Media Owners May Have to Sell

Two of the nation’s largest media companies -- Viacom Inc. and News Corp. -- could be forced to sell or swap a host of their television stations if Congress overturns new media ownership rules.

A spending bill passed Wednesday by the House of Representatives includes a provision to block implementation -- for one year -- of a recent Federal Communications Commission decision allowing a single company to own stations that reach 45% of the nation’s TV households, up from 35%.

“We’re very disappointed,” News Corp. spokesman Andrew Butcher said Wednesday. News Corp.’s Fox group owns 37 stations that reach about 38% of the nation’s TV households.

Viacom, owner of CBS, is the nation’s leading television broadcaster, with 39 stations reaching 39% of all TV households. “Efforts like these will only serve to harm the long-term viability of free, over-the-air broadcasting,” said Carl Folta a Viacom spokeswoman.

The FCC rule and others affecting the media industry are due to take effect this fall.

The Senate has led the charge to roll back the station cap since the FCC relaxed it. Throwing its support behind the FCC, the Bush administration Tuesday threatened to veto any reversal of the FCC rules.

Many consumer advocates, along with many Americans, oppose further deregulation of media ownership, and the easing of station caps in particular, because of the potential of reducing the diversity of viewpoints in the marketplace.

The potential scaling back of the ownership cap wasn’t foreseen by Viacom and News Corp. The companies expanded their broadcast holdings in anticipation of more liberal rules.

Viacom’s 2000 purchase of CBS put the company in violation of the 35% station cap, while News Corp.’s acquisition of Chris-Craft Industries put it over the limit. Both received FCC waivers allowing them to operate despite the violations.

What is more, broadcasters, led by News Corp., won a federal court ruling in early 2002 striking down the 35% cap as unconstitutional and arbitrary.

The court instructed the FCC to come up with a new rule that it could justify, resulting in the months of study and debate that took place before the FCC voted for the new station cap in June.

If the rules are rolled back, and News Corp. and Viacom do not receive additional waivers, they will be forced to sell assets. News Corp. could meet the 35% cap by selling its six smallest stations, in markets such as Greensboro, N.C.; Memphis, Tenn.; and Austin, Texas. But one company source said News Corp. would lose millions of dollars because any divestiture would be viewed as a forced sale, and therefore would turn into a fire sale.

For its part, CBS could satisfy the 35% limit by selling its 13 smallest stations, in markets such as Baltimore, Salt Lake City and New Orleans.

Yet both companies also could maintain the same number of stations and still satisfy the 35% limit by swapping stations with other broadcasters. That’s because of the way the FCC calculates the total audience that a company can reach through its stations.

Typically, a single station’s reach is determined by the number of potential viewers in a given market. However, if a company owns two stations in the same market, the reach is counted only once. When NBC added Spanish-language station Telemundo to its existing stations in Los Angeles, for example, its reach as determined by the FCC did not change.

As a result, News Corp. could avoid selling its six smallest stations to meet the 35% cap by swapping them for a rival’s outlets in markets News Corp. already serves. CBS could do the same.

Analysts agreed that the companies have alternatives.

“Swapping stations to achieve additional duopolies, which do not count toward increased coverage, provides another alternative, should it be required,” Merrill Lynch analyst Jessica Reif Cohen said last week, after the House voted in favor of the station-cap rollback.

Broadcasters also may challenge any ownership cap as arbitrary, she added.

“We believe Viacom would press the issue on a legal basis,” she wrote.

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Recent Times coverage of FCC media regulations is available at www.latimes.com/fcc.