Relaxing of FCC Ownership Rules May Cause Acquisitions Race in Media Industry

The Federal Communications Commission has proposed easing limits on one owner holding both a television station and a newspaper in a top 20 U.S. market.

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“The public interest is best served by these modest, incremental changes to our rules,” the agency said in its notice on the proposed rule.

Approval of the proposed measure may spur an acquisitions frenzy, increasing the value of media companies across the board, whether because of high demand among buyers, or because of added revenue from acquisitions.

Furthermore, “the consolidation of media assets in the same market would lower costs for these businesses and would make them more profitable,” said Laura Martin, an analyst with Needham & Co. in Pasadena, California. “Consolidation would give them a better ability to compete.”

However, in its proposal, the FCC said that some newspaper and broadcast cross-ownership restrictions are still needed to preserve a diversity of viewpoints within communities.

The FCC will take comments on the proposal, and has not yet set a date for a vote.

The current proposal marks the second attempt to change cross-ownership rules in the U.S. in the past four years. On July 7, a U.S. appeals court in Philadelphia vacated on FCC rule adopted in 2007 that let one owner hold both a daily newspaper and a broadcast station in the largest markets. The court sent the rule back to the FCC for more consideration.

CBS Corp. (NYSE:CBS), Clear Channel Communications (NYSE:CCO), Gannett Co. (NYSE:GCI), Media General Inc. (NYSE:MEG), and Cox Enterprises Inc. all challenged the 2007 FCC order, saying it should have relaxed the rule even further.

Consumer groups worry that the proposal would allow too much power to become concentrated in the hands of just a few large companies, and would limit the number of voices.

“The already dwindling number of smaller and independent media owners will be swallowed up by the same media giants that have crushed local journalism, killed local radio and left us with the same cookie-cutter content,” said Craig Aaron, president and chief executive officer of Free Press, a nonprofit that promotes diverse and independent media.

However, John Lavine, dean of Northwestern University’s Medill School of Journalism, believes that it is “absolutely essential” that ownership rules be changed. Lavine said technological changes have made the FCC rules obsolete, and have put small and minority-owned media at a disadvantage because they can’t own other media outlets in the same market.

Barry Lucas, senior vice president of research at Gabelli & Co., says the current FCC restrictions aren’t helping newspapers with dwindling circulation numbers.

“The thought used to be a publisher and broadcaster in the same market would have too much influence over public information, he said. ‘‘While that may have been the case, with the Internet and cable TV, the dynamics have changed in terms of where you get your news and opinion. Newspapers have become much less meaningful, and you don’t need to wait for the 6 p.m. newscast to get an idea of what’s happened.”

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