Although media conglomerates, their appetites whetted by a crucial court ruling, can’t begin an expected feeding frenzy of mergers just yet, the government’s top regulator is unlikely to stand in the way.
Shares of many media giants jumped Wednesday, a day after a federal appeals court struck down a rule prohibiting a company from owning a cable franchise and TV station in the same market. The court also ordered the Federal Communications Commission to justify the current rule limiting an owner to stations that reach 35 percent of the nation’s TV households.
The FCC hasn’t yet indicated if it will appeal the rulings, but Michael Powell, the Republican chairman since last year, is a far bigger believer in deregulation than his recent predecessors. He has been very skeptical of the commission’s efforts, under prior Democratic leadership, to keep the TV rules in place, and with two other Republican votes on the four-member panel, he’s likely to prevail if the issue comes to debate.
On Wednesday, Powell made clear that he can’t generate much enthusiasm for any attempt by the FCC to fight for the rules. When asked after an appearance at Georgetown University Law Center about how difficult it would be to keep the TV audience limit, Powell responded: “All I know is it’s really hard now.”
Wall Street clearly agrees. Shares of Viacom Inc., Walt Disney Co., News Corp. and General Electric Co.–owners of the four major TV networks–all rose, as did major station owners, including Paxson Communications Corp., Belo Corp. and Chicago-based Tribune Co.
In the past, Powell has argued that when the FCC had a Democratic majority during the Clinton administration, the three Democrats on the five-member panel relied on faulty reasoning and intuition to justify the rules, rather than well-documented facts.
In June 2000, when the FCC called for keeping the rules after a congressionally mandated review, Powell dissented, writing that competition in electronic media–including cable, satellite and the Internet–has increased since the 1940s and ’70s, when the rules were written.
“My dissatisfaction with the present review,” he wrote, “is its stubborn refusal to fully consider the competitive landscape today and validate that these structural rules still serve their stated purposes–particularly in light of significant evidence that the rules are unnecessary to protect competition (and may even be causing competitive harm) and that diversity and localism are prospering as a consequence of new venues and greater capacity available to consumers.”
Based on Powell’s public pronouncements, experts doubted an appeal was forthcoming. “Given that the litigation strategy is entirely controlled by the chairman … I’d be surprised if they appealed it,” said former FCC commissioner Harold Furchtgott-Roth. “But that isn’t to say that couldn’t happen.”
Furchtgott-Roth quickly added that even if the FCC decides not to appeal, and drops or greatly modifies the 35 percent cap on TV-station ownership, the door would be far from wide open for a spate of quickie media mergers. The FCC, along with the Federal Trade Commission and Justice Department, would retain significant authority to review mergers
Furthermore, experts said, it can take a year or more for the FCC to issue new rules after a court remands a regulation for reconsideration, as was the case with the 35 percent rule.
Nevertheless, many media stocks shot higher Wednesday as investors envisioned a range of potential merger scenarios. Investors appeared to believe media giants would move more aggressively to buy TV stations.
AOL Time Warner, owner of Time Warner Cable, was being touted as a potential major game hunter. “AOL Time Warner is now free to pursue broadcast distribution, such as Tribune, Clear Channel [Communications] or Acme [Communications],” Jessica Reif Cohen, media analyst at Merrill Lynch, wrote in a report Wednesday.
To some observers, Tribune’s profile should look particularly attractive to AOL Time Warner. “Big fat distribution, big content, it’s certainly developing a network, and it’s a partner on the WB side,” noted Bishop Cheen, media/entertainment analyst with Wachovia Securities.
But Cheen and others said this sort of speculation is just that–speculation, and premature to boot. For instance, Blair Levin, a Legg Mason analyst and former FCC official, said there are a limited number of potential buyers.
