effect.
The Bush administration, however, won passage of a law in
early 2004 fixing the TV ownership cap at 39% as a matter
of law rather than a regulation, taking that issue out of
the FCC's hands. The new cap put Viacom and Fox back under
the limit.
Meanwhile, the Prometheus Radio Project, an organization
of low-power radio activists, had challenged the proposed
rule changes involving duopolies and cross ownership. In November
2003 a federal appeals court blocked the rules while it considered
the case, and in June 2004 the court tossed out the new rules
on cross-ownership and duopolies entirely, declaring that
the FCC had not justified the reasoning behind them.
During those proceedings there were relatively few station
sales. In 2003, the total value of TV stations that changed
hands amounted to $500 million, according to data from the
trade magazine Broadcasting & Cable. The figure for 2004
was roughly $700 million.
By comparison, in the six years immediately after the Telecommunications
Act of 1996, the total value of TV stations sold each year
was never less than $2 billion.
Through 2004, the FCC gave few hints about how it would deal
with its rebuke from the federal court, and the climate of
uncertainty continued. That may have been partly because it
was a campaign year, when control of the FCC hung in the balance.
(By law, the FCC's five commissioners include three from the
president's party and two from the opposite party.)
The issue of media ownership might have been ignored during
the presidential campaign except for a late controversy involving
Sinclair Broadcast Group. In October, it became known that
Sinclair's corporate management intended to air "Stolen
Honor," a documentary about former Vietnam prisoners
of war that was sharply critical of the Democratic candidate,
John Kerry. The program was to be on all Sinclair stations,
including outlets in critical swing-state media markets such
as St. Louis, Pittsburgh, Milwaukee, and Columbus, Ohio.
The film was produced by Carlton Sherwood, a former print
journalist turned documentarian who once worked for Bush cabinet
member Tom Ridge.
One of the largest groups in the country by number of stations
owned, and reaching more than a quarter of U.S. homes, the
Sinclair group had also been one of the most aggressive companies
when it came to exploiting the post-1996 media ownership regulations.
Indeed, Sinclair, headquartered outside Baltimore, even used
the courts to try to dismantle the remaining rules. In April
2002 it won a ruling from a federal appeals court ordering
the FCC to either rationalize its ban on duopolies in certain
markets or eliminate its regulations.
In the face of the controversy surrounding the FCC's proposed
ownership rules, Powell would argue that he had no choice
but to deregulate in the face of the Sinclair ruling and similar
court decisions.
Many suspected partisanship in Sinclair's plans to run "Stolen
Honor." The company had previously blocked the showing
on its ABC affiliates of a "Nightline" tribute to
soldiers killed in Iraq, and political donations by company
executives significantly favored Republicans over Democrats.
The company also required its stations to air commentaries
by Mark Hyman, a Sinclair executive who was a blunt, talk-radio-style
critic of the Democratic party and an advocate of conservative
positions and the GOP. Finally, Sinclair was also highly likely
to benefit from the ownership rules revision approved by the
FCC's three Bush-appointed commissioners.
Kerry supporters responded with fury to the plan to show
"Stolen Honor," and perhaps for the first time,
a TV station group faced a boycott aimed at its local stations.
Reports came from Madison, Wisconsin; Portland, Maine, and
other cities that citizens were calling local merchants, restaurants,
and auto dealers and threatening to withhold their patronage
unless the businesses stopped advertising on Sinclair stations.
Most ominously, perhaps, Burger King - one of the 50 largest
advertisers in the country - announced that it would be pulling
its ads from all Sinclair stations on the night scheduled
for the "Stolen Honor" broadcast. Sinclair's stock
slid downward (having already lost more than half its value
over the course of the previous year) and institutional investors
expressed displeasure. As the financial group Legg Mason put
it, "Is this good for investors in terms of increasing
the odds for favorable deregulation? We think not."
Sinclair retreated, modifying its plans for airing "Stolen
Honor" and broadcasting a program about the documentary's
allegations instead.
Activists have vowed to challenge Sinclair's station licenses
as they come up for renewal before the FCC. That seems more
likely to generate publicity than regulatory sanction. Still,
the controversy may indicate that any FCC move to further
relax ownership rules would encounter passions that could
have political fallout. And the reaction of investment companies
to Sinclair's plans shows that the financial community also
sees risks in a company whose strategy appears overtly partisan.
The company may have overplayed its hand. Chairman Powell's
attempt to change the media ownership rules ran into trouble
partly because the FCC held only a single public hearing,
in Richmond, Virginia, and the plans foundered in 2003 as
they became more public. Polls showed that as citizens learned
more, they were less supportive.
The Janet Jackson Super Bowl incident generated roughly half
a million complaints to the FCC; the agency's attempts to
change media ownership rules generated even more public comments-700,000
all told, almost all of them opposing the FCC's proposals.
Against this background, Sinclair's attempt to air a partisan
documentary may have backfired by calling attention to the
company and its anti-regulatory activities.
The issue may also fade from view. And a sympathetic, perhaps
even grateful Bush administration, with a stronger party majority
in Congress, may find ways to deregulate in a second term
that it could not before.
In 2004, though, there was also concern about ownership and
deregulation in the advertising community. An October survey
by the industry publication MediaPost of media planners -
the professionals who are in charge of actually purchasing
commercials on local TV stations - showed that some members
were keeping an eye on the presidential election for its potential
impact on FCC regulation and their business interests. One
respondent's support for John Kerry was based in part on the
prospect that a Democratic administration might stop further
consolidation, and on the belief that "TV broadcasting
moguls… end up raising advertising prices and generally
stifling the advertising industry." Another wrote: "As
media companies are allowed continually to get large, negotiation
is becoming more and more difficult."
In the end, abandoning Powell's regulatory fight the week
after he announced his resignation, the Bush administration
decided in January 2005 not to go to the Supreme Court to
fight for the FCC's proposed rule changes.
In anticipation of further deregulation, companies including
Tribune, Gannett, and Media General had acquired newspapers
in markets where they also owned TV stations. Now the long-term
fate of those acquisitions is in limbo. The FCC has the power
to block the transfer of a TV station license, but has no
authority over newspaper ownership. This has led to ambiguity
about what it can do when a newspaper purchase leads to a
violation of cross-ownership rules.
The FCC does have the power to order these companies to divest
themselves or lose their broadcasting licenses when they come
up for renewal.
This could cause the stations to lose a good deal of money
- Tribune has made approximately $1.2 billion from its cross-owned
stations; Gannett $250 million; and Media General $108 million.
In South Carolina, the license of Media General's cross-owned
station, WBTW, expired in December 2004, but the station is
allowed to continue operating pending FCC action on an appeal
challenging the renewal of the license. FCC watchers predict
the FCC may not resolve the situation until fall 2005 at the
earliest, and similar delays are likely as other cross-owned
stations come up for license renewal in 2005 and later.
If the FCC actually threatened to rescind a station's waiver,
it appears the owner would be allowed to decide whether to
sell the newspaper or the station. In 2000, the FCC initially
offered that choice to Tribune when it acquired the Hartford
Courant (while already owning the Hartford station WTIC).
But the agency has not followed through on its order that
Tribune divest itself.
As for the final framework of ownership rules, Powell himself
predicted in late 2004 that it would take a long time before
rules acceptable to all parties could be developed.
His replacement as FCC chair could be one of the other current
Republican commissioners, Kevin Martin or Kathryn Abernathy.
Both supported his attempts to amend the rules in 2003. Since
the FCC must now redo its ownership rules process in order
to comply with the Philadelphia court ruling, the next round
of proposed changes may be more limited than Powell's first
proposals. But under another Republican chair, the general
trend toward deregulation is likely to continue.
The largest transaction of 2004, announced a month after
the election, seemed to reflect some such expectation, since
it involved Viacom's purchasing the Sacramento station KOVR
from Sinclair for $285 million, thereby creating yet another
duopoly.
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